Economics 101 in wheel business

Editorial | Nov 3, 2017
It's nice to know that the fiasco over the operating transition of the giant Ferris wheel on the Central waterfront has concluded, with the good news the facility will soon be reopened at HK$20 per ride.

That's a dramatic price cut from HK$100 a spin.

Most likely those who felt priced out in the past will now take advantage of the opportunity to climb aboard to view the panoramas on both sides of the harbor from an elevated vantage point.

The price is certainly attractive.

While a family of four had to shell out HK$400 in the past, it's now only HK$80 - roughly the price of a standard dinner for one person at a fast-food chain.

Michael Denmark, chief executive of the new operator, Entertainment Corp, said his plan is for the Ferris wheel to start spinning again before year-end. I'm sure what he means is it'll be relaunched before Christmas as a major attraction for Hongkongers and tourists alike.

The question is whether the local infrastructure can cope with the expected traffic increase. Both the operator and government would have to work closely together to prepare for the crowds.

Otherwise, what's supposed to be a happy outing for families could easily degenerate into complaints as a result of hours of waiting in long queues.

Internationally speaking, the attraction is set to be the cheapest in the world, as far as admission fees are concerned. Denmark said that in addition to HK$20 per adult, admission for young children and senior citizens will be free or discounted.

It's common for similar attractions around the world to charge many times more. In the case of the famous London Eye on the southern bank of the River Thames, a standard ticket costs 26 (HK$226). If visitors don't want to waste time queuing, they can pay more to be fast-tracked.

So, will there be similar arrangement for the Central wheel, which will be renamed after a major insurance company that, I think, must have paid Entertainment Corp a substantial sum to be the lead sponsor?

It's interesting that Denmark can slash the admission fee to a fraction of what his peers have been charging.

How can he do it? To answer that question, some mathematical calculations are needed.

The wheel has 42 gondolas, each being designed to carry up to 10 people, with the ride lasting 15 to 20 minutes.

Assuming a 100-percent load factor - therefore, all the gondolas are filled for all the rides - and a 12-hour daily operation, there would be more than 20,000 passengers a day.

This extrapolates into daily income of HK$403,200, or HK$12.1 million for a 30-day calendar month.

If the load factor is halved, it would be about HK$6 million a month - still more than enough to cover the rent paid to the government and other overheads.

Denmark didn't say how much his company had compensated its predecessor, Swiss AEX, for the fixed assets. However, after the revenue from sponsorship, it's a safe bet the big wheel will keep on turning.

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