Rail 426: Fast but inflexible Eurostar faces long haul into profit

Eurostar symbolises both the benefits and the bugbears of the railway, combining speed with inflexibility. Despite efforts by its highly articulate and able French chairman to improve the operation’s finances, CHRISTIAN WOLMAR believes it will still be some time before it can get into the black.

I have a love-hate relationship with Eurostar. It is impossible not to be impressed with the smoothrunning trains overtaking the cars on the motorway as you hare through France at 186mph. But there is, too, so much that is frustrating about the service which is operated more like an airline than a train, and it suffers from an inflexibility which shows up the disadvantages of train operation.

To try to counter my prejudices, as well as to express my enthusiasm, I dropped in on Eurostar’s Chairman, David Azema, in an effort to update readers on what is happening at this sometimes much-criticised rail service. The answer is lots.

M Azema is one of those career French civil servants who come across not only as highly competent but also as highly articulate, ready to express themselves intellectually in a way which his British equivalent would never dare. He came to the job over three years ago, just after the collapse of London and Continental, which was supposed to have funded the construction of the CTRL on the basis of profits from Eurostar. It was always a fanciful idea and, even today, Eurostar is still well away from making a profit, despite steady, though not spectacular, growth in ticket sales of around 10% annually in the past few years, which are now at 7.7m per year. (Amazingly, there is a no-show rate of around 10% and, together with other technical reasons, it means the actual numbers travelling are around 7m annually – far short of the 16m predicted in the crazily optimistic figures which underpinned LCR’s bid to build the CTRL.)

Indeed, it is difficult to see how Eurostar can get into the black in the near future given its cost structure and the operational constraints. The annual operating costs amount to some £550m, the biggest item of which is the £170m charged by Eurotunnel for going through the tunnel. This is a fixed annual charge until 2006 when a fee for each passenger will be charged, and represents a hidden subsidy to the construction of the tunnel that belies the argument that it was build entirely on the basis of private sector investment. Then Eurostar has to pay access charges of around £45m to both Railtrack and RFF (the French state-owned equivalent).

Add in the fact that the safety authority for the tunnel does not allow Eurostar to run half-length trains – all services have 18 coaches, with a total of 766 seats – on the spurious grounds that if a fire occurred, all the passengers would have to crowd into the other nine carriages and the half train would then be whisked away to safety. In fact, any reasonable risk assessment would suggest that the safest option would be for the passengers to evacuate into the third – safety – tunnel used successfully in the 1997 fire. Running 766-seat trains, which involves two sets of catering crews, let alone all the wasted fuel, to Paris at off-peak hours (and Brussels most of the time) is an economic madness which Eurostar hopes could be changed once it obtains new rolling stock, but that is in the far future.

Another barrier preventing Eurostar from getting into the black is the Byzantine structure of the company which, in truth, means that proper figures can never be produced.

M Azema is the Chairman of Eurostar Group which actually is a management contract to run the service owned by the two state railways, French (SNCF) and Belgian (SNCB) – totalling 50% minus one share – and National Express and BA with 40% and 10% respectively, but with that controlling extra share. There are 29 train sets of which 14 are owned by SNCF, 11 by what is left of LCR and four by SNCB, and these three organisations bear the losses, with the bulk going to LCR because of the UK’s failure to provide a high-speed line. This structure means there is a lack of accountability and transparency. The annual financial figures are a guesstimate as accurate numbers are difficult to hew out of the state railways’ accounts. It is also a struggle to keep costs down given the international sensibilities over issues like having three separate depots to maintain just 29 train sets. Given these constraints, it is perhaps remarkable that losses are down to around £110m.

But this is changing. M Azema is working on a plan to create a real Eurostar company, able to take decisions about its business which he hopes will be achieved later this year.

The biggest criticism of Eurostar is always that it is a train service pretending to be an airline. Why, ask users, can’t you just board the train a minute or so before departure in the way that you can with the similar Thalys trains between Paris, Brussels and Amsterdam? M Azema accepts that it can be an irritation, but points out both the difficulties of having shorter check-in times, and the usefulness of the present security situation: “We do try to get people through as late as possible, and have reduced check-in times to ten minutes for business people. But the security checks are also an advantage as they make people feel safer.”

The reason Eurostar has such higher security levels than Thalys is that the Channel Tunnel is seen as a target. Personally, I have never understood that explanation. Other major international tunnels – or even domestic ones – have not been particular terrorist targets. The New York outrage does not change that view, except to demonstrate that it is possible to circumvent most security systems. If terrorists wanted to blow up the Channel Tunnel, there would be many more clever ways of doing so than trying to get on a train, but it was impossible to get anyone to listen to these arguments even before New York. So M Azema is convinced that his approach should be to make the best of the hand he has been dealt.

He reckons there could be advantages to having a service sanitised from the outside world. As passengers have to check in, Eurostar could develop a ticketless travel system, possible using mobile phones. Mr Azema shows me his phone which displays his booking on the train for the following day, and the special Eurostar tag on the back will activate the ticket check machine: “That is my only ticket,” he says proudly. Currently it is only a pilot scheme, but Eurostar hopes to introduce it soon for frequent travellers and later more widely.

Another complaint about Eurostar is that its range is so limited. Apart from summer trains to Disneyland and a winter service to the French Alps for skiers, Eurostar only runs to the French and Belgian capitals, not using the ever-growing TGV network to reach other French towns. M Azema explains at length why this is the right policy, pointing out that for every extra minute’s journey, the train becomes less competitive with air. Moreover, the costs and risks of operating on much longer routes rise dramatically.

Next summer, there may be a few direct trains to Avignon to serve the ‘Peter Mayle’ market, but that will be it, even when trains start running out of St Pancras. One irritation has been cured – the difficulty of booking travel to other French and European destinations at Waterloo and other Eurostar outlets. This had to be done through Rail Europe, SNCF’s subsidiary, which had incompatible computer systems and saw itself as a rival to Eurostar. This is now being sorted out, with some difficulty, and bookings will eventually be able to be made at Waterloo (and the Eurostar call centre) for French destinations.

But the flexible ticket prices are still high. Try to take the train without prior booking and without staying a Saturday night, and you have to cough up a staggering £300 – it even makes Virgin’s peak-hour trains to Manchester seem cheap. M Azema is unapologetic: “The airlines charge £310 and it does not make sense to offer cheaper prices. Of course we would like to have a more flexible arrangement for the tourist making a late booking, but then how do you prevent the business executive from making use of the same fare?” He points out that the average revenue for a return journey is less than £120 which shows that most people are taking advantage of cheap offers.

Eurostar has, of course, been affected by the fall-out of September 11. There are three factors – two potentially negative and one positive. Fewer US tourists will come to Europe because of their – irrational but understandable – fear of flying and they represent around 10% of the Eurostar market. Secondly, the recession which may be deepened by the subsequent events could result in a dramatically reduced numbers for the service. These two negative impacts are unlikely to be matched by flocks of people heading for the train out of a fear of flying or as a result of the Sabena collapse.

M Azema’s hope that Eurostar could be breaking even by 2003 now seems even more optimistic than when he first expressed that aim last January. In fact, it is probably only once the full effect is felt from the completion of the first section of the CTRL, scheduled for October 2003 when 2½-hour journeys to Paris may be in the timetable, that there is any hope of Eurostar getting into the black.

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