The Lowdown: Eurostar revamps at 300km an hour

Chief executive Richard Brown tells Clayton Hirst that the company can turn the corner with more speed and more tunnel vision

Visit Hollingbourne in Kent today and you'll witness a British record being broken. To the south of the pictur-esque village is a railway line; wait long enough and you'll see a blur of yellow and grey whizzing past.

This is the site of the next phase of the Channel Tunnel Rail Link, and the train operator, Eurostar, is quietly testing the track before its official launch in September. Every day the trains run a little faster along the line. And, although the exact speed is a secret, the trains are now close to their top speed of 300 kilometres per hour - some 100kph faster than GNER's service, currently the quickest in Britain.

Involving three governments, 11 companies and billions of pounds in public subsidy, Eurostar is in trouble. It is depending on this 50km stretch of line, running from the Thames in north Kent to Ashford, for its future.

Formed in 1994, the company has missed most of its targets and is still losing money. This year hasn't started well for Eurostar, with an 8 per cent fall in passengers in the first quarter as competition from low-cost airlines intensifies.

The man charged with turning it round is chief executive Richard Brown, a rail veteran of 25 years who joined the company 10 months ago after losing his job as commercial director of National Express. He believes the new high-speed line, cutting 20 minutes off journey times, will swing the pendulum back in Euro-star's favour. "A few years ago you wouldn't have thought about going to Paris on a day trip. But with the high-speed line, it is two hours 35 minutes away. We're expanding people's horizons about what they can use Eurostar for."

The company's passenger numbers peaked in 2000 at 7.6 million, but it has since lost 500,000 customers because of factors such as the growth of budget airlines and the downturn in the economy. Brown also admits that Eurostar's marketing has been partly to blame: "In the past we have allowed the perception of our prices to move away from reality." To prove his point, he produces tables of price comparisons with what he describes as the "low-value airlines". These show that Eurostar is generally cheaper than easyJet from London to Paris and than Ryanair to Brussels.

Until now, its marketing has focused on the brand, notably its popular campaign with Kylie Minogue. But from next week Eurostar will change tack with aggressive price advertising, starting with a ramped-up promotion based on its £59 London to Paris return fare.

After that, Brown plans to offer holiday packages. "A big market for us is catering for people who want to take a short city break. Perhaps they want to stay in Paris for two or three days, take the kids, a romantic interlude, whatever. Just selling them a Eurostar ticket is a bit pedestrian, so we are looking to provide a range of hotels and discounts for shopping. We will essentially sell them a short-break holiday in totality."

Brown, who comes across as slightly hesitant but who associates say knows the industry inside out, is so bullish about Eurostar's future that he told the Government it need not build two new airport runways. Responding to Transport Secretary Alistair Darling's consultation on the future of aviation, Eurostar said that by 2007, when the final phase of the fast link is completed to London's St Pancras station, the service will be the equivalent of 250,000 short-haul flights a year. "We have politely reminded the Government that this has to be factored in," says Brown. "We are not saying the country doesn't need any new runways at all, but one or two fewer is not trivial."

Eurostar is still way off its original target of 16 million passengers a year, and this is hurting the bottom line. In the latest set of accounts for the year ending 31 December 2001, Eurostar's UK arm made a £433.2m loss. This included a writedown of £345.9m on the value of property and rolling stock.

This is only part of the picture because Eurostar is owned by a plethora of companies. French state railway SNCF is the largest shareholder with 62.5 per cent; Eurostar UK owns 32.5 per cent; and Belgium's national railway, SNCB, has 5 per cent. The UK arm is owned by London & Continental Railways (LCR), which has eight shareholders, including Bechtel, National Express and London Electricity.

To complicate matters, the UK arm is managed by a separate company, Inter-Capital Regional Rail, which is owned by National Express, British Airways, SNCF and SNCB.

Confused? Brown admits most people are baffled; he is in the middle of "Project Juniper" to streamline the interests under a single Eurostar company. While the exact structure has yet to be finalised, Brown says the new company will probably be 55 per cent owned by SNCF, 40 per cent by London & Continental Railways and 5 per cent by SNCB.

The losers in the restructuring will be National Express and BA, shareholders in Inter-Capital. In May National Express announced it wanted to sell out and BA is expected to follow suit. Brown says: "The restructuring leaves them without a role, which is why they are looking to withdraw. This is not a loss; they don't play an active role now." Of the value of their stake in Inter-Capital, he adds: "They have nothing to sell."

The restructuring won't lead to new cash being injected into the business. Nor will Eurostar require any further handouts from the British Government, contrary to some recent reports, says Brown. "LCR expected Eurostar to make losses for a number of years. It has the funding to cover that."

LCR's biggest expense is building the high-speed line at a cost of £1.9bn, most of which is from government-guaranteed bonds. LCR plans to refinance these by issuing more bonds secured against access charges to the track.

Which brings us back to Hollingbourne. If the new line lives up to expectations, then passenger numbers and revenues will rise and maybe the development of a couple of runways will be avoided. If not, Eurostar will still be a record holder - for consuming public money.