Early float for rail link

Growth in traffic on Eurostar service could enable promoter to raise pounds 1bn in autumn 1997

London & Continental Railways, the consortium which will build the fast rail link between London and the Channel Tunnel, is on target to float next year.

Increases in passenger traffic on Eurostar, LCR's high-speed international rail service, suggest that a flotation could now be possible in autumn 1997 rather than in spring 1998.

An earlier float would accelerate construction of the pounds 3bn link that will cut journey times between London and Paris to less than two-and-a- half hours. The link will be open by the year 2003.

The performance of Eurostar is critical to LCR's prospects. Only if it can secure significant passenger growth will LCR be able to proceed with a flotation that could raise up to a pounds 1bn.

LCR insiders suggest that Eurostar needs to be carrying 10 million passengers a year to break even. A successful float will depend on its ability to demonstrate to the City that the difficulties that beset Eurotunnel will not be repeated.

LCR insists that the nature of its consortium is very different to Eurotunnel's. It has been structured to ensure that LCR's task from the outset is to manage construction of the link, not actually to build it.

However, the company accepts that unless it can demonstrate Eurostar's ability to generate a sustainable revenue flow the City will be reluctant to support the flotation. The LCR management is currently focused purely on turning around Eurostar's fortunes.

When LCR took formal control of European Passenger Services, which had been operating Eurostar, in June, traffic was running at around 3 million passengers a year. Under the new management of the division, which is changing its name to Eurostar (UK), passenger numbers have doubled and will meet the 6 million target for the current financial year.

"We are remarkably close to our passenger targets," said Mark Furlong, Eurostar's marketing director. "It is our intention to meet the 10 million break-even target by April 1998."

"In August, we increased traffic from July by 8 per cent. We were 102 per cent higher than August 1995, and we were market leaders on both the Brussels and Paris routes. But we still have a lot to do," Mr Furlong added.

He is planning a number of initiatives on the product, its service and distribution that will help Eurostar to maintain the build-up in passengers, which is forecast to rise to around 15 million by 2000.

Later this year, Eurostar will begin to offer four classes of travel on its trains. The first and standard class accommodation will be supplemented by premium first and premium standard classes, which will provide extra services for business travellers.

This is modelled on the blueprint pioneered by Virgin Atlantic in the airline business. The Virgin Group owns 17 per cent of LCR, and many of the Eurostar marketing team, including Furlong, are ex-Virgin staff.

Eurostar is also looking at improving overall standards of service across it trains. Catering is being reviewed, a duty paid retail service is under consideration and the company is also looking into the provision of on- board entertainment for its passengers.

The number of trains has been steadily increased, and from the Spring Eurostar will launch direct services from Manchester and Birmingham to the Continent, by-passing London.

Ticketing distribution will also improve once Eurostar completes a link to the Galileo on-line computer system for travel agents. When the roll- out is complete, travellers will be able to buy Eurostar tickets direct from around 70 per cent of the country's travel agents.

A link into the rival Sabre system, which is also being negotiated, will further increase the exposure to 90 per cent of UK travel agents.