View from City Road: Making both ends of the Channel tunnel meet

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The Independent Online
Stena Sealink chose to steal some of Eurotunnel's thunder yesterday by announcing its 1994 fare structure five days before the Channel tunnel operator unveils its introductory prices.

On the basis of the published tariff Eurotunnel would seem to have little to fear. Far from slashing fares to the bone and forcing Eurotunnel into a suicidal price war, Sealink's new-look fare structure produces a 3 per cent across- the-board increase.

Come 7 May, when the Queen and President Mitterrand have vacated the tunnel to allow Le Shuttle to begin plying its trade, prices will be broadly comparable with those of the ferry companies, save for a modest premium Eurotunnel may levy to reflect its all-weather advantage.

This, however, is when the real worries for the tunnel begin. Chief among them must be whether Eurotunnel can increase its share of the cross-Channel market quickly enough to prevent the project being submerged by the sea of debt sloshing about it.

In the crucial early years of the concession Eurotunnel's operating costs will amount to pounds 200m. More ominously, its interest payments will be running at pounds 600m a year - roughly equivalent to the combined revenues being earned currently from all short sea ferry crossings of the Channel.

Eurotunnel needs to be soaking up half this revenue by the end of next year and lifting a further pounds 210m off the airlines to keep the banks at bay. Even taking into account the amount of new traffic the tunnel will generate this looks a tall order, as does Eurotunnel's projection that it will achieve cash break-even by 1998 or 1999.

Pulled along in the undertow of excitement as opening day nears, Eurotunnel's share price has been largely impervious to such heresy.

The shares have proved similarly immune to the horrors emerging daily from that other privately funded infrastructure project, Euro Disneyland. Indeed, Eurotunnel executives privately boast that the tunnel will be the saviour of the theme park.

It would be more sensible for shareholders to be thinking about whether Eurotunnel can avoid the need for refinancing a little longer than Mickey Mouse and company.