A mail that was sent to KCDC Councilors about 6 weeks ago.

Mayor and Councillors,

The purpose of this e-mail is to give factual information about the commercial aspect of our business; to date we have had no contact from council staff in terms of any commercial business plan of the business case that is being developed, running our business and the impacts of a substantial compliance charge for us to operate.  Some of the council staff we have spoken to and in particular Mr Jefferson have made some assumptions that are completely at odds with reality of running a profitable business.  (There are also a number of factual inaccuracies contained in this OIA response from Mr Jefferson).

Moving forward, it is our understanding that a small group of Councillors will be on a working committee to either assist or evaluate the business case.

There has been a lot of talk to the business case and how it is only now being developed, the whole premise of this building standing up is on the basis of a uplift of in excess of 100% in terms of numbers either going to the island or commercial activity on or around the island.

I know that Janice Hill has put forward a number of new products or proposed ideas that in her opinion will drive this growth. She has made a lot of assumptions based on the suggestions in the council survey, but it is vital to us that you understand commercially why her ideas are exactly that — ideas and do not have any commercial viability.   

Her ideas are summarised below:

  • Early morning tours to hear bird song – Extremely problematic to launch in the dark, our consents don‘t allow us to land on the island at first light and in summer first light is so early it would mean passengers would have to be at the boat by 4.30 -5.00am, bird song is actually better mid-morning than daylight on Kapiti island.  Our company has no plans to market or deliver this product
  • Boat tours to see seal pups – Extremely problematic to go to the west side of the island due to open sea, swell and the small amount of seals visible.  This would also require a marine mammal permit which is approximately $4000 per annum —  Dismissed for these reasons, cancellation rate would be too high for this to be a commercially viable trip or scalable – current vessels are not set up for marine mammal watching
  • To see endangered species newly established on the island eg, tuatara – There are no current plans for DOC to introduce new species to Kapiti Island and it is my understanding that tuatara or birds such as Kakapo will ever be resettled on the island
  • Snorkel tours to see sea horses in the Kapiti Marine Reserve – Sea horses, I asked Ben Knight of Guardians of the Marine Reserve and he stated he has never even seen one at Kapiti Island, compliance and health and safety for snorkelling is a nightmare along with difficult sea conditions makes this idea not commercially viable
  • Guided full day tramp dropped off at southern end walk to summit descend to Wilkinson and Rangatira Point – There is such a challenge with Wharekohu Bay being tapu due to burial caves that even DOC staff must ask permission to go there to work, both iwi and DOC have told me this is not now or will ever likely be a track open for the public
  • Sustainable fishing tours – Currently run out of Mana Harbour, I don’t think it has ever been done from Kapiti, the Gateway is not a barrier for fishing tours and I have no idea why a commercial fish business would want to pay or use the Gateway
  • Glass – Bottom boat tours to the Kapiti Marine Reserve – Price of a glass bottom boat estimated at least $700K to a million, landing and launching at the beach, sea conditions and visibility of water make this commercially not viable.  The Gateway does not fix any of these barriers
  • Catered morning coffee and lunch options – Already happening this will not bring new business or more people
  • Kapiti Island added to Great Walks – Kapiti Island will never be added to the Great Walks it does not meet DOC criteria

From a business perspective looking at any additional products such as listed above, having a Gateway building does not address any of the constraints or barriers such as sea conditions, cost, demand, concept versus reality.

Commercial Reality

Schools

Our schools are feeling the effects of COVID and even prior, the cost to school groups is significant.  Schools also have to fund a bus and a relief teacher or teachers to cover classes when their teachers are away supervising a trip.  I have contacted every secondary and primary school from Palmerston North to Wellington, feedback I have received is that the cost of this day trip is a barrier for schools to come to Kapiti Island.

We charge $40.00 and $30.00 (low decile schools) per student and subsidise the adults to charge them the child price and at this price they are already stretched.  If we pass on the $5.00 charge it which will mean our schools will go elsewhere such as the Marine Reserve in Wellington, Matiu Somes island or Mana Island.  If we are to absorb the $5 ourselves it cuts the profit margin so far it is barely viable.  About 2000 school kids currently go to Kapiti Island a year (estimated).  This Gateway will decimate our school groups as I will not absorb this charge.  Simply a race to zero is not a sustainable business proposition.

Rack Price versus discounts

Our rack price for a day trip is $80.00 (inclusive of GST) for an adult but it is important to know that a large percentage of our passengers are heavily discounted for example we run at $50.00 per adult from September to Labour weekend, less the existing $10 permit to DOC to us that is only $40.00 per person so you can see a $10.00 council compliance fee is 25% straight off our profit! Infants are free so often we have 4 or 5 seats taken by non-paying infants.  For all bookings through third parties such as Get your Guide, Trip advisor, Grab One they take 30% commission a fee we cannot avoid.

There was in excess of 2000 people last year that went to the island on a grab one deal with Nature Tours $38.00 week day and $46.00 weekend less the $10.00 permit and commission 30%!  The reality is both companies are already heavily discounting to get numbers over to the island.  Group bookings are virtually never charged $80.00, often as low as $50.00.  My point here is already $80.00 is at the very top of the market in terms of price with significant push back already!  Mr Jefferson in the attached OIA is clearly justifying the biosecurity building charge by saying the rise in ticket price is only 12.5% from $80 to $90 and $40 to $45.  As explained with already discounted pricing often, it is a far higher percentage price increase.

We know our market and people will not pay $90 and $45 which means we will have to absorb this or see numbers plummet as was shown in the DOC 2013/14 price review.  If we could charge more and maintain the number of visitors we already would be doing so!  The argument that they will pay more as they are getting a better visitor experience is in our view not valid as the charge is for biosecurity not using or visiting the facility as this part is free.

Costs

Based on 2018/2019 season the proposed cost for biosecurity would incur to our business an additional cost of approximately $70,000 per annum.  We will be at least 30% down in visitation to the island until at least the international boarders open and most likely according to Air NZ, 3 to 5 years post opening before we see international tourists in the numbers pre-Covid!  Aside from this compliance fee we as a business are very concerned as to the effect of bouncing in and out of lock down levels as has been seen in the past month! (We have already had a group booking cancelled for early September). Deloitte’s have stated that Wellington region will be impacted by -$46 million in tourism sector after taking away international tourism and adding back in NZ spend who are not travelling overseas, this is our reality.

The economic reality for a tourist operation running boats is that our fixed costs are the same weather we are fully loaded or half empty, fuel, skipper, guides, tractor driver, hours run on the boat don’t change.  My point is if we have to raise the price we believe we will book fewer  customers but all the costs stay the same, so our profit margin will significantly reduce. This will invariably mean we have to reduce costs, most likely staff along with the knock on effect of less money for  maintenance, investment in the business , marketing is put to one side…etc. all of which mean fewer customers a poorer experience and a downward spiral.

Overheads such as compliance MNZ, compliance for work safe, insurance, maintenance planned, repairs and maintenance (last year I spent $40,000 on repairs to one of my tractors alone), google adwords, website hosting and updating, compliance surveyor, Qualmark auditing, DOC compliance including biosecurity compliance fee remain unchanged.

If the funding of this building is on the basis of financial gain for the district, generating economic revenue of $5.91 million in year one for the region, why is my Company being asked to pay for it, why is this not shared by other businesses? 

Biosecurity

Matiu Some’s island has thousands of visitors a year.  Their bio security is a small shack that the visitors pile through!  I am still at a loss why we need 160 sqm pod which is 70% of the build costing millions when Matiu Some’s island, Zealandia and many other nature reserves around the country utilise simple effective cost effective biosecurity.  A building I will use less than 150 days a year for about a hour at a time, sometime only for a few minutes ($70,000 divided by 150 days is $466 per hour). 

Hopefully, you can start to get a feel for the complexity of running a tourist operation especially one that is seasonal, subject to weather and price sensitivity.

We again ask that any business case put before you has some scrutiny based against the commercial limitations of our business.

Regards

Glen and Vicky Cooper