Tuesday, April 26th, 2011

Amtrak Should Innovate with Hiawatha Service Pricing by Jeramey Jannene

[ I’m delighted to provide a sample of what you’ll find over at Milwaukee’s premier urbanist site: Urban Milwaukee. It is of course very Milwaukee-centric, but this piece has a lot of interesting ideas with potentially broader applicability – Aaron. ]

If you want to ride Amtrak’s Hiwatha Service line between Milwaukee and Chicago, the cost is $22 per ticket. If you buy your ticket in advance, the cost is $22 per ticket. If you ride on the weekend, the cost is $22 per ticket. If you want to ride in the middle of the day, you guessed it, $22 per ticket. With Interstate 94 under construction between the state line and Milwaukee for the next few years, new equipment on the way from Talgo, a new Milwaukee Intermodal Station train shed coming, and a route extension to Madison under construction, it’s time for Amtrak, iDot, and WisDOT to explore new pricing models for the state-sponsored rail service to encourage more riders and raise more revenue.

Amtrak, to their credit, does offer discounts for children (ages 2-15) who ride for $11 each with the purchase of an adult ticket (up to two discounted tickets per adult ticket). They also frequent rider discounts, in the form of a ten-ride ticket for $165 (that expires in 60 days) and an unlimited route ridership pass for a calendar month for $358. Those options leave a lot to be desired though.

Before I propose my list of pricing suggestions, it’s worth noting that the 2010 Amtrak Fiscal Year (October 1st, 2009 – September 30th, 2010) resulted in record ridership and record ticket revenue for the Hiawatha Service (and Amtrak as a whole). The Milwaukee to Chicago route had 783,060 trips and generated $14,092,802 in ticket revenue, for an average of $18.00 per ride. More valuable than the average revenue per ride would be to know both how many riders paid full price (and at what time of the day and day of the week), but unfortunately Amtrak doesn’t release that data. For the sake of this article, we’ll use my informal observations from riding and the data we have available to assume that a very high percentage of unique, adult riders pay full fare.

The pricing suggestions I propose are aimed at increasing ridership and marginal revenue simultaneously, while not requiring any service changes. They might have the added positive externalities of reducing congestion, reducing pollution from automobiles, improving the reputation of Amtrak, and encouraging travel and business between Milwaukee and Chicago, but if any of those things happen it’s merely a bonus.

Pricing Suggestions

Megabus Model – Megabus is famous for their $1 tickets, despite the fact that rarely anyone actually gets to buy one. The service is sold on a yield management pricing model, where the first one or two tickets are $1 with prices increasing incrementally from there. Amtrak could offer the Megabus pricing model not on all trips, but on the lowest ridership ones. This is likely to be especially valuable given that Megabus has drastically scaled back service out of Milwaukee.

Badger Bus Model – Badger Bus, the bus company that currently offers inter-city bus service between Madison and Milwaukee, has a pricing model for frequent riders that allows the company to collect interest off future ticket purchases. Amtrak currently offers a 10-ride ticket for $165, but it expires within 60 days. Using the Badger Bus model, Amtrak would allow customers to give the customers a large sum of money up-front in exchange for a discount whenever those funds are used to buy a ticket. In the case of Badger Bus, a $125 deposit gets you $175 in purchasing power (29% discount). The benefit maxes out at a $325 deposit ($485 purchasing power, 33% discount). If Amtrak were to offer something similar, they could be collecting interest on my money just like Badger Bus is (the last time I put $125 with Badger Bus it took me two years to use it all). An added revenue bonus is available with the model in the form of permanently unused funds, similar to gift cards that go unused. Amtrak would need to analyze exactly what deposit amount to collect, and how big of a discount to give.

Hessenticket Model – Germany has an innovative weekend pricing model available with their national rail system. The state of Hesse (home to Frankfurt) offers a weekend pass for 29 euros, where you and up to four others can ride the system’s non-high-speed all day on either Saturday or Sunday, anywhere you wish to go, getting on and off as you please. Their is a national pass with similar rules available for 33 euros as well. Implementing the idea between Milwaukee and Chicago might not work quite as well, but with future service extending to Madison it might make more sense. It seems reasonable to assume Amtrak could offer up a four-rider, $50 weekend day-pass with the requirement that the riders sit together (to prevent abuse).

Off-Hours Pricing – The current system prices every single-ride ticket equally, regardless of the time of day or day of the week. It’s worth exploring the idea of pricing lower ridership trips at a cheaper fare.

Wisconsin Vouchers – Scott Walker has managed to make an Amtrak service extension as political as possible (see: NoTrain.com). The victor on November 2nd would be wise to explore sending a non-transferable voucher to every taxpayer when the new Talgo equipment is put into service, giving them one free one-way ticket on the Hiawatha. It would be great for Illinois to do the same (tourism dollars on top of increased revenue). It’s hard to find someone who has ridden the service, but dislikes the quality of the ride. It is, however, easy to find someone who thinks the service is a “boondoggle” and has never ridden. The vouchers would serve as a new-customer acquisition strategy, generating a lot of new customers who would effectively be getting a half-off first trip. The long-term value of those new customers could be enormous. As an added bonus, angry Journal Sentinel commenters no longer can argue they get nothing in return for the state sponsorship of the rail line.

Corporate Pass – What if businesses got a discount when they purchased tickets? Could the company car be replaced (or the least supported) by the company rail pass? A program where the more tickets a business buys annually results in a greater and greater discount could increase revenue.

Advance Purchase Discount – Hotels often offer a price discount for booking your room early, Amtrak should do the same. Even if it’s only a 5% discount, or the ticket has to be bought at least 6 months in advance, Hiawatha ridership might increase (and Amtrak might collect interest) if customers book their tickets early.

Buy-One, Get-One – As one boards the Hiawatha they notice that the greatest unused inventory isn’t two empty seats together, but the empty seat next to a rider. To make better use of the marginal inventory, Amtrak should offer some form of buy-one, get-one free (or half off) for riders that sit together.

What are your ideas for Hiawatha Service pricing?

This post originally appeared in Urban Milwaukee on October 25, 2010. Reprinted with Permission.

Topics: Transportation
Cities: Chicago, Milwaukee

10 Responses to “Amtrak Should Innovate with Hiawatha Service Pricing by Jeramey Jannene”

  1. Wad says:

    Amtrak California’s corridor services operate under variable pricing schedules.

    I don’t want to bore you with the details of the “quirks” each corridor has. I’ll share what all three have in common.

    There’s a basic adult spot rate, purchased on the day or a few days before. These vary by distance and time of year. California has a late-spring through early-fall high season when tickets cost more.

    There’s an advance purchase fare that offers a considerable discount off the adult rate, and the price might stay the same even when the high season prices are in effect.

    There are child and senior discounts, too.

    The Pacific Surfliner has a feature called Rail 2 Rail. The corridor duplicates Metrolink and Coaster commuter rail, which offer limited service. Amtrak will allow monthly pass holders from the commuter rail systems to use a Surfliner train between the same station pairs at no extra charge.

    If Hiawatha duplicates a Metra line, it could arrange a Rail 2 Rail so that Metra passengers can use the Amtrak services if a Metra train isn’t available.

  2. Alon Levy says:

    Two pricing suggestions come from good models of foreign railroads that do not hate their customers:

    1. The Japanese model: you can look your fare up on a table – no special rules, no yield management, no nothing. The fare depends on distance, on whether you reserve a seat, and on your seat class. Also used with minor variations in Korea. Tickets are generally refundable, so there’s no different treatment of refundable and nonrefundable tickets.

    2. The Taiwanese and German model: there’s differential pricing for peak and off-peak fares, but still no yield management, and advance and walk-in tickets cost the same.

    Note that this is independent of group fares and unlimited cards. In both Japan and the German-speaking world, it’s standard to offer very large unlimited monthly discounts (though not on high-speed rail), because then the passengers are prepaid, use the cheapest-to-collect ticket, and have no incentive to cheat and dodge the fare. Group fares are very common in Germany (I’m not sure about Japan), because for groups driving is much cheaper so the railroad has to compete.

  3. Baja says:

    I think a $22 fare for a Chicago-Milwaukee ticket is not a bad deal, and if I used this service I would be worried that if Amtrak were to implement variable fares that $22 might be the new off-peak fare. I realize that it isn’t cost effective for a family of four to travel this way unless no other alternative is available, but I suspect that most riders are businesspeople traveling alone, and if so, then $22 is a bargain when compared to IRS mileage reimbursement plus parking at either end. Whenever variable fares are implemented, the best, most reliable customers almost always end up paying more to subsidize everyone else. Maybe I’m missing something, but if I relied on this service, my thought would be to leave well enough alone.

  4. clever title says:

    I think people expect a government service to always have the same price. People feel like they’ve been “ripped off” if they pay more than someone else for the same service.

  5. Wad says:

    Amtrak does have more leeway than other government entities to act like a business.

    I don’t think Amtrak has ever lost a lawsuit over fare differentials not being equitable.

  6. clever title says:

    Yeah, I’m pretty sure that they can have varying prices based on the time & available room (I know that they do for bedrooms on the Silver Meteor and Silver Star).
    I just think that might not want to deal with the customer complaints (or Congressional questions) when a rider feels like he gets regularly shut out of a lower price. Flat priciing may not be economically efficient or helpful in maximizing ridership, but it avoids charges of being unfair.

  7. Alon Levy says:

    Isn’t there a Congressional law restricting Amtrak’s ability to do differential pricing?

  8. david vartanoff says:

    Amtrak does yield management on fares and sleeping accommodations both on LD and corridor services. While personally think such systems are an abomination, as long as they are legal Amtrak is foolish not to exploit them on the Hiawathas.

  9. BenB says:

    LOL at collecting interest. Interest rates are awful.

  10. Pete from Baltimore says:

    Ive only traveled a little .But i do think that its worth pointing out that Megabus is a British company.And that British trains use a similiar system.For instance, i booked a train ticket a week ahead for a seat on Virgin Trainlines tp go from London to Birmingham .And then from Birmingham to Manchester.Both tickets were only around $10-$16.Which was much, much ,cheaper than if i had bought them at the last minute [as i found out later when i bought some train tickets at the last minute in the UK]

    Airlines use the same system as well.

    Mr Levy suggested that Amtrak might not be legally allowed to do this.He could very well be correct .But i also think that the problem is that they dont have to do this.Amtrak is funded mainly by the Government and so it doesnt have to try to be competitive. British train companies[which are privatly owned while the tracks are Government owned.The opposite of in America] often advertise on tv.Virgin especially does many flashy ads.Whereas Amtrak rarely seems to advertise.And when it does it quite often seems to be running ads from the 1950s.

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