Although inconclusive, past studies suggest that AMHS has relatively inelastic demand with respect to modest price increases. That is, within the range of fare increases that have been imposed in the past (typically 10% or less in a given year), the volume of AMHS traffic does not appear to be especially sensitive to price for most routes. Previous customer survey research has suggested that one reason for inelastic demand is that most AMHS users perceive a high value for the service they receive, relative to the cost of that service. McDowell Group’s September 2000 Alaska Marine Highway System Marketing and Pricing Study offers the following: Research in this study reveals that most customers consider AMHS a very good bargain for the money, especially when it comes to passage fares. The market, particularly the dominant summer visitor market, appears willing to pay more. This is confirmed repeatedly by customers who rate their AMHS experience as an excellent buy for the money, especially passage fares. The lucrative summer visitor market is especially appreciative of the value for the money. The Marketing and Pricing Study also concluded that an increase in tariffs would result in an overall increase in system revenue, without significantly affecting traffic: Passage tariff increases are recommended at 30%, cabins, 20%, and vehicles, 5% above current tariffs. Research results indicate these specific increases will be accepted by most of the summer market. Further, pricing sensitivity modeling shows this will result in little loss of customers and at least a 10% increase in overall summer revenue…A somewhat less aggressive increase in 2001 – 20% passage, 20% cabins and 5% vehicles – would still result in an estimated overall system revenue gain of nearly 10%, again with little or no loss in passengers. This is consistent with work done in 1992 by Erickson & Associates in the Long-Range AMHS Business Planning Analysis. Regarding the effect of price increases on traffic, the study states: Our statistical analysis of historical revenue and loads demonstrates that increases in effective fares have caused AMHS passenger and vehicle loads to decline by less than the percentage increases in the fares. That study concluded that for Southeast passengers, a 10% fare increase would result in a 5.6% decrease in traffic, with a net 3.9% increase in revenue. The study also concluded that a 10% increase in fares for Southwest passengers would result in a 3.4% decline in demand, with a net increase in revenue of 6.3%. In other words, Southwest passenger traffic is estimated to be less elastic than Southeast passenger traffic. A number of fare increases were implemented in the years following the McDowell Group study. For the current life cycle cost model, McDowell Group examined fare/traffic relationships for 13 representative AMHS routes between 1998 and 2008. During that period, cumulative increases in adult passenger fares ranged from 14% for the Cross-Gulf Juneau/Whittier run to 92% for the Juneau/Skagway run. When examined on a per-trip basis to account for variations in the amount of service provided from year to year, the percentage change in annual passenger counts for the 13 routes varied widely, from a 74% decline to a 101% increase over the ten-year period. Table 8.23 shows the net change in fares and in per-trip traffic from 1998 to 2008 for the selected port pairs. Alaska Marine Highway System Analysis
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