Will Virgin nous save Eurostar?

Railways and tunnels have always been bad news financially. Isambard Kingdom Brunel, who pioneered the Rotherhithe Tunnel and the Great Western Railway, was only too familiar with government incompetence and the inadequacy of private finance initiatives.

You’d have thought the powers that be would have learned a thing or two about bankrolling major capital projects in the past 150 years. Apparently they haven’t: the Eurostar and Channel Tunnel Rail Link fiasco being a fine case in point.

Eurostar and (most of) its accompanying infrastructure is a fine trainset which has captured the public imagination. Its speed and point-to-point convenience have had a devastating impact on airline rivals – and no doubt Paris and Brussels taxi drivers and the ferry services to boot. It ought to be the jewel in the crown of transport secretary John Prescott’s public transport policy. Right now, though, that crown must feel as if it’s made of thorns. The reason? Eurostar is losing 180m a year and, embarrassingly, the CTRL is no nearer being built than when it was first conceived five years ago.

Quite simply, Eurostar is not carrying enough passengers to generate the profits necessary to build the link – which, alas for London & Continental Railways, the train operating company, is an inescapable obligation in its terms of contract. Marketing is being proffered as a scapegoat. It’s said, not without justification, that LCR has got its strategy disastrously wrong. Desperate attempts to meet the break-even targets it set itself led to volume discounting, which achieved little more than a devaluation of the aspirational brand image of Eurostar.

But confused marketing is symptomatic of a deeper malaise. LCR has been a consortium at war with itself. Though the eight members agreed that marketing was fundamental to the eventual success of the project, most knew painfully little about the subject. The one real exception was Virgin. Sadly, progress on this front was paralysed by running battles between the Virgin executives seconded to the project and the consortium chairman, Sir Derek Hornby. Hornby, perhaps understandably, resented Virgin hijacking his trainset. The rebuffed Virgin executives walked out.

It is left to Prescott to pick up the pieces and fit them together again. On the face of it, he doesn’t have too many options. Political dogma precludes him from injecting a large dollop of public aid, so he cannot decouple the running of Eurostar from the financing of the CTRL. He could re-tender the project and slightly soften its terms, but that raises at least as many problems as it solves. Or more likely he will call for the remodelling of the LCR consortium. He has already hinted at bringing in the expertise of Railtrack: but it is difficult to see how this will sort out the critical marketing issue. Like it or not – and there are many critics of Richard Branson’s performance as a rail operator at the moment – an enhanced role for Virgin looks an almost inescapable solution.

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