P&O buoyant but feels the pinch as holidaymakers stay at home

The shipping group P&O warned yesterday that the lure of Britain as a holiday destination was denting its UK ferries business, with crossings from Dover to Calais the worst affected.

The shipping group P&O warned yesterday that the lure of Britain as a holiday destination was denting its UK ferries business, with crossings from Dover to Calais the worst affected.

The company, which is one of the world's biggest port operators, said the number of passengers it carried across the Channel sank by 11 per cent in the three months to end-June. It blamed the shortfall on a dearth of coaches as UK tour companies opted to stay at home rather than visit the Continent, admitting the coach market was down 7 per cent so far this year.

P&O said it had only managed to increase the number of car crossings by slashing its rates in line with "aggressive discounting and promotional activity" from rivals such as Sea France. It said the passenger slump "reflected an overall downturn in the travel market during and subsequent to the conflict in Iraq".

Both Eurotunnel and Eurostar have also had a bad start to the year. Eurotunnel reported an 11 per cent fall in revenues on its Channel Tunnel shuttle services for the first half of the year while passenger numbers on Eurostar are also down by 11 per cent so far this year.

There was better news from P&O's ports business, which provided further evidence of a global recovery in trade with a 22 per cent underlying rise in port container volumes. Last year, the division suffered from overcapacity in the shipping market, which forced rates down by 15 per cent.

The company said it had seen strong growth in India and China, where it has been seeking to boost its presence. It recently signed a joint venture deal to help operate Qingdao port in China, a terminal with the potential to handle more containers within a decade than the entire traffic through the UK. In June, it raised £120m in a 220p rights issue to buy the Mundra container terminal in north-west India.

P&O said its container shipping joint venture had turned the corner after a dire 2002. P&O Nedlloyd, which it owns with Royal Nedlloyd of the Netherlands, posted an operating profit of $11m (£6.9m) before restructuring costs in the quarter, compared with a $46m loss a year earlier.

P&O said that despite a strong euro and high fuel prices "the balance of supply and demand in the industry is expected to remain favourable for the foreseeable future". It had an "increasingly positive outlook" for the Anglo-Dutch joint venture, it said.

P&O Nedlloyd's return to form will revive hopes that the shipping group can offload its 50 per cent stake in the joint venture. This remained "a strategic priority" a P&O spokeswoman said. She confirmed the group was still looking at various options regarding the joint venture, including merging it with a rival or spinning it off as a separate company.