As the Competition Commission looks again at Eurotunnel’s ownership of MyFerryLink, the battle for a slice of the cross-Channel market is about to give someone a sinking feeling.
It could have signalled the emergence of a new superpower in the English Channel.
With MyFerryLink reporting an increase in revenues of more than 1,000% last year, owners Eurotunnel looked to be on to a winner.
Are there stormy seas ahead for MyFerryLink and its owners Eurotunnel?
The Channel Tunnel operator saw its turnover surpassing €1bn (£893m) for the first time in 2013, a rise of 12%, thanks in part to its new cross-Channel operations on the water, rather than under it.
MyFerryLink earned €74m (£60.5m) last year, a dramatic increase from €7m (£5.7m) in 2012, even considering it only launched the service in August of that year.
The new venture was made possible after it bought three ferries from SeaFrance after the company went into administration in April 2012.
“With an interest in ferries as well, it puts Eurotunnel in a very powerful position indeed and that worries the Competition Commission...” - P&O's Brian Rees
With Eurotunnel already owning a concession to operate the cross-Channel fixed-link rail service until 2086, one might have thought things were looking rosy.
Unfortunately for them, nothing is ever that simple.
Eurotunnel’s operation of MyFerryLink has been the subject of a rambling investigation by the Competition Commission, which took another turn last month.
It said it will reconsider the decision it made last June, when it told Eurotunnel it could no longer run ferries from Dover, as the rise in its overall market share to over half would lead to price hikes.
The Channel Tunnel operator made a legal challenge to the ruling, with the Competition Appeal Tribunal saying in December that the commission should look again at its decision.
That delay has left rivals P&O Ferries and DFDS unhappy. Both companies originally made the complaint to the Office of Fair Trading and its French counterpart.
“Now we’ve got MyFerryLink, it feels like SeaFrance Mk II,” said P&O spokesman Brian Rees.
“It’s the same staff, same MD, same offices, same ships, but instead of SNCF behind the scenes it is Eurotunnel.
“With an interest in ferries as well, it puts Eurotunnel in a very powerful position indeed and that worries the Competition Commission.”
In its ruling in June, the commission’s deputy chairman Alasdair Smith was very clear on what he thought about Eurotunnel’s acquisition of the former SeaFrance ferries.
He said: “It cannot be good for competition when Eurotunnel, which already holds a market share of over 40%, moves into the ferry business.”
Yet to many experts, it is a wonder that Eurotunnel wanted to enter the ferry market at all.
SeaFrance was kept afloat for many years by France’s national state-owned railway SNCF, which poured millions into the company in a desire to save jobs.
In the end, SeaFrance went under with debts of €240m, despite operating just one ferry route, at a cost of 880 jobs in France and about 130 in Dover.
Yet when it closed, the ferry market appeared to cope.
“There were no queues or disruptions following the demise of SeaFrance,” said Mr Rees.
“Between the tunnel and other ferry companies there was still significant overcapacity to take up any slack, and DFDS moved into Calais.”
Nevertheless, Eurotunnel came in with a €65m bid and was awarded the three vessels by a French court in June 2012, restoring 560 SeaFrance workers’ jobs.
As its latest turnover figures suggest, it was an inspired move.
Eurotunnel passenger train
Yet with the Competition Commission investigation hanging over it, the service is yet to turn a profit. In the ferry market, money is made through haulage firms but none will commit to MyFerryLink until they know it will still be in operation in a year’s time.
The commission aims to make a decision in April, leaving three options.
If it overturns its ruling in June, then MyFerryLink continues to expand, having already captured 10% of the ferry market, much to the displeasure of P&O and DFDS.
If it stands by its decision last summer, then Eurotunnel could appeal again, if it feels its concerns about the commission’s jurisdiction in the case have not been clearly addressed.
The other option is Eurotunnel accepts the ruling and MyFerryLink ceases operating within six months.
That would leave it with three ferries it cannot sell or use in Dover
and 560 ex-SeaFrance workers out of a job.
Some experts believe that option is most likely, with the Competition Commission setting a dangerous legal precedent if it does overturn its original ruling.
Only one thing is certain: something is about to change in the cross-Channel ferry market.
Eurotunnel says ships bought as an asset not enterprise
The crux of Eurotunnel’s legal argument is that it did not take over SeaFrance but bought the ferries and then leased them to another company.
MyFerryLink is run by workers’ cooperative SCOP, which employs the former SeaFrance staff.
Eurotunnel argues that the small print shows it bought the SeaFrance ships as an asset rather than an enterprise.
P&O’s Mr Rees said: “To the lawyers, that’s significant as it has bearing on whether the Competition Commission should even be involved.
“To lesser mortals than the legal eagles, it feels like semantics given the Competition Commission’s fundamental concerns.”
'Three competitors mean prices will fall'
The issue of whether Eurotunnel’s ownership of MyFerryLink creates a competition issue has two sides.
P&O and DFDS – the latter of which only joined the Dover to Calais market in February 2012 – say it will own more than half of the cross-Channel market if MyFerryLink is allowed to continue.
Eurotunnel says having three ferry services running from Dover to Calais has to be better for consumers.
Eurotunnel spokesman John Keefe said: “If there are three competitors in the ferry market then prices will fall.
“Each will be seeking the best market share they can get and they will compete in price.
“That has got to be good news for everyone.
“If MyFerryLink ceases then you have a dualopoly between P&O and DFDS.”
He added: “We are not competing with ferries. Speed is our USP.
“We beat ferries in that respect but if people want more of an experience, with a meal, then they opt for ferries.”
Company fears ferries will be left high and dry
When selling SeaFrance’s assets, the French courts added the condition that Eurotunnel is not allowed to sell the three ferries it bought in 2012 for five years.
This was to prevent the company renovating the ships and then selling them on for a profit.
However, if it is ordered to close MyFerryLink, Eurotunnel will be left with three ships it can do nothing with.
Mr Keefe said: “We will be forced to hold onto assets we can’t make money out of.
“We are a French company, buying French assets and running out of a French port.
“When the Competition Commission stepped in we were surprised because we thought everything about it was French.
“It sounds like a French authority should have jurisdiction.”