Forging ahead in the race for passengers

Date: 26/06/1997

EVEN as it faces possible financial collapse, Eurotunnel is winning the cross-channel traffic war.

The tunnel currently accounts for 40&percent; of the annual traffic of 3 million cars, equalling the combined share of its two main rivals - P&O and Stena, the world's biggest ferry operator - with niche ferries making up the other 20&percent;.

With the resumption of freight services last week after a six-month shut down, the tunnel is poised to boost its share of the market.

Meanwhile, Le Shuttle, the Folkestone/Calais train operator, has achieved market leadership in the first five months of this year despite reduced capacity following the fire in the tunnel last November.

Le Shuttle captured 36&percent; of the market in January-May and is aiming for 50&percent; by the end of the year, according to managing director Bill Dix. Eurotunnel's restructuring prospectus puts Le Shuttle's share at 70&percent; by 2006.

Eurostar has also been a hit with the public, carrying 4.9 million passengers in 1996 and reducing airline traffic on the key London-Paris route by up to one-third.

In theory, the ferry lines should be on the floor. In fact, P&O and Stena are fighting fit and about to strengthen their attack by merging their operations, creating a fleet of 14 modern ships worth over 580 million ecu. The merger will sharply cut overheads - P&O will shave 109 million ecu off its total yearly costs of 406 million ecu - and help the companies withstand further fare wars.

Analysts say Eurotunnel fatally underestimated the shipping lines' ability to stay the course. All it has done is depress their earnings - Stena lost 56 million ecu in the first quarter despite boosting its share of car and freight traffic.

The big unknown is how the tunnel and the ferries will be affected by the EU agreement to phase out duty free sales in 1999. It could have a decisive impact: the International Duty Free Confederation estimates that 75&percent; of the 6.1 billion ecu of duty-free goods bought by travellers within the EU will disappear. This will hit the ferries much harder than the tunnel, but the ship owners are already laying plans to fill the cash cavity.

Eurotunnel claims most of the passengers denied duty free sales will switch to the tunnel car shuttle or Eurostar. The ferry operators claim the end of duty free will mean thousands of job losses and a 30-40&percent; leap in fares.

Their customers do not care who is right. They are enjoying ever-cheaper travel across the Channel on trains, ships and planes.