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Two Pricing Optimization Applications at Amtrak
ShareFares Amtraks Small Group Fare
OneTouch Amtrak Group Optimization Model

• INFORMS June 6, 2006

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ShareFares - Background

• Almost 96 of Amtrak customers in the northeast
  corridor travel by themselves or with one other
  person
• Current Fares discourage groups larger than 2
• We d charge from 68 to 120 one-way off-peak
  travel between Washington and New York on or
  Regional trains.
• The one-way fare for groups of 3 or more exceeded
  200.
• Most families are more likely to take the bus or
  drive.
• ShareFares includes a deeply discounted fare for
  the 3rd through 6th traveler in each group
• 90-off for the 3rd, 4th, 5th, and 6th rider
• Even with the 90 discount, Amtraks incremental
  revenue has been significant, because it includes
  the first two riders at full far.

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Pricing Example NYP to WAS

• The first two riders pay the prevailing price.
• Starting with the 3rd rider, the average price
  per rider drops significantly, especially for
  larger groups.
• For a group of all adults, a group of six save
  60 (274) from what we are charging today.
• Before ShareFares, a group of two adults and four
  children paid 304. With ShareFares they pay
  182, a 40 discount.

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Dilution Has Been Minimal

• Almost 96 of Regional reservations were for only
  1 or 2 riders.
• Dilution was minimal, due to offer only applying
  to groups of 3 or more.
• Dilution was further reduced with a 7-day APR.

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ShareFares has Been Very Successful

• In its first 12 months, it generated over 4
  million in incremental revenues
• Displacement is controlled with Revenue
  Management
• Dilution is minimal due to small customer base of
  groups of 3 or more and use of 7-day APR
• This was accomplished with little advertising (we
  couldnt afford it!)
• With dilution and displacement under control, we
  could afford to let demand build by word of mouth
  and PR
• It is an Active Promotion We encourage or
  reservation and sales agents to offer it whenever
  it fits
• We recently have changed the discount to 75 to
  measure price elasticity

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Group Pricing - Background

• In FY05, Amtrak received approximately 14
  million in group business
• This is a little over 1 of total revenue (1.3
  billion)
• However, Revenue Managers spent 15 to 20 of
  their time on pricing groups
• Their efforts were primarily defensive,
  protecting higher-demand departures from selling
  out due to to many through-seats sold to short
  distance groups
• Group decisions were done manually, resulting in
  a bias to keep all groups away from higher demand
  departures
• Requests took 24 to 48 business hours to be priced

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Solution OneTouch Amtraks Group Optimization
System

• OneTouch solved three problems
• Speed of Response Now most group requests are
  priced within 30 seconds
• Better utilization of resources
• Reservation center operators do not have to call
  back customers to quote the price
• Revenue Managers now spend less than 1 hour
  monthly reviewing pricing decisions (versus hours
  each day)
• Pricing is optimized, increasing group business

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OneTouch fixed Manual Pricing Bias Against Groups

• Most Revenue Managers saw all groups as a risk
  not worth taking unless there was no risk of
  selling out
• Groups traveling longer distances (with higher
  fares) were automatically refused, or priced at
  highest bucket
• Revenue Managers did not consider that many times
  the average price at the peak leg was well below
  the lower buckets of the longer distance markets
• OneTouch both forecasts non-group demand to
  determine displacement risks as well as optimizes
  the peak leg seats when displacement is likely
• The length of market (and value of fare) plays a
  bigger role than bucket in optimization decision.

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Overview of Optimization Process

• Leg Value Computation.
• Demand forecasting at leg level.
• Group Evaluation
• Displacement
• Displacement Value
• Group value
• Group Denial or Acceptance
• Future Enhancements

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Leg Value Computation

• A leg demand has a composition of different
  markets
• High demand short haul market
• Low demand long haul market
• Demand farther out in the booking cycle
• Demand closer in to the booking cycle.

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What is it Worth?
40 5 Legs
90 12 Legs
80-10 Legs
150 16 Legs
TOL
CUM
PGH
CLE
CHI
CHI
HMI
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Group Evaluation - Displacement
Displacement 15, Non Displacement
10 Displacement Value 76 15 Non
Displacement Value Lowest fare for the Market
10 Group Value Displacement Value Non
Displacement Value
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Future Enhancements

• Expected Demand based on the time of arrival of
  the group request
• Value of the leg as a function of days before
  departure
• Step-wise displacement