Eurostar’s competitive forces

Eurostar has been transporting passengers through the Channel Tunnel from London to Paris and Brussels for 15 years now, and is deemed a success. The company say that they have had over 100 million passenger, with 10 million expected to do so this year. Eurostar now accounts for 80% of all rail or air passengers travelling directly between London and Paris, while London’s airports share the remaining 20% between them – while it is little value to passengers travelling to or from other UK regions, it is clearly much more convenient for passengers in the London area to travel from the centre of one city to the centre of the other, avoiding the need to travel to the airport at each end of the journey.

However, on the first of January, Eurostar will lose their monopoly – until now they have had the sole rights to operate the service, but in a few weeks from, passenger train services through the Channel Tunnel are being opened up to competition. Porter’s 5 Competitive Forces could be employed to assess the position; what is the level of threat to Eurostar? Firstly there may appear to be little threat of rivals setting up as the costs of buying the trains, obtaining safety licences to operate them and training staff are quite a significant barrier to entry for new competitors. However this is much less the case for train operators currently running other international rail services, such as Deutsche Bahn in Germany or the Netherland’s state-run railway company, Nederlandse Spoorwegen, who might look at running direct services between London and Frankfurt, Berlin or Amsterdam. What about the power of Eurostar’s suppliers? The Channel Tunnel is owned by Eurotunnel who charge a fee to companies wanting to use it to run their trains through the tunnel. Eurotunnel say “If a company has its trains safety certified for the tunnel, then they could effectively start straight away. There is space for rival train firms, and as we charge an access fee per train, it is in our interest to see more go through the tunnel.” (This does not apply to freight services, which are run by Eurotunnel themselves, and over which Eurotunnel retains the monopoly – only seated passenger services are to be opened up to competition.)
The power of buyers? If the service is operated by rival train companies then they would have to decide whether to seek competitive advantage by lower prices or by differentiation – which means that the power of the customer would become greater, as each competitor would fight to gain the attention and loyalty of potential travellers.
So the suggestion should be that, although Eurostar Chief Executive Richard Brown sounds confident in this report that “In our opinion, we certainly won’t have a rival next year, and I also don’t think so in 2011”, the board of the company should be looking now at ways to ensure that they are prepared for that competition when it comes.