Chunnel, Ferries Slug It Out

FARE FIGHT

The narrow neck of water between Britain and continental Europe is about to become the scene of a savage price war.

Eurotunnel SA, the operator of the rail line under the English Channel, and competing ferry companies pledge an all-out battle for passenger and freight traffic this summer.

Eurotunnel co-chairman Sir Alistair Morton signaled the impending conflict when he promised a series of bold marketing initiatives on the same day he announced massive losses.

The two major ferry companies - P&O and Stena Sealink - responded by promising to cut their fares below anything the "Chunnel" could offer.

Meanwhile, a plan for refinancing the debts of the Channel tunnel operator was being negotiated this week by a steering group of six large banks among the 225 creditor banks. They are owed 8.4 billion ($12.68 billion). The company suspended paying interest on the debt last September.

One plan, it is reported, proposes swapping between 2.5 billion and 3.5 billion in debt for nearly half the shares of the company. Some large banks believe they should receive a larger share of the equity. Some French banks are eager to avoid a massive dilution of the value of the shares, 70 percent of which are French-owned.

Though damaging to profitability, the fare fight has cross-Channel passengers rubbing their hands at the prospect of bargain travel on one of the world's busiest waterways. About 27 million people are expected to make the trip this year. Gareth Cooper, managing director of Swedish-owned Stena, however, admits that his company may have to hold talks with P&O on a possible merger if the Eurotunnel challenge becomes acute.

The advent of the Chunnel two years ago made it obvious there would be a struggle for cross-Channel dominance between the undersea link and long-established ferry companies. What was not anticipated was the huge debt Eurotunnel ran up because of a delayed start and a relaxed marketing approach in the early months.

Morton recently reported losses last year of 925 million - one of the worst figures in British corporate history. But the Chunnel managed to capture more than 40 percent of passenger traffic. "Perhaps we've actually done rather well," he said.

This year Morton hopes to cut much deeper into ferry-company passenger and freight traffic. He has yet to give details, but the prospect is for heavily discounted fares on Eurostar - high-speed passenger trains on the London-Paris and London-Brussels runs - and on Le Shuttle, trains that move vehicles and passengers between Folkstone, England, and Calais, France.

Eurotunnel depends for its revenues on Eurostar and Le Shuttle operations.

P&O and Stena last year mounted sales drives that brought passenger fares for cross-Channel day-trips as low as 1. They linked their attack on the Eurotunnel to coupon campaigns in newspapers that enabled a family of up to five to go to continental Europe and back with a car for as little as 20. To boost their sales drive, the two ferry companies jointly increased the number of daily Dover-Calais crossings from 40 to 65.

Meanwhile, Eurostar and Le Shuttle trains suffered several embarrassing technical breakdowns.

This summer, Morton hopes, Le Shuttle's 30-minute Channel crossings for drive-on, drive-off passengers will be more attractive than the ferries' 90-minute journey. But Stena is poised to launch two new high-speed catamaran services that will cut the journey time to 45 minutes. Also, Stena and P&O offer gourmet meals, on-board entertainment, and play areas for children.