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Pricing and Revenue Management Overview May 30, 2013. Agenda Pricing & Revenue Management Overview Upcoming Revenue Management System. PRM Overview – Functions. Pricing and Revenue Management. PRM: Three primary units

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pricing and revenue management overview may 30 2013

Pricing and Revenue Management OverviewMay 30, 2013

  • Agenda
  • Pricing & Revenue Management Overview
  • Upcoming Revenue Management System
prm overview functions
PRM Overview – Functions

Pricing and Revenue Management

  • 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.

Decision Support Systems

Pricing and Tariffs

Revenue Management

NEC, SD, Auto Train routes

Revenue Management

Long Distance Routes

prm overview goals


















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
  • 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
prm overview pricing strategies
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
prm overview fare structure examples
PRM Overview – Fare Structure Examples

Single Fare – Unreserved

Variable Prices, Revenue Managed

  • 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
prm overview revenue management strategies
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
prm overview approach to market management
PRM Overview – Approach To Market Management

1. Planning & Implementation

2. Monitoring & Adjustments

3. Post Departure Review

  • Evaluate historical demand data for targeted travel period
  • Access data through Advance Planning Application, DDQT, or other tools
  • Incorporate known anomalies/events impacting data results
  • Monitor closer-in advance bookings using Outlook Tools
  • Manage booking variances through Exception Alerts in RM Workbench Application
  • Utilize MDV Application for booking trends
  • 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 T-RASM Trends Tool

Key Activities

  • Demand allocation plan entered into Arrow
  • May use MarketInhibitors
  • Identification and adjustment of departures requiring allocation changes
  • Identification and adjustment of departures requiring overbooking and allocation changes for revenue improvements


examples of specific fare strategies
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
how amtrak pricing team works with state partners
How Amtrak Pricing team works with State Partners
  • 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
  • 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
  • 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

Internal Amtrak






Point of



Grouping &

Cleaning of History

Est. Demand

& Expected Value

Optimization &

Setting Inventory

Application of

Business Rules

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