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Yield Management Method Focused on Discount Ticket Sales Quota PAPER Yield Management Method Focused on Discount Ticket Sales Quota Shingo NAKAGAWA Takamasa SUZUKI Transport Planning and Marketing Laboratory, Signalling and Transport Information Technology Division Ryosuke MATSUMOTO Noriko FUKASAWA Transport Planning and Marketing Laboratory, Signalling and Transport Information Technology Division Naoya OZAKI Transport Planning and Marketing Laboratory, Signalling and Transport Information Technology Division (Former) One approach for increasing the revenue of railway undertakings is to adopt yield man- agement techniques, by setting quotas for discount ticket sales of reserved seats on express trains. We developed a method to calculate the optimum sales quota, incorporating estima- tions for the demand of various discount tickets and purchase behavior of passengers with the next-best-option when they were not able to buy their desired ticket. We conducted a trial sale by applying the calculated sales quota into the actual seat reservation system and confirmed that the method can increase revenues and facilitate decision-making for setting sales quotas. Keywords: yield management, discount ticket, revenue, sales quota, reserved seat 1. Introduction for most Japanese airline tickets are not fixed: their prices vary depending on past or forecast sales. The prices of In Japan, railway passengers are supposed to decrease discount tickets are set at several levels, each with a fixed due to population decline. Since railway operators have sales quota. When the number of sales at a specific level self-supporting accounting systems, the expected fall in de- reaches the sales quota, the sale of tickets in the next price mand poses a serious issue. Maintaining current levels or band starts. Airlines can control the size of the quotas and/ increasing revenue has become a key priority. or price bands even after tickets have been released for Applying a yield management method (abbreviated sale, according to actual and predicted sales, in order to “YMM” hereafter) could be a solution to this problem. maximize revenues. YMM is a“ practice of controlling the availability and/or While the YMM on airlines is highly advanced as de- pricing of products or services with the goal of maximizing scribed above, it is difficult to transpose an identical sys- expected revenues,” [1] and is especially advanced in the tem to Japanese railways, because there are some issues, airline and hotel industries. YMM is a sales method which which are listed in Table 1. can be applied when the target product or service is fixed (1) Railway passengers can get on and off a train at any in supply and becomes worthless after a certain fixed time. station on the way, while airline passengers cannot. Japanese trains with reserved seats or whose seating ca- Therefore, the balance between long-distance pas- pacity is limited satisfy these conditions, therefore, YMM sengers who pay more as a whole, and short-distance can be applied. One of the approaches to applying YMM travelers whose fares per kilometer are relatively high, is to set and control a maximum sales volume (quota) for should be considered. certain types of ticket, for seats that are sold at different (2) On most express trains there are non-reserved seats. prices. Since non-reserved seat tickets can be used on any We developed a method to calculate the optimum dis- train, it is difficult to know and control exactly the de- count ticket sales quota (abbreviated“ DTSQ” hereafter) mand for each train. which is expected to maximize revenue. We conducted a (3) Although appropriate overbooking is effective for rev- trial sale by applying the calculated DTSQ to the actual enue growth, it cannot be applied to reserved seats on seat reservation system and confirmed that the method Japanese trains because tickets are sold with desig- could increase revenues and facilitate decision-making for nated seats (with few exceptions). setting DTSQ. (4) In Japan, train fares and surcharges for Shinkansen trains are determined within a maximum price frame- work approved by the government. Therefore, the 2. Yield management on airlines and issues to appli- price of railway tickets cannot rise beyond a certain cate it to Japanese railways level, even when demand is high. Airlines, on the other hand, have more flexibility, since they can raise do- Since the early 1970s, airlines in Europe and the USA mestic airfares if they notify the government. have been providing‘ early bird’ discount tickets [1], and (5) It is difficult to accurately calculate the revenue this is said to be the origin of YMM. The deregulation of earned from each train, because the fare is calculated Japanese domestic airlines in the late 1990s made it pos- on the basis of journey segments used by each passen- sible to introduce various discount fares [2]. Today, prices ger, even if he/she transfers between multiple trains QR of RTRI, Vol. 61, No. 4, Nov. 2020 261 trains because tickets are sold with designated seats (with the public. Furthermore, selling many kinds of tickets can be a few exceptions). solution for the company, but it is complicated for customers. (4) In Japan, train fares and surcharges for Shinkansen trains On the basis of these considerations, we decided to focus on are determined within a maximum price framework YMM, controlling DTSQ. Some railway operators already approved by the government. Therefore, the price of control DTSQ, but it is determined empirically, so there is room railway tickets cannot rise beyond a certain level, even to improve YMM with DTSQ. when demand is high. Airlines, on the other hand, have YMM through DTSQ for the purposes of this study can more flexibility, since they can raise domestic airfares if be defined as follows: while discount tickets can increase the they notify the government. number of passengers, if they are unlimited, passengers who (5) It is difficult to accurately calculate the revenue earned would normally be willing to pay a higher price to travel will from each train, because the fare is calculated on the basis also buy them leading to a loss of revenue. Therefore, DTSQ of journey segments used by each passenger, even if he/she must be determined to prevent excessive discount. On the other transfers between multiple trains operated by same hand, a DTSQ which is too limited, can cause a loss of operator. This, however, does not apply to discount tickets passengers, because some customers unable to buy discount valid only on specific express trains, which have increased tickets may give up traveling by train, and this also leads to loss in recent years. of revenue. Consequently, DTSQ should neither be too (6) Depending on the specification of the seat reservation generous nor too limited. Striking the right DTSQ balance system,trains becauseit is complicated tickets are and sold not with practical designated to change seats sales (with shouldthe public. maximize Furthermore, revenue. selling many kinds of tickets can be a quotasfew exceptions). and prices of railway tickets after sales have begun. solution for the company, but it is complicated for customers. (4) FurthermorIn Japan, traine, how fares YMM and surchargesis actually forapplied Shinkansen to sales trains is On theTable basis 2 of Elementsthese considerations, of YMM we which decided can to be focus on often keptare secret,determined because within it forms a amaximum central part price of a company’sframework YMM, controlling DTSQ. Some railway operators already approved by the government. Therefore, the price of control DTSQ,controlled but it is determinedin the case empirically, of railways so there is room competitive sales strategy to beat competitors. Previous work has remainedrailway ticketsat theoretical cannot levelrise beyond[3]. As such,a certain there level, are feweven to improve YMM with DTSQ. referenceswhen for demand advanced is high.know -Airlines,how about on how the airlines other hand, and other have Transport YMM through- TrainDTSQ operationfor the purposes schedule of this(timetable study can industriesmore apply flexibility, YMM, since which they is cananother raise issuedomestic for Japaneseairfares if becapacity defined as follows:and while operational discount plan tickets of extra can trains)increase the railwaysthey hoping notify to the apply government YMM. number of passengers,- Train if they set andare capacityunlimited, passengers who (5) Nevertheless,It is difficult European to accurately intercity calculate trains havethe revenuebeen pioneers earned would normally -be willingAllocation to pay of a higherreserved/non price to-reserved travel will in adaptingfrom eachYMM train, to the because railways. the Forfare example, is calculated TGV, on the the high basis- also buy them leadingseats to a loss of revenue. Therefore, DTSQ speed ofrail journeyway service segments in France, used by introduced each passenger, YMM evenin 1993 if he/she [4]. mustFare be determined- toDifference prevent excessive depending discount on. Ondate the otherof They offertransfers several between different multiple types of trains ticket atoperated different by prices, same hand, a DTSQ whichoperation is too andlimited, train can cause a loss of and pricesoperator. may This, change however, based ondoes actual not apply sales. to However, discount sincetickets passengers, because- someChange customers based on unable past sales to buy (dynamic discount seat reservationvalid only onschemes specific andexpress fare trains, policies which differ have betweenincreased tickets may give up travelingpricing) by train, and this also leads to loss Europein andrecent Japan years. and some of the issues described above do ofTerms revenue. of use Consequently,- Booking/purchasing DTSQ should deadlines neither be too not(6) apply Depending Europe, onif YMM the specification is adopted for of Japanese the seat railways, reservation it generousof ticket nor too- limited.Cancellation Striking andthe rightchange DTSQ policy balance wouldsystem, have to itbe is designed complicated to meet and Japan’s not practical specific to needs.change sales should maximize revenue.(handling fee) quotas and prices of railway tickets after sales have begun.
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