MISC | Yield Management in Railways

[Suburbanist]

Long time ago airlines learnt that they could maximize their revenues by means of managing fares, availability, offers and deals, modification rules, ancilliary fares and surchages etc. So, after a couple decades, the hardest thing to find is two passenger sitting side-be-side who have paid the same fare.

Yield management practices make a lot of sense: costumers are not equal, and their ability, willingness and sensibilitiy to pay different prices for exactly the same coach seat from point A to point B can be properly explored.

The more classical comparison is that a college student can buy his tickets with months in advance, but not pay a high fare, while executives and managers - even when not travelling business or first class - cannot plan trips within more than a couple days, and are more prone to buy the ticket even at n-fold times the student's one fare. On the other side, advance purchases make aircraft and crew allocation far easier than sit-and-wait until the last minute when hurried business travellers show up.

I'm amused by how passenger railway operators, especially high-speed ones, took so long to catch up with using these YM schemes on their services (the concept for commuter metropolitan rail will not apply as it). Fortunately, is a scenario that is changing fast.

Despite rolling stock, crowdness and realiability problems, British train operators are the most advanced in the art of yield management, extracting more money from those last-minute travellers who have small price-demand elasticity (they will pay very high fares because they need to reach their destinations in a hurry no matter what) and offering sweet deals for those who buy return-tickets some weeks in advance.

Then, Eurostar followed suit and start offering at least 5 different fare classes and ajdusting their availability to weekdays and more busy periods (of course they can charge more, in average, for early Monday or late Friday departures).

Trenilatia is slowly getting a grip with it, now requiring reservation in most non-regional trains, high-speed or not. With compulsory reservation came mandatory change and modification fees, though rules are still too lax and do not vary as much as they should acconding to fare paid. Even more interesting, they offer far more discount tickets in the Milano-Roma (through Bologna) journeys (which has a busy air shuttle competition) than in Bologna-Roma.

After decades of comforatable monopolies and XIX policies allowing tickets to be bought onboard (absurd), or ticket-holders to hop on any train, passenger rail companies are modernizing themselves.

With high-speed services liberalization, sooner or later low-cost rail operators (like iTGV) will pop up, offering competitive prices in major high-speed routes, concerned with providing cheap, fast and efficient transport between major demand points, and not carrying the burn of being part of an "integrated national network".

However, some issues remain unaddressed, and I hope rail companies tacke them soon:

- tickets are still unnammed, which combined with incresed fare discrimination has already started a (still) small market for scalpers or, for instance, bulk advance purchase by hostel groups in some major cities (it happens in Amsterdam and Londond AFAIK) to "resell" them to backpackers. Every high-speed and long-distance ticket should be named and not transferable.

- anacronic rail passes have not yet been pashed out. Once popular, Eurail, InterRail and such offers have no place in modern day, yield managed high-speed and long distance rail travel. For sure, ever increasing supplements and surchages are taking away the lure of this antiquaded products, but internationl rail passes programs should be scraped altogether.

- lack of platform and train access control makes it easier for passengers to play the system and manage to get combined services with regional or suburban journeys to avoid increased possibilities of charging more passengers arriving or departuring from stations where there is less competition with either other rail carriers or airlines. Target pricing would be far more interesting if long-distance services operated in "sealed" platforms, for instancing, not allowing someone with and Amsterdam to Paris ticket to board an Amsterdam-Bruxelles-Paris train in Brussels if by any commercial reason tickets from Amsterdam to Paris were cheper than ticketes from Brussels.

What do you fellow forummites think about rail travel pricing, particularly non-commuter, non-suburban/regional travel?

[K_]

Originally Posted by Suburbanist

- tickets are still unnammed

And I hope they remain so. One of the things I like about train travel in Europe is that I can walk up to the station, plonk down some cash, and travel to another station three countries away without as much as even having to show an ID.

- lack of platform and train access control makes it easier for passengers to play the system and manage to get combined services with regional or suburban journeys to avoid increased possibilities of charging more passengers arriving or departuring from stations where there is less competition with either other rail carriers or airlines. Target pricing would be far more interesting if long-distance services operated in "sealed" platforms, for instancing, not allowing someone with and Amsterdam to Paris ticket to board an Amsterdam-Bruxelles-Paris in Brussels if by any commercial reason tickets from Amsterdam to Paris were cheper than ticketes from Brussels.

A lot of what you propose is impractical in countries where the railways operate more like a mass transit system than the ground level airline you propose. Sealed platforms increase the "friction" in the system. Travellers don't like to spend time in stations, so short and easy transfers are a must. Ticket inspection prior to train boarding was once common, but dissappeared from most networks for a reason.

in Zürich the SBB is investing lots of money to increase the number of ways you can get to/from the platforms. Sealing platforms of is a complete non starter there.

What do you fellow forummits think about rail travel pricing, particularly non-commuter, non-suburban/regional travel?

In some countries there isn't realy a difference between commuter, regional and long distance trains. I might work in countries like France where the high speed of the TGV can compensate the "friction" losses at the endpoints, but it won't work in smaller countries. It can work between countries, and it works between Brussel and Paris, but there is to much casual, spur of the moment travel between for example Rotterdam and Antwerpen to make yield management practical there.

[nachalnik]

At Austrian railways (where I work...) it is not planned to change the open system. Tickets will continue to be issued unpersonally and the same price applies for a local train and a Railjet.
Maybe there will be some limited discounted tickets for travel outside the peak-hours, but the main aim is flexibility for the traveller.
The regular-interval timetables gives flexibility, which shouldn't be destroyed by compulsory reservation.

The main competitor in countries like Austria is the car, not the plane. Domestic aviation is hardly existing. A car has a perfect flexibility regarding time and route, and only an integrated public transportation system can compete with the car here.
People here wouldn't accept to plan trips from say Vienna to Graz weeks ahead. Trains run every hour and most passengers decide on the same-day or only one day ahead which train they actually take.

For long distances and high-speed trains like in France the circumstances are of course different...


Nachalnik

[MarcVD]

I think it would be a total nonsense.

The flexibility offered by the european train system, as well as the simplicity
of boarding a train in a station, compared to plane travel, is definitely a key
advantage of rail over air. What planes gain with their higher speed is lost
by the time spent in airports. Transform stations into "railports" and there will
be no advantage left for the train over planes. That would be the death of
European long distance rail travel.

ALso, try to remember (SNCF for example has almost completely forgotten
this) that the main competitor of the train is the car, not the airplane. You
don't plan a car trip months in advance. Killing this flexibility will probably
end up in getting more money per passenger, but the result will be less
people in the trains and more cars on the road.

[goldbough]

Originally Posted by Suburbanist

tickets are still unnammed

- anacronic rail passes have not yet been pashed out

- lack of platform and train access control

I disagree with just about everything you wrote. When I lived in Korea for 2 years, it was great to walk up to the window and get a ticket without paying a higher price because it was last-minute. I would have been much less inclined to buy such a ticket if it was priced higher. I can't stand airline fees to change a ticket. I guess they succeeded in reducing the number of people who change. I never change a reservation because of the high cost.

Are people not buying the rail passes? I've been to Europe twice and that's a necessity for me (but I ride trains for entertainment so I ride literally all day). If the rail passes didn't exist I most likely wouldn't even consider another trip.

I love small stations and being able to walk up to a platform. I can't stand going through security at the airport. You have to get there really early and all that jazz. For trains I can walk or if I'm late, just run up to it before the train arrives and I'm good to go.

[Stainless]

The yeild management model is the worst thing that could happen to rail travel. For trains to succeed they need to compete with car travel, which is spontaneous and usually costs the same no matter when you travel (save tolls which are cheaper at night and wasting fuel in traffic). I rarely use the train in the UK as I know I would be paying a high fare for buying at short notice. It would mean every trip would have to be planned and possibly taken at an inconvenient time to get a cheaper ticket. The example of boarding in Brussels with an Amsterdam-Paris ticket as it was cheaper just shows how confusing and imperfect such a system is. You can play with the UK advance ticketing system like that and make savings but it adds hassle and aleinates the infrequent user.

Germany seems to be doing well without this, they have around 4 million people using the Bahncard system, including quite a few with the Bahncard 100 who basically have the freedom of the whole country. The basis of this system is to compete with the car not the airline even though some high speed services are billed as an airline on the ground most users haven't planned ahead and would resent paying a premium for this.

One thing that this should reduce is crowding as people choose earlier or later trains but as you say, British trains are crowded at peak times so it clearly would only work if you had to refuse standing passengers, which would drive the ticket prices up on shorter routes.

[Suburbanist]

Well, yield management model in airlines educated the public. Everyone knows that it is insane to buy a ticket at the last moment, be it an Europe - New Zealand 30h flight or a shorter Madrid-Berlin one. Even low-cost carreiers like Ryanair and Easyhet have astonishingly high prices because some people (executives, people attending family emergencies, consultants etc.) will pay them for the convenience of buying a ticket at 15:00 and being airbone at 19:00. I'd guess these practices didn't increase, significantly, the amount of people taking ocean liners (which disappeared altogether) or even driving 3-days journeys from Sweden to Portugal.

On the other hand, yield management allows better fleet flexibility and gives ridiculous low prices for wise and advance travel planners. When this model started popping on airlines, there were a lot of concerns, but it prevailed nonetheless.

At least high-speed long-distance trains, say, those covering journeys above 300km, should embarce this system. It would make it more popular, it would, in the long term, change travel planning culture (decide in November whether are you going to visit that aunt for Christmas, not on Dec. 22th because you will not afford the last-minute fare on your student budget) and give railways greater flexibility.

The present system, in which railways set up long-distance trains with optmized local connections in mind, at regular intervals, with a fixed number of seats and with usually low occupancy should change for good. Market equilibrium should determine how much to charge costumers for those non-commuting routes according to advance, class, route etc.

If you all want an European case, take into account that average Ryanair fare for intra-European tickets (with all taxes and surchages) is about € 71, while for legacy companies it is € 93 (CSCA 2009), yet the public perception (what really counts, rather than reality) is that Ryanair is way cheaper than, say, Iberia, KLM or Alitalia. So if a private competitor sells a bunch of 3-months advance cheap tickets in Italy, Trenitalia can either follow suit - and compensate with higher last-minute fares - or start to be percepted as a "higher prices, same quality" operator.

Even with the car competition in mind, I'd say that most congestion problems in highways are not due to long-distance occasional travel, but from daily home-work commuting travellers. So if the occasional last-minute travel has to drive from Liverpool to London because last-minute fares cost £ 300, I see no problem for the overall congestion figures. Regional commuting rail projects have potential to take out fare more km-driven on the roads in an annual basis.

[K_]

Originally Posted by Suburbanist

At least high-speed long-distance trains, say, those covering journeys above 300km, should embarce this system. It would make it more popular, it would, in the long term, change travel planning culture (decide in November whether are you going to visit that aunt for Christmas, not on Dec. 22th because you will not afford the last-minute fare on your student budget) and give railways greater flexibility.

High speed railways allready do this to a certain extent, with mixed results. NS wants to try it on it's new high speed services, but will probably have to stop once they realise they actually need passengers to make a profit...

The present system, in which railways set up long-distance trains with optmized local connections in mind, at regular intervals, with a fixed number of seats and with usually low occupancy should change for good.

Why? The Swiss IC network is set up like that, and it is profitable (and very popular).

Market equilibrium should determine how much to charge costumers for those non-commuting routes according to advance, class, route etc.

That asumes that the distinction between non commuting and commuting routes is clear. It is often not. The train I commute on to work also transport vacationers on the way to the ski resorts for example.

If you all want an European case, take into account that average Ryanair fare for intra-European tickets (with all taxes and surchages) is about € 71, while for legacy companies it is € 93 (CSCA 2009), yet the public perception (what really counts, rather than reality) is that Ryanair is way cheaper than, say, Iberia, KLM or Alitalia. So if a private competitor sells a bunch of 3-months advance cheap tickets in Italy, Trenitalia can either follow suit - and compensate with higher last-minute fares - or start to be percepted as a "higher prices, same quality" operator.

Ryanair's core business is cherry picking and extorting local authorities that need traffic at their airports for political reasons. That is why their tickets are so cheap.

If you want a rail system that people use, then why not look first what systems look like that are popular? I don't think Japan Railways do that much yield management. The Swiss railways does no yield management at all. Yet both systems are very popular, efficient and usefull.

[Suburbanist]

Originally Posted by K_

If you want a rail system that people use, then why not look first what systems look like that are popular? I don't think Japan Railways do that much yield management. The Swiss railways does no yield management at all. Yet both systems are very popular, efficient and usefull.

Japan and Switzerland are excpetions in the sense both are relativelly small, highly populated and mountanious countries.

Italy, for instance, is montanious and relatively dense, and it's taking a completely different approach. In Italy, high-speed timetables are set up irrespective of local connections. Regional services are somehow coordinated with Intercity services, but not that much.

Even if they use partially the same tracks, each kind of service is planned and managed isolated from the others.

However, yield management is something to be done as a mean to maximize earnings. Once market freedom arrives on railways, market invisible hands are going to set up the most competitive pricing and fare system that maximizes earnings (not necessarily ridership).

[K_]

Originally Posted by Suburbanist

Italy, for instance, is montanious and relatively dense, and it's taking a completely different approach. In Italy, high-speed timetables are set up irrespective of local connections.

Which means that a lot of the time gain on the high speed train gets lost at the first transfer. That means that from the point of view of the traveller a lot of the investments made in high speed rails are wasted.

How investing in a way that the added value to your customer is lower than the cost of the investment can make economic sense is something I don't get.

[2co2co]

I travelled from Osaka to Nagoya on Shinkansen by just turning up, buying ticket (at regular price) - seats were full, so I stood (with yummy Takoyaki in hand :-P)

Apparently, this is unthinkable for Europeans... (especially the standing bit)
Is there any particular reason why high-speed rails cannot operate like a commuter train? The travel times of low-speed short distance and high-speed long distance are roughly the same.

[Suburbanist]

Standing passengers on high-speed lines would be quite unnaceptable, and would reduce the ability of rail operators to charge a lot for their services. After all, high-speed travel is all about comfort, convenience and efficiency - everything that travelling standing doesn't represent.

Moreover, you would have to have just one fare per class if high-speed trains were like commuting trains, reducing the ability to modernize the fare system, sell discount tickets etc.

[2co2co]

Originally Posted by Suburbanist

After all, high-speed travel is all about comfort, convenience and efficiency

I doubt this bit. A lot of people use Shinkansen to commute from Shizuoka/Odawara to Tokyo. Moreover, JR Central (JR Tokai) plans to put more emphasis on this "commuter train" aspect (Nozomi discontinued, Hikari and Kodama increased) once Maglev Chuo Shinkansen is open. What about a high-speed commuter train?

[Baron Hirsch]

Originally Posted by Suburbanist

Well, yield management model in airlines educated the public.

You really are a weird case. When German Railways started going down your road, it led to an uproar across the country. "Educating" people is not what they want. This is the age of consumer capitalism, and you have to give the people what they think they want. The difference is that until recently, flying was considered a priviledge of the few, and so when airlines started juggling around their prices, people were willing to go with the flow in order to become part of the priviledged few. With trains, traditionally and still today they are considered rather like an infrastructure, a public service. So the transformation of the German train price system is now frozen halfway, with some discounts based on predicted availability, others on flexibility, such as the above-mentioned popular BahnCard 50 or 100: first buys you one year's 50% price cuts), second buys you a pure flat rate on all trains for a year; (this must be your personal nightmare).
I think the benefits of the train system - flexibility, anonymity, open access - should be exploited, not combatted to produce airplanes on rails, such as the idiotic Eurostar.

[K_]

Originally Posted by 2co2co

Apparently, this is unthinkable for Europeans... (especially the standing bit)
Is there any particular reason why high-speed rails cannot operate like a commuter train? The travel times of low-speed short distance and high-speed long distance are roughly the same.

In some countries high speed railways are used by commuters. The train I take to work does 200 kph. :-) But that is because the line I travel on was build more like a conventional railway line, so the typical double deck stock the SBB uses within its borders works perfectly well on it.

However wear and tear on rails increases rapidly at higher speeds. The SNCF's solution to that was to build the TGV extremely light. Max axle load for a TGV is below 19T. One of the consequences is that you can't overcharge the train. If you would fill a TGV Duplex full with standing passengers it would becone to heavy to be allowed to run at speed... That's why even people om commuting tickets have to reserve seats (yes there are people commuting on the TGV...).

[nachalnik]

Originally Posted by Suburbanist

At least high-speed long-distance trains, say, those covering journeys above 300km, should embarce this system. It would make it more popular, it would, in the long term, change travel planning culture (decide in November whether are you going to visit that aunt for Christmas, not on Dec. 22th because you will not afford the last-minute fare on your student budget)

And do you personally like such a travel planning culture?

I don't. Our lives become more and more planned and we loose freedom and spontaneity.
Our decisions are not free, but depend on economical and technical systems. Progress is meant to improve our life, but in reality we become more and more slaves of that progress...


That's a kinda philosophical approach, but it should also be considered, and not only the question, whether yield-mangement allows the companies to maximize their profits...


I personally don't like to have my weekend-plans fixed for the next few months. I like to have the freedom to decide spontaneously where I go or to change my plans when I have the wish to do so.

For example last summer I was planning to do a 3-day-hiking trip in the High Tatra mountains from Zakopane in Poland to Strbske Pleso in Slovakia. Together with some friends we agreed about a possible weekend to make such a trip, but the final decision to make the trip (or postpone it) was made 1 day before leaving Vienna. That's because such a trip has to depend on the weather, which is known only a few days in advance.
Fortunately ordinary train ticket prices for this trips (Vienna - Krakow - Zakopane and Strbske Pleso - Bratislava - Vienna) are reasonable and don't depend on the time of purchasing....


Nachalnik

[Suburbanist]

Well, I wrote "educated" in the sense that companies, with the right incentives, can modify costumer behaviour to a certain extent.

Any yield-management (again, a scheme made to increase profits and push down overall average prices at expense of those who can be skimmed and charged far more) model must be properly introduced. First, you start with discounts for very advanced purchases, then you gradually modify your discount policy while gradually increasing on-spot fares. You cannot start implementation by means of hiking the on-spot fee. The whole idea is to take away any notion like "the fare from Paris to Bordeaux is € x. Once your costumers get used to check prices frequently, because there is just nothing like an year-long fixed fare, you can start increasing steeply the price for last-minute costumers and there will be no outcry.

Stripping the public of the notion of a comparison standard fare is essential for the sucess of any yield management scheme in any type of service. Airlines can apply such models so intensively because most passengers, today, have a vague idea about how much a ticket from London to Madrid or to New York would cost, and they are used to prices changing every hour or so. Once they do not expect prices to remain the same, savyy, price-concious, poor and conservative buyers start buying as soon as possible because they preffer risking the fare going downards ans loosing potential 'discount savings' than risking spending more money if the fare increases.

It is a very useful paradigm, allowing people to be charges more or less accordingly to what they are willing to pay. Occasional leisure travellers will not decide to travel at the last minute, they just know it will be expensive. They will buy advance tickets and get huge discounts, while last-minute travellers pays what they are willing to spend for their "must go" trips. In this sense, public get educated about how they can minimize their costs, and they plan around.

As for those who want to be free to decide what to do tomorrow on this evening's dinner, there is always a car waiting for you: no timetables, no seat restrictions etc.

[MarcVD]

Originally Posted by Suburbanist

As for those who want to be free to decide what to do tomorrow on this evening's dinner, there is always a car waiting for you: no timetables, no seat restrictions etc.

Yes and this is exactly what the train should be too. One train every hour in
every direction, buy a ticket - same price all year round - and hop on. Any
other scheme might happen to maximize the operator's profit - which is
definitely not the goal. The goal is service. And if it is well done, like swiss
and japanese people do, it might even be profitable. But I can guess, buy
reading your signature, that you and me are not dreaming the same world.

[Crownsteler]

Suburbanist, you really seem bent on turning trains into planes on wheels, don't you? (not only in this topic)
But you seem to forget that one of the greatest assets trains have, is that they are not (precieved of as) planes on wheels. It works so well because it has few, if any, barriers to its use. All you need to do is look up the timetable and go to the station. If a train is frequent enough (say 4x a hour or more) and/or follows a (precieved) logical schedule, even that isn't necessary.
The moment you are going to change that, I can guaranty you are going to put a lot of travellers (costumers) of.

The system you are proposing (which from now on I'll refer to as 'your system', if that is okey by you) works fine for business travellers and vacationers, and works so well because they have either an expenses account, or spend a lot of time planning their trip, respectively.
But the train market is not the same market. The average train traveller is either a commuter, or a (relatively) spontanious (/recreational) traveller, and your system works for neither. As such costumers require a system with few barriers to its use.

A real world example could be Fyra (HSL-Zuid) in the Netherlands. It is pretty much a complete failure, with very low ridership, despite operating in a large market. Fyra being branded as a premium, exclusive service, creates significant barriers to its use which most consumers wish to deal with/are not accustomed to.

You are argueing that a slow introduction of your system will change people's behaviour in favour of your system, but introducing such a system is prospectless because you will loose touch with your costumers, who will always be mainly confronted with the low barrier system (as commuters).

It works so well on planes, because it are planes, and trains are not planes. The moment you are going to change that the train will loose, because there is no reason to choose the train over the plane (convenience).

[K_]

Originally Posted by Suburbanist

As for those who want to be free to decide what to do tomorrow on this evening's dinner, there is always a car waiting for you: no timetables, no seat restrictions etc.

I don't have a car. I don't need to, because fortunately the public transport network here isn't run by you. :-)

I pay a once yearly fee for a pass that entitles me to unlimited travel on the entire Swiss public transport network. In first class this still comes out cheaper than what fuel alone would cost me where I to commute to work by train.

The public transport companies here realise that their competition is the car. And that they need to offer something that approaches the convenience of the car at a reasonable price to keep their customers. The Swiss Railways are quite successfull here, judging by the number of passengers they have. The train might be a tad less flexible by car, but there is still a train every half hour, till late, so I can without any problem go out for dinner in Zürich, and still arrive home at a reasonable hour. And as I'm not driving I can even have a few glasses of wine with my diner :-)
Because, face it, the car has one major disadvantage: You have to drive it yourself.