It never snows but it pours for Eurostar

Eurostar, reeling from the worst week in its history, faced a new threat yesterday – a cut-price competitor on the railway route beneath the Channel.

The French environment company Veolia and the Italian state railways are close to agreeing to launch within two years a kind of "rail Ryanair" – a network of cheap, high-speed services between European cities, including London and Paris.

A European Union directive, which took effect this month, guarantees competition on all railway routes which cross EU borders. Veolia and Trenitalia are planning a joint venture from 2012 which would provide low-priced trains between France and Britain but also between Paris and cities in Italy, Switzerland and Germany.

The services, using a new generation of French-built 200mph trains, would travel on existing high-speed tracks. Veolia and its Italian partner hope to undercut the prices now offered by Eurostar, SNCF, Thalys and the German railways by up to 50 per cent.

Since the Channel Tunnel opened in 1994, Eurostar has had a monopoly on passenger train services between London, Paris and Brussels. News of the likely competitor comes at the end of a week in which blizzards in northern France closed down the Eurostar service for three days. About two-thirds of the normal Paris-London timetable was operating yesterday for the second day running.

Veolia, which has business interests ranging from water to transport, had originally hoped to launch a pan-European, high-speed rail service in alliance with Air France. The airline dropped out of the project earlier this year but the French newspaper Le Figaro reported yesterday that talks with Trenitalia were at an advanced stage. Although both companies declined to comment officially, an announcement is expected soon.

Under an EU directive, there must be open access to all railway routes across European borders from the beginning of this month. Services within one country are not directly affected but the new trains can pick up domestic passengers. Trenitalia, the state-owned Italian railway company, has already announced plans to run trains from Italy to Paris, picking up in Lyons, from later this year.

The "new access" services would pay the same "tolls" to the track-owning companies, including Euro Tunnel and Réseau Ferré de France. Veolia hopes, however, to undercut the French railways SNCF and Eurostar by negotiating lower wages, longer and more flexible working hours and cheaper pension deals with its drivers and other train staff.

The President of SNCF and Eurostar, Guillaume Pépy, said yesterday: "We knew this was coming and we are ready for it... To be cheaper than us, they will have to be very, very good. I wish them luck."