Debt-laden Eurotunnel to slash costs and capacity

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The Independent Online

Eurotunnel, the troubled operator of the channel link, announced a cost-cutting programme yesterday and warned that its finances "remain fragile".

Eurotunnel, the troubled operator of the channel link, announced a cost-cutting programme yesterday and warned that its finances "remain fragile".

The company, which is struggling with a £6.2bn debt pile, declared that "a change of strategy is now vital". Eurotunnel said the plan,Project Dare, must begin with "a radical reorientation of our commercial policies". The scheme aims to boost the "operating margin" by £70m a year.

The group is yet to agree a deal with its banks on a way to make its debt manageable.

Eurotunnel will reduce capacity on its shuttles that take trucks across the channel and its services to take cars and their passengers across. There will be job losses involved but these will not be spelt out until January. The group employs 1,200 people in the UK and 1,900 in France.

The Eurostar train, which carries only people through the tunnel, is run by a separate company. Eurotunnel's revenues have never met its own projections because usage of the tunnel has been far below its expectations. Its trucks business continues to be hit by competition from ferry operators, while many potential car users take the ferry or leave their cars and use low-cost airlines instead. Changes in tax in France on alcohol and cigarettes have sapped the "day-trip" market.

Jean-Louis Raymond, Eurotunnel's chief executive, who presented the plan to unions on Thursday, said: "Over the past six months we have developed scenarios to enable us to compete more effectively in today's rapidly changing market. Project Dare identifies a double reorientation of our commercial strategy, an alignment of our transport capacity with demand and a comprehensive programme of cost reduction."

Eurotunnel will seek to forge a new relationship with hauliers and get them to commit to set levels of usage. It will also reduce the level of its truck shuttle services. The company's capacity is 2.1 million trucks a year, from 16 shuttle trains, but only about 40 per cent of that is used. The total market is 3.1 million trucks. The company said: "The service offered by Eurotunnel is particularly well suited to the logistics industry's need for regularity, punctuality and reliability. But these advantages are too often treated as a 'free insurance' by our competitors. Their customers recognise and make good use of the advantages of the fixed link whenever their sea crossing is delayed or cancelled by bad weather or for any other reason. In this way, the ferries themselves benefit from the quality of Eurotunnel's service."

To be given priority access in future, hauliers will need to say in advance how much they will use the tunnel, day-by-day, for a given year. They will have to pay for this level of use, even if it is later found to be excessive. Prices and capacity "will be aligned" with the company's new usage forecasts - reducing the service at less popular times. Wednesdays and Thursdays are the busiest days. The company set a goal of increasing yield by 8 to 10 per cent.

On the passenger side, where the company operates nine shuttles that take cars from Folkestone across the channel in 35 minutes, there will also be cutbacks in the service in response to falling customer numbers. The pricing structure will be simplified to a single fare to cross the channel, replacing the various prices that are levied for trips of different durations. The company said: "The manifest overcapacity of the passenger shuttles has led to excessive operating costs.... Competition with the ferries has forced Eurotunnel into a permanent cycle of promotional activity."