Figure 8.28 Option 1A: AMHS Historic and Projected Total Revenue vs. AMHS Operating Costs
These results demonstrate the extent to which AMHS operates in an expenditure-control rather than a revenuedriven business paradigm. It would be very difficult to estimate how passengers might respond to the six scenarios at different tariff levels. The price elasticity of demand for AMHS services has never been measured in any quantitatively rigorous way. Such a study would be highly complex due to AMHS’s many different routes and market segments. Additional challenges are imposed by the fact that ferry schedules and service levels vary from season to season and year to year, and by unplanned service interruptions. Finally, a thorough analysis of the price/demand relationship for AMHS would need to account for cross-elasticity, that is, changes in traffic demand resulting from changes in the prices of competing types of transportation, particularly cruise travel and air travel, as well as income elasticity, changes in demand resulting from economic factors that affect people’s ability and willingness to spend. 16 Elasticity of demand is usually expressed as the percentage change in demand that occurs in response to a percentage change in price. Note that the percentage change in demand does not typically remain constant for all changes in price. While a 10% price increase might result in a 5% decline in purchases, a 30% increase might result in 20% decline in purchases. Similarly, the percentage change in demand can vary depending on the dollar price in question. While many purchasers may ignore a 10% increase in a $10 price (to $11), they may be more sensitive to a 10% increase in a $300 price (to $330).
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The cost of competing transportation modes is a complex variable in itself, in part because none is strictly comparable to AMHS in the service it provides. Air travel is faster, but cannot accommodate vehicles or large amounts of freight or baggage. Neither does air travel provide the pleasurable experience of an Inside Passage ferry cruise. Finally, air travel is more weather dependent and less safe than ferry travel. Other modes –– cruise ships, barges, and highways (where available) –– have their own sets of similarities and dissimilarities compared with ferries.
Alaska Marine Highway System Analysis
Alaska University Transportation Center • Page 184