View Full Version : Yield management - air v rail

20th Nov 2013, 18:20
Maybe this is an old chestnut, but with 250k Economics prizes out there for new towns and leaving the Euro, perhaps Lord Wolfson could come up with one for this:

Please explain Virgin Trains' peak pricing policy.

Now i get the concept of yield management, especially as practiced by the European locos, such that Ryanair have previously sold flights for 1p, and that Stelios has tried variable pricing across other industries, to the point that the term "Stelios pricing" is understood by many.

Not all transport companies want to yield manage in the same way - after all, a premium product, should be able to command a premium price, but the two extremes of yield management are rarely conducive to profits, namely:

"But the flight was full" syndrome - anyone can fill a plane if the price is low enough, but this has little relationship to profitability.

"**** off" pricing - where the bar is set so high that even though the cost per passenger is extortionate, there are so few passengers that yield drops through the floor.

Now I can also accept that airlines might generally be expected to operate at higher load factors than train companies, as fuel becomes a much higher component of the cost, and they can more easily switch equipment around to serve peaks and troughs in demand.

Yet, on the other hand, UK rail companies, who do not use mandatory reservations, have two price points to either attract or repel customers, namely the walk up (anytime) fare, and the advance fare, which can be subject to yield management.

So why oh why, is the one rail company whose parent group has so much experience in aviation operating so many trains at PEAK times with so many empty seats?

To quote a close relation who is a daily commuter on their services:

"I get upset when I DON'T get a seat next to me to rest on, in addition to my own seat. Loadings above 60% are extremely rare."

This just makes no sense to me whatsoever. I can just about accept that 1st class is a "premium" product, where those paying full fare don't want to be disturbed by "plebs" paying half that - but not in in mere (bog) standard, and not when the so-called "peak" has already usurped so much of the day, such that the first "off peak" doesn't depart the West Midlands until 10:31.

So given that there is a fair amount of knowledge of both aviation and rail on this forum, can anyone please explain?