Examination of Witnesses (Questions 200-219)
MONDAY 9 APRIL 2001
SIR RICHARD MOTTRAM, KCB, MR ROBERT HOLDEN, MR STEVEN MARSHALL, and MS LOUISE HART
200. I asked if there was any real prospect of them being used?
(Mr Holden) I think the work which Arthur D Little and others have undertaken has said there is a possibility post 2008.
201. Can we come back to the other issue you were being asked about on paragraph 1.11 where you talk about passenger forecasts and table six shows the difference, an increasing difference between the actual numbers and the forecast. How were those passenger forecasts made?
(Mr Holden) The LCR forecasts back in 1996 were based on the assessments undertaken by our three participating transport shareholdersNational Express, SNCF and Virgin. They used, amongst other information, the previous estimates of volumes produced by British Rail and also those produced by SNCF themselves.
202. They were basing their forecasts on what other people had done before. There was no reassessment?
(Mr Holden) There would have been some reassessment undertaken to confirm that they could be achieved. Indeed, in the period shortly after LCR took over we believed we could grow the market sufficiently to get back to the estimates which had previously been undertaken. There was certainly a major discrepancy in those first few years because of what had happened in the year or so prior to LCR taking over.
203. Which was the growth of low cost airlines?
(Mr Holden) No, I think that the growth of the low cost airlines has been phenomenal certainly post 1997 and arguably more in the last two years.
204. The difference between the 5.1 million, which was the actual in 1996-97, and the 9.5 million which you forecast, that was not due to low cost airlines?
(Mr Holden) In 1997, that would not be due to the low cost airlines. At that point in time we were suffering very badly from the effects of the fire in the Channel Tunnel.
205. I thought it said, if I look quickly through, yes paragraph 1.14 seems to indicate that it is the low cost airlines which are being blamed for the rate of growth having slowed. You are saying that was only true after 1997?
(Mr Holden) I think that has been a developing factor, certainly post 1997. It has been a very significant factor over the course of the last two years as the existing low cost airlines have developed and as new people have entered that market.
206. Can you explain the difference between 5.1 and 9.5 in the year 1996-97? That is a hell of a difference.
(Mr Holden) In 1996-97 we were suffering very badly from the effects of the fire in the Channel Tunnel.
207. Only in the last four or five months. It happened in November 1996, did it not, it was the last five months.
(Mr Holden) It happened in the last five months of that year, that is right.
208. That made the whole difference?
(Mr Holden) That did not make the whole difference, it was also taking time to introduce the marketing strategies which had been developed during the bidding period. They were strategies which we would envisage introducing over a period of time.
209. You must have known how long you expected those to develop?
(Mr Holden) There was still some period of time between the bids going in and us actually taking control of the business. We took control of the business much later in 1996 than was originally envisaged when the bids went in in 1995.
210. You are saying if the Government had not taken so long to give you the opportunity to go ahead then your passenger carrying figures would have been much higher, in 1996-97?
(Mr Holden) They would have been somewhat higher I guess but I think, as we have all seen, the Eurostar market has not developed in the way that anybody envisaged back in 1995 and 1996.
211. How many passengers travel these routes by other means? Can you give me any idea? Are we talking about 50 million a year or are we talking about 10 million a year?
(Mr Holden) Our main competitor is the airline and in terms of our London-Paris route, for example, we have 63 per cent of the market and in terms of our London-Brussels market we have 46 per cent of the market. So we have almost two thirds of the market on the route to Paris and just under half on the route to Belgium.
212. Your actual figures are now half what you originally forecast, less than that, between a half and a third of what you originally forecast?
(Mr Holden) Yes.
213. Yet, there is only as much again travelling by other routes. In fact, the actual total you forecast must be a great deal more than is travelling in total by all means now?
(Mr Holden) The assessment of the whole market between London-Paris and London-Brussels was far greater than has turned out to be the case.
214. Can you explain why that is the case?
(Mr Holden) No, I cannot, I am afraid.
(Sir Richard Mottram) I could offer one reason which is just part of an answer which is some of the impact of low cost airlines is to distribute peoplethis is obviously a leisure market pointmore widely around Europe rather than them choosing Brussels and Paris. To that extent, the availability of low cost airlines may have diluted that market. I am not suggesting it explains the whole of the difference between these numbers.
215. What numbers were travelling on these routes before Eurostar?
(Mr Holden) What I can say in respect of that question is that the market has more than doubled since Eurostar introduced its service.
216. Sir Richard, you were saying earlier you believe the overall benefit of introducing these routes is about a billion pounds, three billion pounds benefit offset by two billion of costs. What forecast of passenger numbers is that based on?
(Sir Richard Mottram) The current forecast that we are making is lower than the case that is described in, for example, table 20 of this report. Our current forecasts are, broadly speaking, around the area which was the downside case in 1998. We are forecasting, roughly speaking, about 11 million passengers by 2009/10 and about 16 million by 2020.
217. Given that the numbers are hardly growing at present, that still looks to me pretty optimistic on present trends?
(Sir Richard Mottram) What the assumptions are based on is that as the Channel Tunnel Rail Link unfolds there will be an increase in Eurostar passengers of between four to eight per cent a year over the next ten years. As we roll out the Link with LCR, Eurostar will attract significant growth. Thereafter we are assuming growth of about two to three per cent a year.
218. Can I move on to a rather different point, if I may, Sir Richard. You thought it was worth spending about £80 million on the Government guarantee for the bond issue rather than pursuing Government bonds directly. I think there are three suggested reasons given in paragraph 2.17.
(Sir Richard Mottram) On balance we thought this was the right judgment, yes. I think we would accept it is a fairly fine judgment. Essentially the arguments were that if the Government had directly financed the project we thought that would have weakened the incentives for its proper management.
219. What value would you have considered to be over the top, in other words, if the bond issue had cost you £100 million?
(Sir Richard Mottram) I think that is a very good question, we thought that 80 million was the right number. I cannot say, I will go back and check at what point we would have said that is not the right answer.
6 Note: See Evidence, Appendix 2, page 31 (PAC 00-01/164). Back