Brand Health Check: P&O Ferries

The company's cross-Channel routes are under commercial pressure from low-cost airlines, changes to the rules on duty free and state-subsidised rail options.

Pity poor P&O. Its ferries business is trying to remain profitable in the face of UK government-subsidised competition from Eurotunnel, as well as French government-supported Brittany Ferries and Sea France. Hardly a level playing field, and undoubtedly part of the reason why the company last month announced 1200 job cuts and a reduction of its cross-Channel fleet by a third in order to boost profits. Three routes out of Portsmouth - to Le Havre, Cherbourg and Caen - are to be closed entirely after the company realised that profits were impossible on the western Channel crossing.

Unfair competition only tells one side of the tale, though. In just a few years, budget airlines have become the cheapest and most popular way for Brits to travel to France and Spain, removing P&O's raison d'etre at a stroke - a far more influential effect than the state subsidies of its competitors.

Travellers are finding it quicker and cheaper to reach the south of France by plane and hire car, rather than crossing the channel by ferry and driving the length of the country; numbers of passengers using the port at Dover have dropped by a third to 15m since 1997. Price is one factor - a day return ticket from Dover to Calais costs more than £100, far more than the cost of many budget airline tickets.

The French government's raising of duty on cigarettes has also played a part in P&O's ferry woes, removing the reason for many Brits' day trips to French ports.

So can P&O stem the tide of cheap competition? Do ferries have an edge over flying that has so far failed to be highlighted? We asked two travel industry experts for their views: Tim Jeans, former marketing chief at Ryanair and MyTravel Airways and shortly to become managing director of Monarch's scheduled flights business; and Sven Olsen, executive vice-president of FCB Europe, the agency that formerly handled the Brittany Ferries account.

DIAGNOSIS 1 - TIM JEANS, INCOMING MANAGING DIRECTOR, MONARCH SCHEDULED

My first job was with P&O and, even in those pre-Eurotunnel days, I quickly learned how competitive the market was. Twentyfive years on, P&O has been forced to restructure its business, not because of a poorly perceived brand or service, but rather because the market has moved on while P&O hasn't.

A decade ago it was unthinkable that a family holidaying in the Dordogne would fly there. Now, for the same fare P&O charges to get them to Calais, budget airlines will take them practically to the door of their gite.

Changes to duty free rules spelled the end of the 'booze-cruise' which brought in millions and kept many ferries afloat during the off-season.

And then came Eurotunnel. Imagine your business trying to compete with a state-funded project, add a high cost base of expensive port charges and outdated working practices - it's little wonder that profits have evaporated.

P&O's determination to keep its ferry brand as upmarket as its cruise operations has left it stranded when it comes to competing with budget airlines.

REMEDY

- Get costs down, so that fares that are out of line with what the market will bear can be reduced.

- Adopt more flexible pricing that mimics the model adopted by the low-cost airlines.

- Stop taking the brand upmarket. You can't add enough value on a 75-minute service to justify premium pricing (as BA and others have found).

If it listens to the masses, P&O might have a chance on the Channel.

DIAGNOSIS 2 - SVEN OLSEN, EXECUTIVE VICE-PRESIDENT, FCB EUROPE

HMS P&O has been broadsided by the Irish (Ryanair), the Greeks (easyJet) and the French (Brittany Ferries and Eurotunnel) and is abandoning ship.

It's easy to see why. Budget airlines are eating into ferry territory, duty free is gone and French fags are getting pricier.

What P&O needs is a change in business model. Why? There are two markets for people travelling to the Continent; people who want to get to France quickly and cheaply - let's call them short-haul - and people who cruise further afield - the long-haulers.

With this in mind, P&O should drop its glorious brand on the short-haul crossings and copy the budget airlines - no frills, low-cost labour, sweat the assets and undercut competitors.

A very different strategy is needed for the longer routes. Ever been on a long-haul ferry crossing? It's full of people who dress up for dinner.

P&O needs to amplify its cruise credentials and charge a premium for this side of the business.

It also needs to explode the myth of low-cost air travel, which is not as cheap and efficient as it seems.

REMEDY

- Launch low-cost ferries with a wacky name and paint everything wipe-clean lime green. Charge accordingly.

- Use its cruise heritage to blast the competition out of the water on the longer ferry routes. Charge accordingly.

- Use PR to highlight the myth of the cost and convenience of low-cost air travel and the pleasure of driving your car into a tin can and being shot through a tunnel.

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