Double boost for Channel Tunnel

News Analysis: Eurostar's revenues are up and Eurotunnel is acting to combat the threatened loss of duty-free sales

THE CHANNEL Tunnel received a double boost yesterday after Eurostar reported a big increase in passenger revenues and Eurotunnel unveiled plans to combat the threatened loss of duty-free sales this summer.

An aggressive drive to attract business travellers and a radical cost- cutting programme helped increase revenues by 29 per cent at Eurostar (UK), the British arm of the high-speed train service to Paris and Brussels.

Meanwhile Eurotunnel announced that the retail facilities at its Folkestone and Calais terminals are being taken over by the airports operator BAA in a 15-year deal. Sir John Egan, the BAA chairman, outlined an ambitious plan to generate at least pounds 100m in sales by next year, even if duty-free is abolished across Europe in July.

BAA intends to start selling a wider range of products, including fashion accessories, compact discs and photographic equipment, while plans for the Calais terminal include outlets specialising in fine wines and "connoisseur cognacs"

Eurostar (UK), which is now controlled by British Airways and National Express, said it was on target to break even in 2005, a decade after its launch, as it published figures showing it had cut its operating loss to pounds 95m in 1998 from pounds 135m the previous year.

Hamish Taylor, its managing director, said he had abandoned passenger number targets and was concentrating on raising revenue and yield. He said revenues across the whole business, including the French and Belgian arms, had risen 29 per cent to pounds 350m. Eurostar (UK) had cut costs by 10 per cent through a recruitment freeze and axeing all peripheral research projects.

He said the company was on target to break even by 2005, the date given to the Commons Select Transport Committee last year by Inter-Capital and Regional Rail (ICRR), the consortium that has the franchise to operate the service until 2010.

But he said: "Let's not kid ourselves. We won't get 29 per cent this year but we still expect improvements although not at the same level. I don't think that because we have knocked pounds 40m off losses we will carry on doing that."

The profit forecast includes the benefit of the opening of the first stage of the upgraded Channel Tunnel rail link, which will wipe 15 minutes off the journey time from London to Paris when it is completed in 2003.

Mr Taylor refused to be drawn into the argument over the failure to provide promised regional services north of London. The Government last year launched an independent inquiry into the viability of these services after the Select Committee criticised an ICRR report that said regional services would be unprofitable while favouring new services from Heathrow Airport. British Airways is a shareholder in ICRR.

"We are looking at the economics of all the options and co-operating with the Department of Transport, because the independent review will look at wider economic benefits and we welcome that because it enables someone to judge from the point of view of the broader benefits of the service," said Mr Taylor.

Eurostar also said passenger numbers rose 6 per cent last year to 6.3 million, while its share of the business traveller market rose by 2.8 per cent on the Paris service and 4.2 per cent on the Brussels service, where investment had cut 30 minutes off the journey time.

Eurotunnel is Europe's second-biggest duty-free retailer after Heathrow airport. Last year its retail income reached about pounds 170m, the vast bulk of which came from duty-free. There are fears that this could slump by two-thirds if duty-free is scrapped, putting pressure on Eurotunnel to raise prices on its car shuttle.

But BAA's retail director, Brian Colley, said it was confident of stemming the loss of sales. "There are 12.5 million passengers a year using Eurotunnel and even if duty-free goes there will still be a significant business left."

Duty-paid prices are the Calais terminal are still about 35 per cent cheaper than high street prices in the UK, he said, giving British travellers an incentive to shop on their way home.

At the Folkestone terminal, which is much smaller, BAA plans to invest pounds 7m-pounds 8m on improving the facilities and then seek planning permission to expand the site in order to open more outlets.