International Business: EUROPE
STORM OVER THE ENGLISH CHANNEL
A fare war rattles carriers but tickles travelers
Jackie Blair, a young hairdresser from the south of England, is jostled slightly as the ferry Invicta shoves off to cross the English Channel. But Blair doesn't mind getting tossed about. The boat trip from Dover to Calais is costing her a rock-bottom $25, which covers round-trip fares for herself, her car, and three friends. It's a great deal--a year ago, the same trip would have cost her three times as much.
Blair and thousands of other Europeans are benefiting from the first serious price war ever in the once cozy channel market. For decades, ferry operators led by P&O European Ferries and Stena Line dictated the prices of a boat crossing, while British Airways and Air France charged super-high fares for the hop between Heathrow Airport and Charles De Gaulle. But now, the Channel Tunnel is in full operation, offering a serious threat to both ferries and planes. The resulting clash should be a bonanza for consumers. But a serious financial setback is likely for the company that bids fares too low.
A sign of the war's intensity is the prevalence of deals during the peak summer season, normally the time when passengers pay full price. Hairdresser Blair, for example, could have opted for a $91-per-person offer by Britain's Automobile Assn. that includes ferry passage for a car and its occupants, one night in a three-star Paris hotel, and six bottles of wine. Ferry operator Stena offers a $343 ferry-crossing package with a twonight stay in a deluxe Champagne region hotel, gourmet meals included. To improve its popularity with budget-minded families, Stena has even installed on-board McDonald's restaurants. Normally above-the-fray British Airways PLC has dropped its fares, too. With a Saturday night stay included, a London-to-Paris round-trip ticket now costs just $138, down from $229 a year ago.
Driving all these fares down is the Channel Tunnel. Travelers between London and Paris increasingly are choosing to ride the Eurostar train from London, through the tunnel, to Paris. Total travel time: just under three hours. More and more drivers prefer Le Shuttle, which whisks cars from Folkestone--up the road from the ferry companies' Dover docks--and through the tunnel in special railcars.
Le Shuttle service now claims to have lured away 40% of the ferries' business. And Eurostar, which appeals mostly to business travelers, is poaching on the air-shuttle market. BA alone used to carry 1 million passengers a year between London and Paris, but traffic slumped 18% from April to December of last year. Eurostar is now carrying 400,000 people a month--more than the 300,000 per month the major airlines carried in 1995.
BE WARY. The marketing war will heat up. In May, a consortium including entrepreneur Richard Branson's Virgin Group won the right to operate British Rail's portion of Eurostar. A whiz at selling, Branson immediately set about undercutting his longtime nemesis, BA. Within days, Eurostar unveiled a slew of special deals, some tying in with other Branson products. Later this month, two people can travel second-class on Eurostar between London and Paris or Brussels for $150, plus tabs from Virgin Cola cans. A frequent-user program is planned as well, in hopes of boosting annual channel traffic tenfold, to 30 million passengers, by 2000.
The protagonists in this pitched battle must beware of getting travelers used to low fares. Eurotunnel, which operates the Channel Tunnel infrastructure and Le Shuttle and receives a share of Eurostar revenues, needs higher-paying passengers if it is to make any headway in paying off $12 billion in construction debt.
P&O European Ferries, with $1 billion in revenues, is also struggling after spending $620 million on upgrades over seven years. One new ship, the Pride of Burgundy, is as long as two soccer fields and sports executive lounges and a white-tablecloth restaurant. But P&O is having a hard time recouping its investment as passenger numbers decline. The ship line is asking the British government to lift a 15-year-old ban against ferry company joint ventures. Removing the ban would allow joint marketing. Perhaps more important, some outright mergers may follow. In this turbulent market, passengers won't be the only ones to get tossed about.By Katherine Ann Miller in LondonReturn to top