# Eurostar high speed rail: 20th birthday; success; new trains coming



## beautifulplanet (Oct 23, 2014)

Just a few weeks before its 20th birthday, rail company Eurostar announced the business results for the third quarter of 2014: Within the long-term trend of continuing growth, in the monhts of July, August and September 2014 the number of passengers rose to 2.8 million. That's 3% more than the 2.7 million in the third quarter of 2013. When celebrating its birthday in London next month, the new Eurostar train based on the high-speed Siemens Velaro trainset will also be presented.

The sales volume rose 2% from GBP207 million to GBP211 million, and due to a better economic outlook also bookings in Business Premier Class went up 6%.

Besides the core network from London to Paris, Brussels and Lille, also a lot of services to the French and Swiss Alps as well as to Geneva are offered. In December the sales for the new year-round direct service from London to Lyon, Avignon and Marseille will start. To follow in 2016 is a new connection from London to Amsterdam with stops in Antwerp, Rotterdam, Amsterdam Schiphol Airport and Amsterdam Centraal, providing a quick and reliable alternative to the 3 million people flying between London and those cities annually.
The new Velaro trainset will be unveiled on Thursday, November 13, at London St. Pancras station - about a year before the new trains will enter service. The interiors and external livery designed by Italian design company Pininfarina, this exact Velaro trainset are also slated to be used to expand the Eurostar network even more in 2017/2018, with direct connections between London and Cologne/Frankfurt. In the following, here is an impression of the new trainset on a test track:







source:

http://www.bahnbilder.de/bild/deutschland~ice--93-80-~sonstige/674135/siemens-velaro-e320--eurostarfuer-gb.html

More details on current news about Eurostar:

Strong growth at Eurostar ahead of anniversary celebrations

http://www.breakingtravelnews.com/news/article/strong-growth-at-eurostar-ahead-of-anniversary-celebrations/


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## Tokkyu40 (Oct 26, 2014)

I want them to design the paint for the California train. Very handsome!
How is the profit margin? Are they making money?


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## beautifulplanet (Oct 27, 2014)

Thank you for your reply. 



Tokkyu40 said:


> How is the profit margin? Are they making money?


Yes, Eurostar high-speed rail services are profitable.

In 2012, the operating profit was GBP52.3 million, up from GBP25 million for 2011.

See here:
Eurostar Profit Boosted By More Foreigners
March 25,# 2013
http://news.sky.com/story/1069375/eurostar-profit-boosted-by-more-foreigners

Then for 2013, profits went up again to GBP54 million, while for the first time, the service had more than 10 million passengers.

See here:
Eurostar passenger figures topped 10 million in 2013
March 5, 2014
http://www.bbc.com/news/business-26444689

In the last years, Eurostar also made an GBP700 million investment in a new fleet of trains (see above), thus without these investments to grow the business in the future, the profits posted would be even larger.

An important step towards profitability was that on 1 September 2010, Eurostar became a single, unified corporate entity owned by three shareholders: SNCF (French national state railroad), SNCB (Belgian national state railroad) and LCR (London and Continental Railways, shares held by the British state).

While high-speed rail operations are usually profitable, Eurostar's profits are especially remarkable because of the extraordinarily high track usage fees it has to pay in order to be able to offer its high-speed rail services: 19 GBP (approx. 24 Euro, approx. US$30) per passenger go towards the EuroTunnel for every one-way trip. So whenever Eurostar sells one of those 69GBP round-trip tickets from London to Paris, 38GBP - more than half of the ticket cost - go right to EuroTunnel.

Generally, track usage fees have to be paid by rail operating companies to companies owning the infrastructure. In many cases, many might think that some rail infrastructure access fees are too high. But in this case, the charges collected here are extremely high and completely out of any relation, so even the European Commission looked into this matter - without any success, as this press report from last year states:



> Last week, France and Britain rejected the European Commission’s request to lower charges for passengers and freight trains using the Channel Tunnel.
> 
> The Commission said excessive track-access charges had resulted in higher ticket prices for the service that links London with Paris and Brussels.
> 
> ...


source:

Eurostar continues expansion with bid to run East Coast line
September 30, 2013
http://www.dailymail.co.uk/travel/article-2438632/Eurostar-continues-expansion-bid-run-London-Edinburgh-route.html

Just as in so many other cases, it is amazing how high-speed rail is such an efficient method of transportation, that it is profitable even when having to put up with arbitrarily created competitive disadvantages when compared with airlines, that receive billions in "state aid" towards their operations year after year, while only making very moderate payments towards all the externalities caused by air travel.

Some examples for the arbitrary competitive disadvantages:

- Within France, tickets of the profitable TGV high-speed trains have to include 7% VAT (value added tax, similar to a sales tax). In comparison, tickets for air travel within France include 0% sales tax.

- For travel from Germany to other countries, profitable German rail company Deutsche Bahn has to charge 19% VAT (German sales tax). Tickets for international air travel out of Germany include 0% sales tax. This means f.e., that out of a 50 Euro train ticket Deutsche Bahn actually receives only about 42 Euro, and roughly 8 Euro go straight into the state treasury. While if some legacy flag carrier or low-fare airline charges 50 Euro for the same route, they get to keep the full 50 Euro for themselves.

In addition, in some European countries like Germany passenger rail is exposed to a form of competition increasingly popular again: long-distance buses. But while passenger rail has to pay access fees for every station entered, and track usage fees for every mile of track used, long-distance buses neither have to pay any per-mile toll (like trucks have to on German highways) nor - with very few exceptions - any fee for any curbside or bus stations that they stop at.

Just two weeks ago, this arbitrarily set competitive disadvantage for rail caused private German passenger rail service InterConnex to announce that it will stop operating as on December 13 of this year. Since 2002, Veolia's InterConnex was Germany's first privately operated long-distance passenger rail service, but on its roughly 250mi/400km long route, it has to pay 1700 Euro (approx. US$2160) in rail infrastructure fees (stations access fees, track usage fees), while long-distance bus operators get a free ride on the "Autobahn" highways. And a 5,50 Euro per bus fee (approx. US$7) like at Hamburg's central bus station is very low in comparison, while most of the bus stops of course can be used absolutely for free. Here is a link to the news about rail service being discontinued due to a arbitrarily set competitive disadvantage:

Veolia to close InterConnex open access service

October 14, 2014

http://www.railwaygazette.com/news/passenger/single-view/view/veolia-to-close-interconnex-open-access-service.html

There are many more examples of the arbitrary competitive disadvantage put in place against rail, also different from country to county. One issue is airlines not paying any energy tax, f.e. no fuel tax on their kerosene, while rail has to pay fuel tax on their diesel, or electricity tax on electricity.

The same dynamic can be seen in the area of freight, where inland water transportation is exempted from fuel tax.

And while f.e. a recent survey in Germany indicated that 78% of respondents were against airlines receiving kerosene tax-free, for many European countries it is difficult to move away from tax incentives and competitive advantages once granted, because in most cases any change in policies would make the own nation's industries less competitive against the ones of other European countries, or even on a worldwide scale, so many countries in Europe shy away from changes in this field, in order to keep up with the Joneses in the European or global race to the bottom.

Here are some recent news reports on the operating subsidies airlines receive:

European Commission makes state aid rulings

July 24, 2014

http://www.airport-world.com/news/general-news/4214-european-commission-makes-state-aid-airports-rulings.html

EU orders Ryanair to repay aid to German airport
October 15, 2014 (updated October 17, 2014)
By Shawn Pogatchnik
http://www.sltrib.com/sltrib/money/58524182-79/ryanair-airport-altenburg-german.html.csp



> The European Union’s executive Commission has ordered Ryanair to repay more than $400,000 provided by a German airport to sustain the Irish airline’s business, ruling it amounted to illegal state aid.
> 
> Ryanair says it plans to appeal Wednesday’s judgment that the airline exploited tiny Leipzig-Altenburg Airport in eastern Germany with a 2010 marketing contract that benefited Ryanair, not the airport.
> 
> ...


How these marketing contracts work was also shown in the case of regional airport "Dusseldorf" Weeze, where surrounding communities and counties paid Ryanair 450,000 Euro (about US$570,000) for a "marketing contract" to promote the region of the "lower rhine". Ryanair's part of the contract was one single button on the ryanair.com website leading to niederrhein-tourismus.de, and to mention the region and its "possibilities" in its newsletter. It seems like in the above case, Ryanair was supposed to promote Altenburg airport on its website, and the final judgment was that it was nothing but a very thinly veiled direct public subsidy for operating air travel. While some agreements between regions/airports and airlines were finally invalidated, some of them also end up being approved after being reviewed, as the following report mentions:

EU rules low cost carriers, airports given illegal state aid
October 1, 2014

https://uk.finance.yahoo.com/news/eu-investigates-belgian-national-airport-115843460.html

It is astonishing how Eurostar high-speed rail and other high-speed rail services in Europe remain profitable, although they are having to deal with these massive arbitrarily set competitive disadvantages towards both air and land travel. But they are. 



Tokkyu40 said:


> I want them to design the paint for the California train. Very handsome!


Yes, many might think that the design of Eurostar's new rolling stock is attractive.

While some might think it's unlikely that Pininfarina will be involved in California High-Speed Rail, still to many it might be important that the California High-Speed Rail authority better make sure that their trainsets will be displaying an outstanding design - after all, it might be the first time in North America that there will be some 200+mph high-speed rail thus a revolution in transportation within the region and it might be helpful if it became clear visually that this is a new age of transportation unlike anything before in North America with an exterior that is attractive and the interior comfortable and inviting. So some might think it could be beneficial if it definitely wasn't like any economy aircraft cabin or like Acela's current seats that look to some like they are from the world of air travel of the 90s, but ridership and success of the new service would receive a boost if it was modern and aesthetically pleasing.

BTW, there is a whole thread about attractive design and high-speed rail...


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## xyzzy (Oct 27, 2014)

Profitability of Eurostar and Eurotunnel is largely a made-up number. Eurotunnel is profitable only because the debt that arose from constructing the tunnel was mostly removed from the Eurotunnel balance sheet in 2006-2008 after Eurotunnel technically went bankrupt. Therefore, Eurostar pays much less for tunnel access than they would otherwise have had to. Given how strenuously the French and UK governments had to work to prevent Eurotunnel from going under (pardon the pun), no one is surprised that the two governments resist reductions in tunnel usage fees.

The real problem with the tunnel at this moment is that freight through the tunnel is about one-quarter of the amounts forecasted 20 years ago.


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## cirdan (Oct 28, 2014)

beautifulplanet said:


> In the last years, Eurostar also made an GBP700 million investment in a new fleet of trains (see above), thus without these investments to grow the business in the future, the profits posted would be even larger.



Not really, because new trains are

1) normally not paid for in full until they have been delivered and accepted. Thus the new trains will not significantly affect the balance sheet of the present year and not at all of the past year.

2) new trains are not offloaded onto the balance sheet in one lump sum but are written off over 15 to 20 years. In some cases they re even physically owned by a leasing company with the customer not assuming full ownership until after 15 to 20 years, with the leasing company putting up the money upfront and recovering that (with interest) through the leasing fees. Even if there isn't a leasing company, what the customer effectively does is cut out the middle man and write the new assets off in installments.


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## Metra Electric Guest (Oct 29, 2014)

Isn't Westminster trying to sell off their interest/share in Eurotunnel (and perhaps Eurostar as well)?


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## Anderson (Oct 29, 2014)

I'm seriously wondering if the Nightstar proposal is ever going to come back around, especially since Eurostar is now running long-haul services all the way down to the Med.


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## jis (Oct 29, 2014)

Meanwhile the Nightstar trainsets are in Canada known as Renaissance


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## Anderson (Oct 30, 2014)

Yeah, I know that. The cars were, IIRC, exceedingly overweight, etc. (or so I seem to have been told on here before), but if I'm not mistaken there was another major reason the Nightstar project never happened: Ridership projections didn't come even remotel close to panning out (London and Continental projected 21 million riders/year by 2004; given the accolades for reaching 10 million this year, it's pretty safe to say that they're nowhere near those projections...the trend seems to be about a third of the original projections), killing off service expansion ideas for quite a while.


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## cirdan (Oct 30, 2014)

Anderson said:


> Yeah, I know that. The cars were, IIRC, exceedingly overweight, etc. (or so I seem to have been told on here before), but if I'm not mistaken there was another major reason the Nightstar project never happened: Ridership projections didn't come even remotel close to panning out


But I would have thought, with the trains delivered and payed for and in fact costing maintenance by the hour despite not being used, that it would have been but a small additional risk to actually market-test them and let the customer decide.


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## Anderson (Oct 30, 2014)

Probably true. The issue is that ridership was coming in at 1/3 the initial projection so I think they just threw up their hands at it.


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## beautifulplanet (Oct 31, 2014)

cirdan said:


> beautifulplanet said:
> 
> 
> > In the last years, Eurostar also made an GBP700 million investment in a new fleet of trains (see above), thus without these investments to grow the business in the future, the profits posted would be even larger.
> ...


The points 1) and 2) seem to be general remarks, and many might be aware these things might exist in general.

Still it might be surprising to some how these general remarks, should somehow inevitably lead to a "Not really" statement in the concrete case of Eurostar, though no concrete statement in any form about Eurostar International Limited is being made.

So at least some might be aware of it, that "Yes, really", Eurostar's profits (for the timespan mentioned, not in the long term) would have been even higher, if it was not for the investment into the rolling stock. There definitely are costs associated with the rolling stock investments, already as early as in the FY 2012. Of course, without these costs, the profit of Eurostar International Limited would have been even greater in the past years, still many (and in this case, most importantly, the owners of Eurostar International Limited) might think it was good to invest into the rolling stock, as that puts the company into an even better position moving into the future (and the investments into the rolling stock also include refurbishment of the existing trainsets, by the way, so they won't feature the current interior design by Philippe Starck anymore, but the same one the new Velaros will have by Pininfarina). For SNCF and SNCB, it probably is good that Eurostar is making the investments rather than having a higher short-term profit, because this allows them to possibly participate in higher profits made in the future, while the HM Treasury (formerly London and Continental Railways) might prefer investment in a stronger future performance as this makes their share in Eurostar International Limited appear to be a more attractive and higher priced asset to potential buyers.

Many might think that that what matters is not only the profits that the company is posting, or any possible dividend paid to its shareholders, but also the service that is provided for the passengers and the economic benefit that is being created, and many might think this is especially where Eurostar high-speed rail is a huge success.


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## beautifulplanet (Nov 1, 2014)

xyzzy said:


> Profitability of Eurostar and Eurotunnel is largely a made-up number.


This statement is factually incorrect. In the years when profits were posted, both the profits of Eurostar and Eurotunnel were actual profits. When dividends were paid, this was actual money received by the respective shareholders. No matter to what extent every human being may approve or disapprove of how things are currently set up, the reality looks like what it looks like, all of this is factual - nothing is made-up.

To some, it might be interesting here to read "Eurostar and Eurotunnel", so lumping a rail operator and a rail infrastructure owner together, creating the impression it would be something similar, when in fact those are two fundamentally different things. Something similar would be to lump together owning and operating a car, and owning road infrastructure. Even when both of these things take place within road transportation, those are two fundamentally different things as well. The same applies to Eurostar and Eurotunnel within rail transportation. There would be many more examples within other fields of transportation.

To some it might seem especially questionable to hear that the reason for Eurostar's profits being "largely made-up" would be that "Eurostar pays much less for tunnel access than they would otherwise have had to". Following this kind of logic, then probably most of the world's transportation operators' profits would be "largely made-up" because airlines not only pay less in access to air traffic infrastructure then they would have to and especially pay less in compensating for externalities than they would have to, but also receive what has been judged as direct operating subsidies (see above). Following this kind of logic, road transportation operators pay less in access to road infrastructure than they would have to, and especially pay less for compensating for externalities than they would have to etc. Still, the profits by transportation operators actually are not only not largely made-up, but not made-up at all. When there are profits posted, these profits are factual (only in those cases where there actually are profits - many transportation companies incur losses, as it becomes clear seeing that in the decade from 2002 to 2011, the 3 largest US legacy airlines each filed for bankruptcy and in addition merged with another large carrier that had also sought legal protection from creditors). This is completely independent from the fact that many think there are arbitrarily set disadvantages put in place against rail. That Eurostar is profitable and such a beneficial, popular service with more than 10 million passengers in 2014, to many is an incredible success when on the other hand Eurostar has to deal with so many public policies that arbitrarily place them at a competitive disadvantage.



xyzzy said:


> Eurotunnel is profitable only because the debt that arose from constructing the tunnel was mostly removed from the Eurotunnel balance sheet in 2006-2008 after Eurotunnel technically went bankrupt. [...] The real problem with the tunnel at this moment is that freight through the tunnel is about one-quarter of the amounts forecasted 20 years ago.


Quite the opposite, many people may think the right thing to do in general is to build rail infrastructure with public funding, and Eurotunnel's financial challenges were the consequence of not applying that principle and of how the organizational structure was designed. So to many, Eurotunnel is another example of how in transportation, applying the mantra of "Let the private sector do it" in the wrong way may produce suboptimal results.

So many might think of course the construction of other transportation infrastructure is publicly funded, and so it is remarkable that in opposition to that common practice, the construction of the Eurotunnel was expected to be privately funded and solely relying on future profits to recover construction cost. Looking at other transportation infrastructure in the corridor, the M2/A2 or M20/A20 roadways from London to Dover were publicly funded, and not expected to be profitable. The port of Dover is in 100% state ownership. There would be so many more examples. So in case Eurotunnel would have been publicly funded like so many other transportation projects that are also publicly funded, then not only many of the private investors in Eurotunnel would not have incurred losses that happened due to the massive debt service that was created and then had to be limited, most of all the public of the past, present and future would stand to gain more benefits from the transportation infrastructure - the past and current dealings of the European Commission with Eurotunnel show the difficulty of trying to at least partially ensure that now.



xyzzy said:


> Given how strenuously the French and UK governments had to work to prevent Eurotunnel from going under [...], no one is surprised that the two governments resist reductions in tunnel usage fees.


The French and UK governments already agreed to letting Eurotunnel implement a reduction in tunnel usage fees. Of course many might think this is not enough, and that Eurotunnel should reduce the fees for passenger service just like European Commission stated, quoting report cited above about the "European Commission’s request to lower charges for passengers and freight trains using the Channel Tunnel. The Commission said excessive track-access charges had resulted in higher ticket prices for the service that links London with Paris and Brussels". Here is a link to a press report about how about half a year ago, the tunnel usage fees have been reduced for freight, and many might agree with the European Commission that further reductions in usage fees should be implemented:

European Commission welcomes Eurotunnel's plan to reduce charges by up to 50%

April 28, 2014

by European Commission Press release

http://europa.eu/rapid/press-release_IP-14-477_en.htm



xyzzy said:


> Therefore, Eurostar pays much less for tunnel access than they would otherwise have had to.


While of course it is legit to to make any statement about public infrastructure policy, some might think this is laughable. Eurostar currently pays much more for tunnel access than they would otherwise have had to. Eurotunnel is using its monopoly to charge excessive usage fees, and this is why the European Commission and others look into this matter. To many it is clear that by setting the conditions in a certain way, competing modes of transportation are at a competitive advantage compared to Eurostar high-speed rail, and the excessive usage fees charged by Eurotunnel are part of this.

For example National Express bus with its London to Brussels route, for the London to Dover part there are no road tolls to pay. In contrast, Eurostar International Limited has to pay for rail infrastructure usage from London to Folkestone. Then, National Express can use the 100% publicly owned port of Dover, while in France, port of Calais is publicly owned to 100% by Nord Pas de Calais Regional Council. In contrast, Eurostar has to use privately owned, for-profit Eurotunnel. From the french port to Brussels in Belgium, National Express can operate on publicly built and publicly owned roads towards Brussels, and does not pay any road usage fee. In contrast, Eurostar has to pay constantly rising track usage fees to Réseau ferré de France (RFF, French rail infrastructure owner) to continue its onward journey. The result: National Express can offer bus fares starting at 20GBP one-way, and the cheapest fare on Eurostar is 34.50GBP. Still when figuring in that Eurostar has to pay roughly 19GBP per passenger for usage fees of the Eurotunnel alone (and in addition there's the usage fees for the rail infrastructure outside of the tunnel on the British and continental side), then to many it's not surprising it can't offer fares as cheap as the bus, which for most of the route doesn't pay any usage fees. This is because Eurostar passengers were supposed to also pay off costs for initial construction of the Eurotunnel with their fares, while bus passengers are not supposed to pay off the costs of the construction of the roads with their fares. These are political decisions that arbitrarily put rail at an competitive disadvantage, and to many it's amazing that high-speed rail service is so efficient, it can be profitable despite all of this. After all, one regular Eurostar train can transport as many passengers are two B747s in regular configuration (and most people know that intra-European air services are conducted with aircraft seating ranging from roughly 190 to as little as 20 passengers, being comparatively less efficient). Air services competing with Eurostar include Ryanair, which is currently offering flights from Cologne Bonn airport to London Stansted for 9.99EUR (approx. US$12.50) one-way. It's understandable high-speed rail will have a hard time competing (of course trying it anyway) when the high-speed rail operator already has to pay about 24EUR (approx. US$30) to Eurotunnel for each passenger one-way. And then, the rail infrastructure access fees for the rest of the route (the British part, the French part, the Belgian part and the German part of it) have to be recovered on top of it, leading to a lowest fare of 59EUR (approx. US$79) one-way. But then again, already in the past Ryanair got quite some special arrangements with airports, and of course Cologne Bonn airport's construction costs are not expected to be paid by Ryanair's passengers, it was publicly built with public funding and is still 100% publicly owned. Cologne Bonn airport is constantly struggling to make any profit, but then again, the municipalities owning it also don't need to see dividends, while Eurostar passengers have to help pay with their ticket prices for Eurotunnel's owner's dividends. In conclusion, it's obvious to many that Eurostar pays much more for tunnel access than they would otherwise have had to, that Eurostar is a valuable asset and its profitability and services provided to the people are amazing, so at least some might want it to stay that way. So many might think it's fortunate that some are prepared to continue to make an effort for rail in general and also for Eurostar in particular.

Here is a recent BBC report about the planned sale and privatization of the British's 40% stake in Eurostar:



> Now, it might be a criticism too far to suggest that the Treasury is hunting down the back of the sofa to see what loose change it can find.
> 
> But to put it in context - the £300m or so that might be raised from the sale is not going to put much of a dent in the UK's public sector net debt load which stands at around £1,432bn, or 75% of gross domestic product.
> 
> ...


About the potential buyers:



> Whitehall sources tell me that SNCF is unlikely to bid for the Treasury's holding and will not take up its "last look rights" which would allow it to outbid any final offer if it pays a 15% premium. [...]
> 
> The government is hoping that pension and infrastructure funds will be willing bidders. Singapore, Kuwait and Qatar have made it clear that their sovereign wealth funds are interested in European projects where there is the potential for long-term, sustainable gains.
> 
> ...


source:

Eurostar sale could be last privatisation before the general election

October 13, 2014

By Kamal Ahmed

http://www.bbc.com/news/business-29597007

Here's what Labour shadow transport minister Mary Creagh said:



> Eurostar is a national strategic asset that is set to grow and to return increased profits to the UK taxpayer with new routes to Geneva, Lyon, Marseille and Amsterdam.



And here's the statement from the general secretary of the National Union of Rail, Maritime and Transport Workers (RMT), Mick Cash:



> This is a gross act of betrayal of the British people by a right wing government hell bent on selling off the family silver regardless of the real cost. This sell-off is just a short sighted act of industrial vandalism based on a bankrupt pro-privatisation ideology. RMT will fight this tooth and nail.


Source of quotes is following article:

Sale of UK share of Eurostar sparks opposition

October 13, 2014

http://www.railnews.co.uk/news/2014/10/13-eurostar-sale-sparks-union-opposition.html

And lastly, there are even small signs that even some ordinary people do care about something so abstract and complicated as the ownership of rail operating companies, like f.e. the following petition website shows:

Eurostar-Stop the Sell off

https://you.38degrees.org.uk/petitions/eurostar-stop-the-sell-off


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## jis (Nov 1, 2014)

I think in general the "profits" of Eurostar are exactly as legitimate as the profits of Southwest Airlines. Both get subsidies indirectly through provision of infrastructure the cost of which is not fully covered by so called charges for the same which are also often indirect. The bottom line is that as long as the concerned legislative bodies and the executives appointed by them have followed through on the mission that they agreed upon, and as long as within the rules and framework of the game and the provided infrastructure an operating company is able to eke out a surplus, that is legitimate profit.

Now there could be a separate discussion about the nature of the rules and framework, but that does not necessarily change the immediate statement that under the present rules of charging and cross charging, Eurostar makes a net profit.


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## beautifulplanet (Nov 1, 2014)

jis said:


> [...] The bottom line is that as long as the concerned legislative bodies and the executives appointed by them have followed through on the mission that they agreed upon, and as long as within the rules and framework of the game and the provided infrastructure an operating company is able to eke out a surplus, that is legitimate profit.
> 
> Now there could be a separate discussion about the nature of the rules and framework, but that does not necessarily change the immediate statement that under the present rules of charging and cross charging, Eurostar makes a net profit.


Thank you for your post.


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## Swadian Hardcore (Nov 1, 2014)

Hey, First UK Rail makes a marginal profit if you look at their financial report. I was hopping around the Greyhound financial report which is together with First UK Rail. A lot of revenue comes from the govt though.


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## xyzzy (Nov 1, 2014)

Professionally I'm no virgin when it comes to accounting questions, reported results, and enterprise valuation. Balance sheet changes, in general, trump any degree of reality that GAAP strives to bring to a given situation. Balance sheets are changeable by many mechanisms referred to above: the bankruptcy process (e.g. the major U.S. airlines aside from Southwest), the political process (e.g. state assumption or guarantee of debt), off-balance-sheet financing (e.g. movement of debt onto non-consolidated entities), etc.

In the case of Groupe Eurotunnel, 80% of the net earnings are actually attributable to tax-loss carryforwards. The investment bankers who advised on how to restructure Eurotunnel got it precisely right -- they are Really Smart Guys, as the phrase goes -- by leaving the company with just enough residual debt (90% of the company's EBITDA, post-restructuring, is eaten by debt service). Good show, albeit a synthetic and largely predetermined outcome. The question at Groupe Eurotunnel is what happens should the push from Brussels for lower usage fees actually be adopted (a step that would, of course, help the UK government in trying to sell its stake in Eurostar). Being the CEO of Groupe Eurotunnel, or for that matter an investor in Groupe Eurotunnel, is not an easy proposition at present because there's always the threat that your revenue stream will be forcibly renegotiated beyond your control. Nevertheless, the stock markets have been reasonably supportive of Groupe Eurotunnel in recent months. Perhaps they know that Brussels isn't likely to push Eurotunnel into a revisit of insolvency. Meanwhile Groupe Eurotunnel are diversifying, a sensible step under the circumstances.

GAAP earnings are usually clear so far as they extend, but the underlying question is always the quality of GAAP earnings and the comparability of contexts within which GAAP earnings are calculated. Let's see how the prospective purchasers of HM Treasury's stake in Eurostar, guided by their investment bankers who know how to look beyond GAAP, calculate the value of Eurostar. In six months we shall know the answer, assuming that there is full disclosure of what the UK government might do to sweeten the deal, and then one can compare the winning offer to the GAAP-derived earnings and draw one's own conclusions about the multiple and its implications. Rumor has it that SNCF, who should know as much about Eurostar finances as anyone, will not only refrain from offering to buy the UK stake but will also not exercise its right of first refusal at the 15% premium. By the way, per its own website Eurostar's profits are technically "operating profits" not the ultimate bottom line type of GAAP profits. EIL doesn't publish a formal audited set of financials; the numbers are rolled up into SNCF and the other owning entities in such a way that it's unclear what the standalone entire P&L statement of EIL would actually look like. But prospective buyers will see those numbers.

It's still a fact that no one seems to know how to increase freight usage of the tunnel. 

As to historical comparisons, I stand by my assertion that financial intervention by the governments of UK and France transformed both Eurostar and Eurotunnel from impossible financial situations to financial situations whose full veracity we can at least debate. Was this a correct public policy move? I believe that it was. I'm no critic of the tunnel or Eurostar. I ride the trains myself. But business has taught me to be a bit more cynical about financials.


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## Anderson (Nov 1, 2014)

Just a general thought, but as far as the tunnel's profits go that's no different than virtually every railroad in North America going through bankruptcy at least one time (and in many cases, multiple times).


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## jis (Nov 2, 2014)

Nor for that matter is the act of writing down questionable things when doing a big write off to take a big hit once in a while this allowing one to pretty up subsequent financial reports. Many large companies including the likes of IBM have done so, even otherwise pretty successful ones. Occasionally they get their hands slapped by the SEC, but mostly manage to stay just this side in the grey area.

Sent from my iPhone using Amtrak Forum


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## xyzzy (Nov 2, 2014)

The SEC is indeed fairly tolerant of write-downs. It's the IRS that gets irritated over them. And for the majority of corporations that have to carry lines of credit for their cash needs, write-downs can bust the covenants. Of course that doesn't constrain companies that have so much cash that they never have to borrow short-term.

But even at the SEC, a write-down had better not be reversed later. That's "cookie jar accounting" which the SEC and DOJ will go after in a heartbeat.


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