Action is being taken to minimise the shortfall in Eurostar UK's revenue

3.10  Eurostar UK has shared or managed risks to reduce the shortfall in revenue and thereby lowered LCR's likely call for support from the taxpayer. Eurostar UK has:

a  shared revenue risk with other parties. As part of the 1998 restructuring arrangements, LCR appointed Inter-Capital and Regional Railways Limited (ICRR) to operate and manage Eurostar UK in return for a management fee of two per cent of turnover. The contract includes an incentive regime based on comparing Eurostar UK's actual cash flow with the relevant forecast in the contract. ICRR receives an additional payment if Eurostar UK's actual cash flow is better than the forecast agreed in the contract. If the actual cash flow is worse, ICRR makes a payment to Eurostar UK, net of ICRR's management fee and subject to an annual cap of about £20 million per year (in 1999 prices). In each year of the period 1999-2004, Eurostar UK's actual cash flow was worse than the relevant forecast because Eurostar UK's passenger revenue were considerably below expectations. Over the period, the net cost to ICRR was £21 million. The annual cap is expected to be reached in every year after 2004 until the contract ends in 2010. Some of ICRR's shareholders have tried to negotiate themselves out of the contract because they no longer consider the business worthwhile;

b  under the direction of ICRR, reduced operating costs. ICRR has control over some of Eurostar UK's operating costs and, overall, has continued to hold these below the 1998 level, even before allowing for inflation (Figure 12). ICRR has kept operating costs down through: reduced manpower costs; savings generated from re-negotiating and re-letting contracts; sub-leasing trains to GNER; better use of maintenance facilities; and reducing overheads such as business rates. Eurostar UK has also managed to negotiate some reduction in the access charges it pays to Network Rail (for access to relevant sections of the UK's domestic railway network);

c  revised its marketing strategy. Three main market segments with potential for improvements were identified and Eurostar UK is working with SNCF and SNCB, its partners in the Eurostar Group, to improve market share in these areas as shown in Figure 13 overleaf. Eurostar's market share on both the London-Paris and London-Brussels routes has increased since 2000, as shown in Figure 14 overleaf; and

d  improved co-operation with the two other Eurostar train operators, SNCF and SNCB.