The Channel Tunnel Faces A Long Dig to Profitability

TOMORROW'S official opening by Queen Elizabeth II and President Francois Mitterrand of the Channel Tunnel linking their two countries looks like it will be a prelude to years of anxiety for Eurotunnel, the operating company.

Engineers say building a 31-mile undersea ``fixed link'' between Britain and France is a feat comparable to Ferdinand de Lesseps's construction of the Suez Canal in the 19th century.

But the project's financial future is uncertain, and problems are likely to get worse before they get better.

Brisk price-cutting by seagoing ferry companies, calling their ships ``Channel Funnels,'' is helping to fuel doubt about the fixed link's ability to turn a profit in the foreseeable future.

More troubling for Britain's Sir Alistair Morton and France's Andre Benard, co-chairmen of Eurotunnel, however, is the mountain of debt piled up by the company as it coped with construction delays and cost overruns. The total bill for the ``Chunnel'' will be around 10 billion British pounds ($15.2 billion), more than double the 1987 forecast. Annual interest charges alone will be 500 million.

British pounds British pounds British pounds British pounds British pounds British pounds Sir Alistair has confirmed that Eurotunnel's shareholders and the 220 banks backing the project will be asked for more than 1 billion extra capital in the early months of the fixed link's operation.

Eurotunnel researchers expect 28 million people to use the fixed link the first year, rising to 44 million by 2003.

Sir Alistair insists that the long-term future of the tunnel is ``assured. It will be the leading transport company of the 20th century, and it will make a lot of money.''

Transport experts, however, are not so bullish. They note that the project is running a year behind schedule, and that even now, there will be delays in getting it completely operational. Full passenger and freight services will not start until October, and peak frequency for the 35-minute shuttle trip is unlikely to be reached before next March.

Richard Hannah, a transport specialist with UBS Securities, says Eurotunnel may be too optimistic in its traffic and revenue forecasts. He notes that surveys of business travelers suggest that the Chunnel may not turn out to be popular.

Planes can take people from city to city directly, while the Chunnel initially will be a direct rail conduit between only London, Paris, and Brussels.

IN the meantime, leading ferry companies P&O and Stena-Sealink have embarked on a savage price-cutting war, with Eurotunnel squarely in their sights. And they have upgraded ships. They now offer meals, shopping, and live entertainment. The vessels take only 75 minutes on the Dover-Calais route.

In January, Eurotunnel announced a peak fare of 310 British pounds for a round-trip ticket 10 British pounds less than an equivalent ferry fare. But P&O and Stena-Sealink responded by offering prices as low as 75 British pounds for a car, driver, and three passengers. They have even sold 1 ``walk on'' tickets.

Graeme Dunlop, P&O's chairman, says he is confident that his company can retain a big share of the traffic.

Eurotunnel, on the other hand, will have to battle hard to gain market share, the key to long-term profitability. In its first year, its income is unlikely to be more than 100 million British pounds - one-fifth the amount it will pay in interest.

The current cross-channel travel market is worth 600 million British pounds a year. This means Eurotunnel must generate income at least equal to the present total market before it can break even.

Sir Alistair and Mr. Benard forecast that the total market will double in 20 years. Until then, Eurotunnel will likely have to run to stay still.

Christopher Garnett, Eurotunnel's commercial director, says the company does not plan to wage a price war. But travel industry executives forecast that, after the Chunnel's novelty wears off, many will switch back to ferries unless Eurotunnel offers substantial fare incentives.

Keith Betton of the Association of British Travel Agents says many people will want to try the Chunnel, but ``nobody can be sure how popular it will be in the long run.'' He concedes, however, that once it is up and running, it may generate traffic ``simply by being there.''