The government has removed the final obstacle in the way of a link-up between rival ferry companies Stena Line and P&O. The firms have been fighting a bruising price war on the lucrative Dover-Calais route across the English Channel.

The new jointly-owned company will operate ferries from Dover to Calais and Newhaven to Dieppe, and a freight service from Dover to Zeebrugge.

The number of ferries on these routes will be cut from 14 to 11. The new service will start on March 1.

The two ferry companies have wanted to merge since 1996 because of fierce competition from rail services through the Channel tunnel. But there was fear that the two companies - which control 75% of the market of ferry crossings from Dover - would raise prices.

The companies will lose staff in the merger.

The tunnel opened for operation in 1995 and by August 1996 had won 41% of the car traffic versus 41% for the combined operations of P&O and Stena, and 18% for other operators.

On the freight side, trains using the tunnel took 44% of market share against 40% for P&O Stena Line and 16% for the rest.

Together, Stena and P&O hope to save £75m a year on the cost of operating the routes. The savings will be made by employing fewer crews on the ferries, fewer staff in marketing and administration and from lower port charges.

Five hundred jobs will be cut following the government's decision to approve to the merger.

P&O said that nearly all the redundancies would be voluntary as the companies had had nearly 18 months to prepare for the merger.
 

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