TRAIN SERVICE PICKS UP SPEED

By Published on .

LONDON-Passenger train service Eurostar is a big winner with business travelers. But Eurotunnel is a big loser with investors.

The difference between the two entities is subtle but crucial. Eurotunnel is the company that built the tunnel beneath the English Channel linking Paris and London and London and Brussels, and which also operates the Le Shuttle service carrying cars between Paris and London. It is also billions of dollars in debt.

Eurostar, the tunnel's passenger train service owned by the French, British and Belgian governments, is popular enough with business travelers that airlines are feeling the heat.

Privately held by the triumvirate of governments, Eurostar hasn't released financial figures. But it's expected that since few startup costs were involved, there is little, if any, red ink.

By contrast, Eurotunnel is drowning in debt due to construction costs that ballooned to $17.5 billion from an anticipated $7.5 billion. Last week, Sir Alastair Morton, Eurotunnel's co-chairman, announced the company's $615 million loss for 1994 with the words, "Eurotunnel is at risk. In 1995, we may succeed or we may fail."

His statement was regarded as a clever ploy to speed refinancing talks; analysts say there's no real chance that Eurotunnel's bankers, who certainly don't want to run the tunnel themselves or write off a $16 billion investment, will let it go bust.

Eurotunnel's big problem is generating enough cash to meet $3 million a day in interest payments. In 1994, revenue was just $46 million-far short of the $206 million forecast-because Eurostar started in November and Le Shuttle in December, nearly a year behind schedule.

"The shuttle will compete with the ferries and Eurostar with the airlines," said Cris Rees, commercial manager for the U.K.'s leading travel agent, Thomas Cook. "But there's very little impact yet-the frequency of service isn't nearly enough and it's still relatively difficult to book."

Travel experts, however, believe that by next year Eurostar will steal about 50% of the airlines' London-to-Paris traffic and Le Shuttle will get 40% to 50% of the ferry companies' market.

Eurostar is already slowly chiseling away some airline traffic. British Airways said its London-to-Paris business has dropped off 4% since Eurostar began. Eurostar's rates, ranging from $140 for an advance-purchase, non-refundable round-trip ticket to $310 for first class, are comparable to airline economy fares and undercut British Airways' business class fare of about $400.

"The full battle begins this summer," said Brian Langford, marketing director of Eurotunnel competitor P&O European Ferries, a leader in the cross-channel ferry market. Le Shuttle has already grabbed 20% of the booming cross-channel ferry market, but so far the ferry companies haven't suffered because traffic has grown by about 18%, he said.

P&O broke a $4.7 million TV, print and poster campaign by Bates Dorland this month highlighting P&O's leadership role. A flotilla of seaborne ships join to spell the letters "P&O" as a voice-over says, "Choose the company with the biggest name."

To counter Le Shuttle's one-day round-trip fare of $78 per car that undercuts P&O's $114 ticket, P&O is making promotional offers with outrageously low $16 fares.

Eurotunnel, meanwhile, is planning a new Le Shuttle campaign for summer that it won't discuss and is pledging to run car-carrying trains every 15 minutes to relieve long lines on what's supposed to be drive-and-go service. The current $40 million campaign from BMP DDB Needham ends its run this week.

Eurostar's initial success has been accomplished with little advertising. The passenger service has limited ads because it runs only six trains a day between London and Paris and three between London and Brussels. As summer approaches, Eurostar is picking up its pace, breaking a TV and print campaign in mid-May that it's still keeping the wraps on, from Young & Rubicam in the U.K., France and Belgium.

Crumley in Paris contributed to this story.

In this article:
Most Popular