UK ferry operators tighten their belts

Two of Britain's leading ferry operators have introduced recruitment freezes and other tough belt-tightening measures, with the surging cost of bunkers a prominent factor in both cases. P&O Ferries admit that things are so bad that it would have had to issue a profits warning if it were still a listed company, while Red Funnel has had to axe over 20 round-trips between Southampton and the Isle of Wight each week to appease its investors.

News of the two companies' troubles will spur fears that the sector could be facing a difficult year, as holiday travel is typically one of the first areas of discretionary spending to be hit during economic downturns. All staff at P&O Ferries recently received a memo from chief executive Helen Deeble, revealing that the business faced what she called "acute financial challenges", with fuel costs leading the way.

If the prices prevailing at the end of last month hold, P&O Ferries's fuel bill for 2008 will be £40m up on last year, Ms Deeble said. There have also been operational difficulties with the vessel Pride of Canterbury and higher port operating costs in the North Sea.

"Based on these [factors], we foresee considerable profitability challenges for the rest of the year," she went on. As a result, a sweeping austerity package has been deemed necessary.

P&O Ferries has therefore introduced a total recruitment freeze on all vacancies, full and paort time, with only limited exceptions on a case-by-case basis. All discretionary expenditure has also been frozen, will the use of all consultancy services has been discontinued.

A similar memo went to staff at Red Funnel in May, which admitted frankly: "Trading performance for the first quarter has been severely damaged by a number of issues ranging from the state of the credit markets, fall off in discretionary spend, disjointed and early Easter, poor weather through school holidays, problems with trade bookings, lost calls and related issues... and website deficiencies." Fuel costs were said to be running "well above budget", as a result of which the decision was taken to reduce two-week fuel inventories to a "more reasonable" level.

Weekday high speed ferry crossings during the lunchtime period have been cut from every half hour to every hour, cutting ten sailings each week, while overnight freight crossings have also been consolidated, knocking a further 11 sailings out of the schedule.

While no redundancies are envisaged, vacant positions are not being filled unless necessary. Red Funnel was yesterday keen to stress that it is still advertising for some categories of staff. A spokesman for P&O Ferries said that the cutbacks were simply a matter of good housekeeping, at a time when it looked as if fuel prices were getting out of control. But the fall in prices in recent days is easing the pressure somewhat.

"The difference that makes is massive to a company that gets through the amount of fuel we do," he added. Jonathan Green, sales and marketing director at Red Funnel, said: "We have been far from immune from fuel costs. We have very much been looking to reduce costs wherever we can." The company has also instituted promotional pricing and a larger marketing spend in a bid to boost business. This campaign appears to be having results, with a pick up in bookings since the memo was issued, Mr Green argued.