Collect revenue before managing it

This week I read about a Newcastle United fan who brought 14 return tickets for a rail journey to Oxford and saved £30 on the cost of a standard ticket. Fare levels in the British railway industry fluctuate between the outrageously expensive, usually inflicted on regular commuters, and the ridiculously cheap. Some years ago companies operating longer routes decided to copy revenue management techniques, but not the loyalty programs, successfully used in aviation. In doing so they failed to observe the differences between the two industries, notably that trains are not planes.

A plane usually flies between two destinations with a limited frequency and fewer seats. Fares are entirely controlled by the operator, and selected partners. Railway operators, in Britain, must grant access to the national network, creating scenarios where a combination of tickets on the same train are cheaper than a point to point or where a ticket to the end destination costs less than one to an intermediate station.

Airlines can limit or increase the number of seats available in each price bracket and monitor the effectiveness of these changes. They will not allow you to board a plane without the right ticket and collect applicable change fees. Crucially they can plan at a flight level. A single train seat can be sold to many different customers during a journey and, with another service just minutes behind, there is no guarantee that it will be occupied as planned. Revenue Management only works with effective revenue protection, which is difficult to implement effectively on individual trains.

There was a time when railway bosses understood the importance of collecting revenue. Now, to offset losses partly caused by heavily discounted fares, they are reducing staff at stations and on trains. As customers become aware that nobody is compelling them to buy a ticket, more and more choose not to do so. That is why so many operators are struggling, in spite of record passenger numbers. They need to implement methods of ensuring that every customer pays before experimenting with revenue management.


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