Railway hopes disappear down the tunnel

The Channel Tunnel should have been the best thing to have happened to Britain's railways since the railway mania of the 1840s. As the holiday season of 1996 reaches its height, one might have expected people all over Britain to be lining up on train platforms to be swept by rail to their sunny European destinations, but it hasn't worked out that way.

There are of course the wonderful Eurostars and those huge freight trains on improbable runs, such as Manchester to Milan. But the Channel Tunnel has not transformed and invigorated the rail network in the way railway lovers hoped it would.

So far, all companies involved in the tunnel are losers. The freight companies have leeched money, Eurostar is barely breaking even and of course Eurotunnel itself is all but bankrupt.

Earlier this month, British Rail announced it was writing off pounds 500m because it had been too optimistic in its assessment of the level of freight going through the tunnel. And while the passenger side has been more successful, it has not been profitable. Last year Eurostar, which was still building up momentum, made an operating loss - ie, it lost money even if one ignores the interest payments on the pounds 900m or so it spent on trains and refurbishing lines. This year, when Eurostar trains are expected to carry four million passengers, it will probably make an operating profit but that is not good enough. London & Continental, the company that won the tender to build the pounds 3bn Channel Tunnel rail link, has been given the Eurostar services as a potential milch cow with which to fund the construction of the line. But will the cow ever produce milk?

EPS, the company that operates Eurostar and is owned jointly by the French and Belgian railways and L&C, is now benefiting from the marketing expertise of two of L&C's partners, Virgin and National Express. There are lots of good ideas. On July 1, EPS launched its first direct trains to Disneyland Paris from Waterloo. It has also begun running a 4.53am train to Paris aimed at giving business travellers the opportunity to make a 9.30am meeting in the French capital, and in the winter there are to be direct trains to the ski resorts of the Savoie in France. While all this is innovatory, and will ensure better use of the trains, it is not enough to turn the finances round.

Eurostar is dogged by the fact that all its trains are 777 seaters, which is like an airline running only planes the size of two Jumbo jets on every flight. Unlike their TGV equivalents, the trains cannot be split, and on the Brussels route staff have taken to closing up half the train on many services to save hassle. Indeed, the woman behind the counter told me on a recent Brussels trip that she had never seen the standard class seats filled on any service to the Belgian capital. Even when the journey time is reduced in 1998 to two and a half hours by the construction of the Belgian high-speed line, there will still be an awful lot of bumless seats on the Brussels services.

Worse is to come. Early next year overnight sleeper and daytime trains - from places such as Plymouth, Cardiff, Manchester and Glasgow - will start running through the tunnel to a variety of destinations in France, Belgium, Holland and Germany. These trains are a result of a political promise made by ministers to provincial MPs a decade ago, at the time of the passing of the Channel Tunnel legislation, and are bound to lose a fortune. There is no market for such long-distance rail travel given that airlines offer such cheap seats and are, of course, much faster.

Worst of all, Eurostar faces massive competition. The airlines have reduced fares and the ferry companies and Le Shuttle are in the midst of a crazy price war. While Eurostar is by far the best product, if fares over or under the Channel and in the air are so cheap, it will be hard pressed to make much money. Already, since its launch, its ticket prices have tumbled. Students can get a return to Paris for as little as pounds 49 and even premium fares aimed at business people have been slashed.

I don't want to seem churlish about the Channel Tunnel. It is good for Britain, good for Europe. I love the Eurostar trains. But so far, with the failure of freight and Eurostar struggling, one has to ask whether the massive amounts of capital spent on the project might have been better invested in the domestic rail system.

Certainly, not all the money has been spent wisely. In a sane world, the wonderful Waterloo station would not have been built and the high- speed Channel Tunnel rail link between St Pancras station and Folkstone would have been ready in time for the opening of the tunnel. The trains would also have been more flexible and cheaper. There would have been fewer crazy security restrictions which irritate passengers, such as the time when much-delayed passengers from Paris to London, who had transferred from a broken down train, were turfed out for an hour at Lille so that their baggage could be put through a machine.

At the time of the announcement of L&C's successful bid to build the Channel Tunnel rail link (CTRL), it seemed the offer was generous. The company was given the EPS trains - worth a cool pounds 999m - lots of land around St Pancras and east London, and a pounds l.4bn grant, all to build a link costing pounds 3bn. However, looking at it now, getting the link built is going to be tight. There is no guarantee that the link can be built under this deal. The key question is, even with the Virgin expertise, will Eurostar ever generate enough cash to ensure that CTRL will happen? Gordon Brown - should he be our next Chancellor - is going to face some tricky demands over this one.