Pricing and Revenue Management Overview
May 30, 2013
Agenda
• Pricing & Revenue Management Overview
• Upcoming Revenue Management System
Pricing and Revenue Management
PRM Overview – Functions
Pricing and Revenue
Management
Decision Support
Systems
Pricing and Tariffs
Revenue Management
NEC, SD, Auto Train
routes
Revenue Management
Long Distance Routes
• PRM: Three primary units
– Pricing: Sets price points by city pair; creates an environment that covers the
range of possible demand sensitivity throughout seasons, days of week, and
times of day
– Revenue Management: Implements inventory settings that capitalize on price
points to maximize revenue for a given departure
Applied in a reserved and variably priced environment
– Decision Support: Provides decision support tools. Operations research, business
analytics, and tracking systems as well as reports and ad hoc analyses.
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PRM Overview – Goals
• Maximize ticket revenues for Amtrak routes through blend of:
– Pricing structures that cover the range of passenger
price sensitivity
– Revenue management actions to implement best
inventory allocations by city pair for each Amtrak
departure
– Focus that is not exclusively load factor (% of seats
sold) or yield (revenue/seat-mile), but ticket revenue per
available seat-mile (T-RASM) – maximizing revenue per
departure
÷
T-RASM
YIELD
REVENUE ÷
PRICE$
×
PAX#
×
LF
RPM
÷
×
MILES
ASM
× CAPACITY
• Minimize the risk of unsold inventory (spoilage) and denied sales (spill):
– Spoilage can occur when pricing is set too high, no-show rates are not properly offset
with overbooking, or lack of customer awareness
– Spill is when the train sells out either:
With demand remaining or
Early with fares too low and higher fare paying passengers turned away
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PRM Overview – Pricing Strategies
• Initial price points are determined by:
– Historical precedent (i.e., performance of existing prices)
– Market response to prices;
– Revenue Managed routes must have fare structures that cover the range of
passenger price sensitivity
– Competitive forces - air, bus, car
• Adjustments made based on:
– Economic factors – including condition of economy or cost of gasoline
– Demand elasticity models provide insights on ‘what if’ scenarios for ridership and
revenue impacts of fare changes
• Sale or special offer fares periodically created to drive off-peak sales or
address a competitive threat
• Each price point within a specific city pair is assigned to a unique
“bucket”, which can then be managed relative to demand
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PRM Overview – Pricing and Inventory Structures
Service Type
Characteristics
Notes
Unreserved
Open, unrestricted inventory
Tickets can be used on any train.
Single price per departure.
Best for commuter operation, not desirable for
longer, inter-city travel
Can be defined within travel
parameters such as day of
week, time of day, season
Unreserved trains cannot support revenue
management of multiple fares for any one
departure
Reserved
Controlled total capacity
Tickets purchased for specific departure.
Not Revenue
Managed
Single price per departure.
Minimizes standees and shifts demand to
alternate departure at sell-out.
Reserved
Controlled inventory of
multiple fares for any given
departure
Revenue
Managed
Can be defined within travel
parameters such as day of
week, time of day, season
Capacity is allocated at
specific prices by departure
Ticket use restricted to specific departure
purchased.
Trains must be reserved to be revenue
managed.
Provides greatest pricing control & revenue
maximization
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PRM Overview – Fare Structure Examples
Single Fare – Unreserved
Variable Prices, Revenue Managed
U (Base)
$37
Y
$113
U (Holiday)
$45
A
$87
B
$67
D
$51
• Unreserved structure with one fare available per
city pair and service
– Can also be structured as peak/off peak by
day of week or time of day
• No inventory is associated with Coach Class;
• Business class accommodation fee charged in
conjunction with available Coach class fare
• Generally fare increases occur once a year
unless market conditions warrant an additional
increase
• Four price points for Coach class assigned to
individual buckets
• Business class accommodation fee charged in
conjunction with available Coach class fare
• Prices are assigned to buckets which enable
allocation of seat availability for each individual
price
• Revenue Management allocates seat
availability based on historical demand that
protects for highest revenue first to lowest
revenue
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PRM Overview – Revenue Management Strategies
• Relies on historical data to predict future demand and maximize revenue:
– Evaluate historical booking patterns, ticket lift, no-show rates, advance booking
indicators, and seasonality
– Identify off-peak or weaker segments
– Minimize capacity spoilage through overbooking
• Inventory allocations are based on a top-down approach
– Protect for the highest fare demand, followed by the second highest, and so on, until
either demand or capacity is exhausted
– Lower demand departures have more availability in the lower buckets
• Integration of Decision Support Portal with web-based Tools and
Applications
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PRM Overview – Approach To Market Management
1. Planning &
Implementation
Key Activities
• Evaluate historical demand data • Monitor closer-in advance
for targeted travel period
bookings using Outlook Tools
Outputs
3. Post Departure
Review
2. Monitoring &
Adjustments
• Access data through Advance
Planning Application, DDQT, or
other tools
• Manage booking variances
through Exception Alerts in RM
Workbench Application
• Incorporate known
anomalies/events impacting
data results
• Utilize MDV Application for
booking trends
• Demand allocation plan entered • Identification and adjustment of
into Arrow
departures requiring allocation
changes
• May use Market Inhibitors
• Evaluate post departure
capacity utilization and
High/Low KPIs
• Evaluate Overbooking metrics
using Overbooking and Standee
KPIs
• Evaluate T-RASM and Key
qualifying metrics using TRASM Trends Tool
• Identification and adjustment of
departures requiring
overbooking and allocation
changes for revenue
improvements
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Examples of Specific Fare Strategies
• Price Tapering: Rationalize pricing across the route to ensure consistent
pricing relationships are maintained
• Stretch Pricing: Restructure fares to expand price curve to meet various
passenger price sensitivities while maintaining attractive entry level pricing
• Recalibrate: Adjust bucket structures that improve sell-up capabilities to
increase revenues
• Increase Fare Structure: Rationalize pricing along the route, while also
increasing lower price points
• Business class Restructure: accommodation charges from flat rates to rates
reflective of distance
• Tactical Prices: Create stimulatory pricing with unique fare rules to address
specific market conditions or competition
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How Amtrak Pricing team works with State Partners
1. Pricing Advisor and Strategist
–
–
–
–
Evaluate fare structures for new revenue opportunities using price elasticity
models
Estimate revenue and ridership impact of potential fare actions
Prepare and share evaluative materials for discussion and decision with State
Develop annual fare increase schedule
2. Execute Pricing Strategies and Tactics
–
–
–
Calculate and release fare increases as scheduled and any agreed fare
structure changes
Release any agreed fare sale and promotional offers
Track and measure impact of price changes
3. Revenue Management Expertise
–
–
Develop and execute price bucket authorizations that allocate the number of
seats available for specific price points and city pairs
Transition route to revenue managed if desired
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Future Improvements – RM Automated Forecasting Solution
Benefits of RM Automated Forecast Solution:
•
In any given day there are 77k revenue managed departures for sale creating over
135m revenue decision opportunities. The automated tool provides a greater level of
detail and reoptimization not possible in a manual environment
•
RM-AFS is expected to return an average of 4% in annualized incremental revenue
improvement based on Amtrak’s proof of concept benchmarking test results
•
$68.1m incremental revenue vs FY12 baseline will be achieved within three years of
an FY14 deployment
Internal Amtrak
History
Published
Forecast
Arrow
Point of
Module
System
Purchase
Grouping &
Est. Demand
Optimization &
Application of
Cleaning of History
& Expected Value
Setting Inventory
Business Rules
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