French ferry company SNAT’s rebirth as SeaFrance will be the catalyst for the biggest structural change in the cross-channel market since Eurotunnel ran its first passenger train.
SNAT is the cross-channel arm of French state railway SNCF. Its decision to go it alone marks the end of a 26-year Dover-Calais pooling arrangement or “marriage of convenience” with Stena Sealink. It leaves a new ferry company line-up on the route: P&O with five passenger ships, Stena Sealink with three and SeaFrance with two.
Consolidation, rather than separation, has been the rule for some time. Industry observers are sceptical that a smaller operator can compete. Apart from doubt about its own future, SeaFrance’s presence will spark aggressive marketing activity from the two biggest players in the market – already signalled by unprecedented price-cutting.
Though bullish about the “new concept”, SNAT’s commercial director Frederic Avierinos is not proposing anything radical. SeaFrance will not be undercutting, it will not be niche-marketing – and it won’t be able to offer as frequent a service as its rivals.
Which raises the question of what it will offer and how well it will be able to market that offer.
It will be the “best of French”, according to what the company’s zealously-guarded research reveals of English preference for the Gallic. Avierinos believes the ferry line can retain its 15 per cent share of the Dover-Calais passenger traffic. “Why should the only way to succeed be as part of a huge consortium?” he asks.
One answer is that it’s a cut-throat business. Although passenger numbers in the short sea sector (including figures for the tunnel) are up by nine per cent for the first half of 1995, figures provided by P&O show that passenger numbers are down by two per cent year-on-year.
At the same time, Stena Sea-link and P&O are slashing cross-channel prices by up to 20 per cent – discounts which will operate through the summer. Newspaper promotions offering 1 day crossings have been extended beyond the slow winter months, to run throughout the year. Discounts may have generated volume growth in the market, but at the expense of profit margins.
None of this is surprising, given the presence of the Tunnel. Only the combination of Eurotunnel’s PR bungles and high prices has prevented all-out war.
In two months, Eurotunnel, which pays 2m every day to service its debt, has to face a financial performance review. Any improvement could lead to fare cuts and an all-out attack on the ferry firm’s grip on cross-channel traffic.
P&O and Stena Sealink view the Dover-Calais route as pivotal to success. Stena Sealink’s reaction to the SNAT initiative is to claim it “intends to remain a very dominant force in the market”. The introduction of other ships on the route is not ruled out.
Talks between Stena Sealink and P&O about a pooling agreement for the route have been thwarted by an undertaking to the Department of Trade & Industry outlawing such an association on passenger routes. The situation may be reviewed by the Department of Transport, but Stena’s head of communications Christopher Laming says there’s now “little enthusiasm from either company” for the deal.
Ironically their enforced separation could place them in a stronger position to merge with other companies.
SNAT is claiming it will hang onto its position with a small but sure foothold of market share. Sources at rival ferry companies are sceptical. At present, it has a 15 per cent share of the Dover-Calais route. But Stena Sealink, which holds 21 per cent of the market, operates three out of the five passenger ships in the pool and has kept the name.
The quality of French ships has also been at issue. Stena Sealink managing director Gareth Cooper claims discussions about continuing the pooling arrangements included the need for French ferries to be brought up to standard. The implication is dismissed by Avierinos as “acrimony” because of his company’s apparently unilateral announcement.
He cites examples of successful smaller travel operators in the shape of Virgin Atlantic and Sally Ferries. But SeaFrance is facing an unequal struggle to gain the sort of profile Richard Branson has attained, especially given a six-month hiatus before the pooling arrangements lapse and the new services launches in January.
The company is already some way towards installing a marketing operation in the UK – replacing what it shared with Stena. It is likely to match its 60-strong unit in France, headed by a new marketing director and sales director. Winning over the UK is more important to SeaFrance than it is for its future rival Stena Sealink to win over the continent – 70 per cent of passenger traffic is from the UK.
Stena claims to be at an advanced stage of planning its own French organisation for marketing, sales and operations. Previously SNAT contributed to the marketing budget as part of the pooling arrangement, but it is unlikely to spend the 6.5m on advertising Stena Sealink forked out last year (Register-MEAL); a more likely spend is similar to Sally’s 1m.
The long-term view of the market is that the Tunnel, unless it comes a cropper, will eventually force the bigger ferry companies to continue consolidating. The smaller ones, or the less attractive routes, may disappear altogether. Reinventing itself in that scenario could leave Sea-France in a difficult place without the proverbial paddle.