A DROP in passenger numbers and a reduction in the amount spent on board its ships have contributed to a pre-tax loss of £210 million for the P&O group in 2004.

But the company’s bosses say changes to the way they run the ferries sector of their business, have already started taking effect.

Ferry passenger numbers fell by three per cent last year, and the average spend by passengers also fell sharply by 23 per cent.

"In September we announced proposals to change fundamentally the way we run our Ferries business in response to difficult industry conditions," said P&O chief executive Robert Woods.

"Those proposals are being implemented quickly following agreement with trade unions and the benefits are starting to be seen.

"We are operating on fewer routes with fewer ships and a cost base that is becoming substantially lower and more flexible."

P&O - the parent company of Dover-based P&O Ferries - had been expected to make a pre-tax profit of £170 million. But a number of one-off costs, including axing ferry routes and jobs, resulted in the loss. Those cuts are said to have cost £267 million.

Following the announcement of the loss, shares in P&O fell by five per cent.

As part of a major shake-up to revive its ferry business, P&O cut four of its 13 ferry routes, got rid of eight ships, and announced 1,200 job cuts.

The changes were the result of a comprehensive review of its ferry operations following competition from SpeedFerries, the Channel tunnel and budget airlines.

Mr Woods said the group results reflected a substantial improvement in trading performance. “We also made considerable strategic progress during the year.

"Excluding our rapidly reducing property business, where we have announced net sales of over £500m since the beginning of last year, operating profit is anticipated to improve further in 2005."