European Infrastructure Finance Yearbook - Investing In Bonds ...

TRANSPORTATION INFRASTRUCTURE
78 ■ NOVEMBER 2007
the previous year, announced that it will increase
the number of weekday trains it runs between
Paris and London in February 2008, to 17 from
15. This is positive for Eurotunnel.
Rail freight.
Stability of freight revenues in the short-tomedium
term is a best-case scenario, while a
further reduction is a more likely outcome.
Future revenues are uncertain after the end of
the subsidy to EWS in 2006, while the service has
relied on state subsidy since services commenced
in 1996. Also, the impact of the purchase of EWS
by Deutsche Bahn AG (AA/Negative/A-1+) from
BRB remains to be seen.
Eurotunnel considers a possible upside,
however. Eurotunnel intends to revive use of the
tunnel by revising the fee structure for rail freight,
making it cheaper for freight trains to run at
night, while charging more at the busiest periods
such as Friday evenings and Monday mornings.
The move could be related to Eurotunnel’s
intention to directly operate some cross-channel
rail freight services (it has an operating license
with its Europorte2 subsidiary). The group has
purchased locomotives in the first half of 2007
and has also ordered some additional locomotives
to Bombardier to be used in the development of
its rail freight activity.
Rail freight services have tended to fare less
well than other Eurotunnel markets. Perhaps the
most important episode was the severe disruption
associated with asylum seekers using trains to
attempt to travel to the U.K. in 2001. This has led
to freight users pulling out in favor of other
transport alternatives, and the market has never
really recovered.
The volume of goods transported by freight
trains declined by 1% compared with 2005, to
1.57 million tons, after a 16% decline in 2005. In
1998, 3 million tons of freight moved through the
tunnel, which is designed to carry a maximum of
10 million tons. In the first half of 2007, traffic
volumes were 14% down on the previous
comparable period.
Competition
Eurotunnel is the operator of an essential
infrastructure, but its revenue streams are not as
predictable as for toll road network, airport, or
port operators, which benefit from the
STANDARD & POOR’S EUROPEAN INFRASTRUCTURE FINANCE YEARBOOK
monopolistic nature of their industries.
The future strategy of competitors (such as
ferry companies and airlines) remains difficult to
predict, meaning GDP or market growth does not
always materialize in volume or revenue growth.
Since 1996 (1997 for Eurostar services), truck and
rail passenger volumes have increased, whereas
car, coach, and rail freight volumes have tended
to fall.
The primary competition risks in the passenger
market are low-cost and flag airlines and, to a
lesser extent, ferry operators. The shuttle service
enjoys a competitive advantage in terms of speed,
frequency of departures, and reliability, which is
reflected in its premium pricing. A significant
competition risk stems from the ferry operators
P&O, SeaFrance, Norfolkline, and SpeedFerries.
Standard & Poor’s considers the impact on
Eurotunnel’s truck shuttle revenues to be limited
as a result of the successful segmentation strategy;
the expected impact on car and coach shuttle
revenues could be higher, and was factored in the
base case. Eurotunnel estimates that its share of
the accompanied truck market on the short straits
corridor decreased to 36.2% in 2006 from 39.5%
in 2005, reflecting its new strategy.
Finally, freight trains compete directly with
road transport and maritime transport on
container ships. Intense competition in the crosschannel
freight market between road haulage
companies has recently put downward pressure
on freight rates, making it more difficult for the
railways to compete. The goods transported by
freight trains are mainly heavy, lower-yielding
items for which speed of delivery is not generally
a primary consideration.
Capital expenditure and maintenance
Scheduled weekly maintenance of the tunnel is
organized and structured to minimize disruption
to commercial operations and optimize capacity
during peak periods.
The second cycle of rail replacement began in
2005, and will continue until 2008 without
disrupting commercial services. Under current
rolling stock maintenance programs, essential
maintenance and safety inspections are carried
out on average every 21 days for the locomotives,
freight shuttles, and passenger shuttles. The largescale
maintenance program that began in 2003 is
accelerating considerably in 2007, to restore and