P&O's plans to revive its failing ferry business through a major restructuring programme came as no surprise to the commentators. The need for radical action had been clear after the company announced losses of £25m in the six months to June 30, compared with £19.9m in the same period last year. Revenues were also down to £467.1m from £505.7m.
P&O's shake-up was announced on Tuesday and includes 1,200 job cuts, the closure of four of its 13 ferry routes and the reduction of its cross-Channel fleet by a third. Robert Woods, P&O's chief executive, said such drastic measures were necessary to put the ferry business back on a profitable footing.
The restructuring, noted the Lex column of the Financial Times, was not only an "act of natural justice" for anyone who has crossed the English Channel to a "chorus of beeping fruit machines, exuberant booze cruisers and the scent of chip fat", but for shareholders, too. "The plan is aggressive," said Lex. "P&O expects its actions to improve profits by £55m, which would raise analysts' operating forecasts for 2006 by 10%-15%. If this is achieved, the stock looks good value."
Robert Cole in the Times warned that those targets could be at risk, "not least [from] a strike". Bob Crow, the general secretary of the Rail, Maritime and Transport union, said on Monday that his members opposed redundancies and "will draw a line in the sand at compulsory job losses".
Why had P&O taken so long to start reducing its ferry business, wondered the Scotsman's Martin Flanagan. "The ferry services from Britain's shores have been flying a red flag" since the opening of the Channel tunnel in 1994, he explained. "Seldom has a sector had to face such a strong and damaging new competitor overnight - and the competition was both for passengers and, via Le Shuttle, for freight ... But trading was also badly aggravated by the simultaneous rise over the past decade of the budget airlines."
Those airlines were not in direct competition with P&O, said Anthony Hilton in the London Evening Standard, but they offered holidaymakers more short-haul options. "Rather than pop over to France for a short break, people these days pop along to Stansted or Luton instead and fly almost anywhere in Europe for not much more than it would cost to take the car over to Calais," he said.
Although the scale of the P&O shake-up was greater than predicted, the Independent's Jeremy Warner wondered if it would be enough. "Although P&O is taking an awful lot of pain in pushing through cuts in capacity, the lead it is taking may not ease the company's plight unless matched by similar action by others," he said. However, "the two main rival ferry operators, Brittany Ferries and Sea France, are state owned, while Eurotunnel is heading for yet another refinancing," he explained. "The consequent debt forgiveness programme may allow the Channel tunnel further to reduce fares in an effort to grab market share and boost revenues ... And though you never get to the bottom of these things, [Brittany Ferries and Sea France are] very likely state subsidised."
That meant P&O was on a "hiding to nothing", reckoned Neil Collins in the Daily Telegraph, and its "£150m deal two years ago to buy Stena Line out of the P&O/Stena joint venture on the Dover-Calais [route] now looks like a case of throwing good money after bad".
P&O has been able to stave off its problems until now because it has "had other strings to its bow and spent the last few years putting its thriving ports business at the heart of its business strategy", explained Cole in the Times. "At the same time, it has decided to sell its major property assets - putting La Manga, the golf resort in Spain, and Chelsea Harbour in London up for sale."
A successful restructuring, said Collins in the Telegraph, "would buy Mr Woods options, one of which would be to find a venture capitalist who'd sail away with the ferries. Shorn of the ferries, with the property business being sold, a debt-free P&O could focus on its world-class operation - running container terminals around the globe."
P&O could then take further advantage of the booming Chinese economy, reckoned Cole in the Times. It also hopes to benefit from the container terminal it wants to build on the Thames estuary. As the FT's Lex column concluded, encouragingly: "With ports providing a structural growth engine, it is too early for investors to jump ship."
