Lines are drawn in battle for Eurostar

Richard Branson enjoys a challenge. British Airways, Coca-Cola, the Atlantic, Ruby Wax – you name them, Branson has taken them on. But they start to pale in comparison to Branson’s new challenge: selling Channel Tunnel passenger travel.

His Virgin Group is a minority shareholder in London and Continental Railways, one of the two consortia bidding for the 999-year lease to build and run the 2.7bn Channel Tunnel rail link between London and the South Coast. The other bidder is the Cecil Parkinson-led Eurorail. The Department of Transport decides the winner next week.

Whoever wins also gets the Eurostar passenger service, run by European Passenger Services (EPS), the UK partner in the tripartite agreement with the state-owned rail networks in France and Belgium, which operate the European service. Construction of the rail link will start in 1997 and take five years.

The immediate priority will be to drag Eurostar out of the mire left by the Tunnel’s construction and lacklustre performance in attracting customers. Each consortium sees the discrepancy between capacity and take-up of the Eurostar service as evidence of enormous potential.

By the next millennium there will be the capacity to carry 40 million UK passengers a year through the Channel Tunnel. But last month, with just four years to go, a mere 200,000 people bothered to make the trip via Eurostar. Converting a fraction of those 40 million is the challenge, and advertising and marketing are seen as the main hope of delivering the passengers.

L&CR is made up of six companies: Ove Arup & Partners, US firm Bechtel, Sir William Halcrow & Partners, SG Warburg and transport specialists National Express and Virgin, the clear favourite.

SG Warburg is the majority shareholder with 25 per cent – the others are thought to hold 15 per cent each. Eurorail, fronted by former Transport Secretary Parkinson, consists of the construction company BICC, HSBC Holdings, Trafalgar House, NatWest and Seeboard – none of which are renowned for travel expertise.

L&CR is the bookies’ favourite because of the lack of sales and marketing expertise of the Eurorail members as compared to Virgin and National Express. It is an area Eurostar, by general agreement, is definitely lacking despite its 5m advertising through Young & Rubicam. By contrast, Eurotunnel spends 7.1m through BMP DDB (Register-MEAL).

Eurostar itself claims to be a success. It carried 3 million people in its first year of operation, even without running a full service, and claims a 40 per cent penetration of the city-centre market between London/Paris and London/Brussels.

However, its marketing has been heavily criticised for being inflexible and confusing – not least by Channel Tunnel owner Eurotunnel which rents to Eurostar and runs Le Shuttle, the car-carrying train service. Eurotunnel cited “inadequate marketing” when it tried unsuccessfully to claim 2bn compensation from Eurostar’s three owners – British Rail and the French and Belgian state railways.

Although L&CR insists Virgin and National Express comprise only one sixth of the company, both will inevitably seek to play a key part in the marketing strategy.

Virgin, in particular, is there because of its avowed intention to become a “total transport” company. It is known to be considering expansion of its airline into Europe, plans to turn up the heat in its long and still acrimonious battle with British Airways and is also bidding for one of the most profitable parts of the existing rail network, the London to Gatwick airport express. British Airways is backing a proposed management buyout of the service.

Virgin’s and National Express’s strengths are based on proven track records for taking on the market leader in the sectors where they operate.”In particular, Virgin’s standard operating procedure is to take on big, complacent, almost monolithic companies and wave the flag for the consumer,” says one observer.

If L&CR wins it will take a different approach from that of Eurostar.

“There are two types of market for Eurostar: business and leisure,” says Thomas Cook marketing director Dido Harding. “Virgin in particular knows how to tailor a transport service to meet different needs. Crucially, it knows how to make a lot out of the trip for people who aren’t interested in paying a lot more. That’s good experience to draw on.”

The winning bidder will have to address several issues which go to the heart of Eurostar’s problems. Both the problems and the solutions are self-evident, it’s the implementation that has proven tricky.

“Eurostar trains are running at about a third full on average. If it wants people to give it a whirl it will have to be more proactive in terms of promotional marketing,” says Kevin Welch, marketing director of holiday firm Going Places.

That means offering flexible fares, cut-price deals, frequent-user services, changing the combination of classes on the trains and everything else associated with getting “bums on seats”. Eurostar itself has been criticised for offering too little, too late – it began by offering three basic fares but now offers eight, as well as a range of promotions.

Basic awareness remains poor, notes a source close to L&CR, referring to a survey last year showing consumer confusion about whether Eurostar or Le Shuttle carried passengers or cars and where to board trains. There was a similar lack of knowledge about where to buy tickets.

“All these problems are clearly solvable, which is why it’s so astonishing Eurostar hasn’t managed to do it so far,” says one observer.

“L&CR and Eurorail would bring a competitive edge to the operation that, quite frankly, the state-owned rail operators don’t seem able to cope with.”

But the main advantage for the winning bidder will come when engineering work is completed and the trains entering the Tunnel from Europe at 140mph will not be forced to slow down to a gentle chug. Instead, by maintaining top speed, they’ll slice 30 minutes off the journey time between London and Paris.

The new link will also allow full access to the rest of the UK rail network for the first time and theoretically offer straight-through travel from Glasgow to Rome, Athens or any other European destination with a railway station.

This is the Holy Grail for both L&CR and Eurorail. Since its inception potential rail operators have strived to see the Channel Tunnel as a means of ushering in a new age of the train with the offer of a genuine alternative to air travel. Within a few days the DoT will bring that goal a significant step closer for one of the two contenders.

The marketing expertise of Virgin, National Express and the promotional mind of Richard Branson are likely to tip the balance.