Re: Why the high costs of dive boats?

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Posted by An Analyst's Response on May 23, 2008 at 19:05:27:

In Reply to: Why the high costs of dive boats? posted by Mark on May 22, 2008 at 19:10:20:

Thatís a very interesting question. Letís look at some of the data and behaviors:

- Food costs are up + 15-20% in last 12 months.
- Fuel costs are up + 35-40% in last 12 months.
- Dive industry insurance rates are up + 15-25% in last 12 months.
- The index of disposable household income is down Ė 22-25% in last 24 months.
- The cost of travel to tropical destinations has risen substantially depending on destination.
- DEMAís dirty little secret; the once consistent stream of new divers to the sport has been rapidly shrinking.
- Overall diving business profit margins have been steadily shrinking.

In calculating all of the points above, the future of boat diving around these parts is in some serious straits.

By augmenting their business plans, most shops now are expecting a higher ROI from the dollar per diver they pay to the charter boats. Some shops expect get a 35-40% ROI from the trip when all spots are full. I remember a time 20 years ago when shops really only wanted to break even on their local charter trips. But once the Internet came along and divers started leaving the brick and mortar retailers for the virtualized ones to buy their gear, the local shops have had to find another way on capitalizing income from the local market. When that started happening, only FedEx, UPS and the USPS had rosy business outlooks..

All shops negotiate a different price for their charter trips. This is a very common practice in every market. Obviously the big shops get a better deal than the little ones because they will usually charter more trips per year. Think of it like this; if you buy in bulk, you get the bulk discount. One chain of shops that receives the absolute best deal in this market from the charter boats still charges the highest prices per diver for their trips. They donít seem to be too concerned with the issue, probably because as long as they can get newbie students on those trips for the class certification dives. They have a built-in stream of bodies to take those unknowingly high priced spots, all fueled by an instructional staff that are directed to guide students in that direction. More proof that the largest profitability for them as a shop, comes from turning out as many certified divers as quickly as possible.

The same shop chain is getting an extra $73 per diver above their per diver cost to one particular destination. They also negotiated a contracted way to force the trips into a general win for them with less risk, but a higher risk of complete loss for the charter boats if they go less than full, or outright cancel the trip with no out of pocket expense. When this happens (and it has many times in the past 5 months) the contracted charter boats will take it in the shorts by the end of Q2. If this continues until the end of Q4, they will probably lose those same shorts. With a business plan like that, the chain of shops heavily hedges its own risk on the backs of its customers and the charters boats they use. Pretty cool huh?

Clubs on the other hand usually donít really want to make money for their charters, but they have to consider and cover the loss if the trip doesnít sell out buy increasing the basic price to the members. Any money made above and beyond the cost of the trip usually goes into chartering the next trip, but the cost of that trip will probably not get reduced for the same reason why the first one was set at its price point. But, at the end of the season or some other point, the surplus dollars (if any) is sometimes used for some type of holiday party. For this plan to be successful, the club rank and file must sell out their boat charter spots, or as near as possible, on every trip they do.

Charter boats themselves that run the open boat trips stand to be the best deal for divers in todayís economy. Letís face it, divers are cheap in the end and boats want to run full every weekend to make their monthly costs. The typical charter boat owner is making much less per trip now than 5 years ago as far as I can tell by interviewing a fair cross section of charter boat owners.

Somewhere between the open boat divers and the charter boat owners themselves, they should come to an acceptable rate and frequency. Without the middle man trying to make that mark-up, or the club trying to break even, there is that other group of real divers that just want to go out and dive every chance they get at the best price possible. Those divers are the ones that will keep the boats full and the overall costs down as low as possible if this economy continues.

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