The two companies have signed a deal, expected to be finalised next month, which would result in a merger of their short cross-Channel routes, resulting in at least 1,000 job losses. While a few smaller competitors such as Sea France and Hoverspeed will remain, the merger will give the new operation around 40 per cent of the market, the same as the Channel Tunnel and will give the two effective control over pricing policies.
The merger will bring to an end the seemingly inexplicable growth of capacity on the route since the tunnel started operating nearly two years ago with extra ships having been brought in for both the past two summers. Now, the Stena Line ship Invicta and P&O's Pride of Bruges, both operating on the Dover-Calais route, will be taken out of service at the end of the year with the immediate loss of 400 jobs.
While neither company was losing money on the route, their profits had dipped dramatically in the past two years. Consequently, P&O and Stena have been trying to rationalise their services for years but until this summer the Government had refused to sanction any cooperation in their arrangements because of the desire to retain strong competition on the route. Various options such as joint ticketing had been discussed, but both companies favoured a full merged operation.
The new P&O Stena Line, which will be 60 per cent owned by P&O and 40 per cent by Stena, will operate 14 ships on the Dover-Calais, Newhaven- Dieppe and other short sea routes. Graham Dunlop, chairman of P&O European Ferries, said: "We will be operating at least a ship every 45 minutes and possibly every half hour."
He said the merger would not necessarily lead to an increase in prices: "There is still powerful competition from the tunnel which brought huge extra capacity. All our projections are on the basis of the current pricing policy remaining. The service is still profitable, though our profits have fallen."
However, with fares for motorists having been cut by half in the past couple of years, it is unlikely that they will remain so low. In May last year, Eurotunnel launched a full-scale price war when it cut the fare for its main peak summer services from pounds 266 to pounds 129 and the ferries were forced to respond.
Indeed Eurotunnel, which announced on Wednesday that it had thrashed out a refinancing deal on the debt-ridden Channel Tunnel project, welcomed the deal.
John Noulton, Eurotunnel's spokesman, confirmed that the days of bargain summer cross-Channel trips may be over: "We support this. It will mean a more orderly market and will make for firmer prices. All the companies suffered under the price war, which may now end."
Lord Sterling, the chairman of P&O said: "There will be job losses and to suggest otherwise would be nonsense." He said that estimates of 1,000 job losses were unlikely to be too high. "But doing nothing would mean they would have a bleak future. This means that those who will be part of the party will have an exciting future."
The company would set up a unit to offer advice on retraining, on top of redundancy arrangements which would "err on the generous side", he said.
P&O was also in talks with other operators including Brittany Ferries, the French company which operates on the western Channel from Portsmouth and Plymouth to France and Spain. "We have spent a great deal of time seeing how we might have rationalisation but they operate to a different timetable," Lord Sterling said.
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