How London-Paris Eurostar Trains Affect Airline Industry?

Case Type: business competition/competitive response.
Consulting Firm: Booz Allen Hamilton (BAH) final round job interview.
Industry Coverage: transportation; airlines; railroads & trains.

Case Interview Question #00239: On May 6, 1994, the Channel Tunnel officially opened connecting the United Kingdom and France. The Channel Tunnel is a 50.5-kilometer (31.4 miles) undersea rail tunnel linking Folkestone, Kent in the UK with Coquelles, Pas-de-Calais near Calais in northern France beneath the English Channel at the Strait of Dover.

The airlines covering the London-Paris route then faced a strong competitive threat from a train service covering the same route (the tunnel carries high-speed Eurostar passenger trains). How should the airlines have reacted to this threat, specifically the threat to business passengers who had been their most lucrative market? How would you see the competitive situation sorting itself out – specifically, would Eurostar trains or airplanes win or will there continue to be a market for both?

Possible Answers:

A good answer will cover the following points:

• Service differentiation
  • Time taken overall from point to point.
  • Comfort at any stage from point to point.
  • Frequency of planes/trains.
• Convenience (ease of reaching stations/airports, boarding, etc.)
  • Ease of working on board.
  • Customer segmentation: e.g., commuters, transit passengers from other routes.
• Price
  • Price sensitivity of business travelers.
  • Price advantage/premium of one form over the other.
• Cost structure of both industries
  • Both industries have high fixed costs.
  • Implication of a price/fare war.
• Capacity/operations
  • Change in capacity.
  • Relative capacity.
  • Ease of changing capacity (i.e. different size planes).

An excellent answer might also include one or more of the following:

• Changes in the regulatory structure in Europe and effects the rail and airline industries.
• How individual airlines might react based on fare structure, route system, financial situation or size.
• How the relative mix of leisure and business passengers (and the ease with which that mix can be changed) might effect competition.
• Game theory and/or macroeconomic discussion.
• Effects of passenger loyalty.
• Effect of possible future events (air or train accident, changes in fuel prices).
• Changes in business purchasing habits.

Notes: Speed of the Eurostar trains undoubtedly is the key to its success in Europe region. The travel time is 2 hours 15mintues to reach Paris from London. Flight time is almost same, but one saves times in check-in and check out at airports. Moreover Eurostar Premium class tickets are cheaper than business class air tickets with amazing facilities that one may not get on flight. If one is regular customer then price of ticket can be further reduced by the loyalty program.