Rail Operators Need a More Intelligent Approach Towards Ticket Pricing Otherwise They Risk Revenues Coming Off the Tracks, Warns JDA Software

Greater flexibility required if rail operators are to maximise capacity and recoup their investment in 21st century infrastructure and rolling stock

June 11, 2012

Greater flexibility required if rail operators are to maximise capacity and recoup their investment in 21st century infrastructure and rolling stock

JDA® Software Group, Inc. (NASDAQ: JDAS), The Supply Chain Company®, today warned of the need for the rail industry to adopt a more intelligent approach towards pricing and revenue management, otherwise it risks reduced revenues as people look at alternative modes of transport. Overcrowding and increased prices continue to be the major challenges of today’s rail passenger. A recent report by the Association of Train Operator Companies (ATOC) found that one-third of United Kingdom (UK) rail users were dissatisfied with fare value, while one-in-two passengers felt they had insufficient room to sit or stand on certain journeys. This isn’t an issue just isolated to the UK, as it is clear rail operators worldwide need to be able to better react to, and satisfy, customer demand.

In order to address the pricing and capacity pressures facing today’s rail operators, JDA Software proposes the following recommendations:

  • One price doesn’t fit all – Rail operators need to move towards smarter and more targeted pricing, which will benefit passengers across the board. This in turn will help create a more self-sustaining business model for the industry. Rather than a one-price-fits-all approach, fares should better reflect expected demand with higher prices during the super-peak compared to normal-peak trains. In order to manage capacity more effectively, operators should use historical and external data to predict demand and see where overcrowding or under-capacity will occur. 
  • Take a leaf out of the airlines’ book – The airlines have had a more dynamic approach to pricing for a number of years and have seen the benefits of becoming more financially viable and offering better value to passengers. Higher prices for fuller trains will give rail operators the opportunity to better spread out capacity across their journeys. This isn’t all bad news for passengers travelling at peak times. By pricing fares at super-peak and peak hours differently, those passengers who are on flex-time or can afford to take a train 20 minutes later will be motivated to do so, meaning that more passengers are likely to get a seat and have a more comfortable journey. 
  • Get smart with technology – Smart card technology is being increasingly used across the rail industry. The more forward-thinking and innovative rail operators could look to allow their prices in the future to be set by train departure. This would allow customers the choice of paying more to travel immediately or saving money by delaying their travel, without having a long wait for an off-peak train.

“Rather than setting a flat pricing structure where price increases impact all passengers, price increases should be more intelligently spread. Rail operators must use price-sensitive forecasting to better understand what customers want, when they want it and how much they are willing to pay,” said Peter Shearer, vice president, passenger transportation, JDA Software. “In gaining this level of insight, rail operators will then be in a far better position to set more agile rates, allowing them to better shape demand and ensure revenue leakage is kept to a minimum. At a time when there has been a lot of investment in new high-speed routes and rolling stock, it has become more imperative than ever that rail operators are in a position to quickly recoup revenues.

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