1 Feb 2010

Yield management


Railways have enormous fixed costs which must be paid before even one single passenger can travel. The line, stations, signalling equipment must be constructed. Rolling stock must be obtained. Staff must be engaged, trained and their wages paid. It adds up to a lot of resources invested, and the aim must be to achieve the best use of these. Resources fall broadly into three categories: the fixed infrastructure, the rolling stock and the trains service itself.

Little extra cost is incurred in running one additional train, so long as the capacity of the track and signalling is not strained to the point that congestion occurs. Likewise, little extra cost is incurred in running longer trains rather than shorter ones, so long as the rolling stock is available. And it costs no more to run a full train than an empty one.

From the operator’s point of view, the simplest and most efficient operation is to run standard fixed-formation trains at regular intervals, on infrastructure with just enough spare capacity to enable the system to recover from disruption. The snag is that the resulting service is not one that provides the trains when people prefer to travel. Some means must be found to adjust demand to supply. This is where the concept of “yield management” comes in.

Although the railways have always practised some form of yield management, originally with offers such as cheap excursions and off-peak reductions, the concept was developed by the airlines and based on a flexible pricing arrangement that ties passengers to particular flights, thereby committing them to travel arrangements made long in advance. This also enables the airline to make fine adjustments to avoid running almost-empty aircraft. Although railways are unable to tune the service so precisely, they have in recent years adopted much the same system, with very high prices being charged for so-called “open tickets”. Although it may mean that some fares are lower than they might otherwise be, this is not attractive to passengers. Everyone will at some time have bought a ticket, found themselves unable to travel, and ended up wasting their money. After this has happened a few times, if not sooner, they are likely to conclude that it suits them better to leave the decision to travel until the last moment and hop into the car parked outside the front door.

The assumption behind this kind of yield management is that resources are best utilised by using the price mechanism to match demand to supply. But behind that is another assumption, that the most efficient way to run a railway is to fix the supply. Is it?

Smart yield management
If the electricity supply industry worked in the same way, it would provide just enough capacity to cover the base load and then drive demand down through charging draconian prices during the peak. Many people would be forced to sit in the dark, huddled up with a candle, or collect firewood. Instead, the generating companies rely on a mix of sources: nuclear power for the base load, coal-fired power stations for seasonal demand and gas generation to cater for peak demand in the course of the day. The general principle is that the cheapest electricity requires the most capital investment and vice versa, and with this in mind, it is possible to fine-tune the supply, with a simple tariff made up of a fixed charge, and standard and off-peak rates for the electricity consumed. This is a smart form of yield management.

For the first 150 years of railways, yield management was practised in much the same way. Old and less-efficient rolling stock, which had long since been bought and paid for, was kept in reserve and brought out to handle peak traffic.

A common practice was to run fixed-formation trains most of the time but to add extra vehicles when extra traffic was expected, which an experienced operator can easily predict. A train such as the London to Glasgow express, the Royal Scot, was normally 14 carriages long but up to three more might be added at busy times. This was often done at short notice, up to a few minutes before the train was due to leave. Extra trains were also run, usually scheduled in peak holiday timetables but sometimes laid on, again at short notice, using free “paths” that were left when timetables were constructed. These extra carriages, and the stock for these additional trains, were usually drawn from the pool of older vehicles that was retained just for that purpose.

Another strategy was to use trains used by commuters during the week to take people to popular leisure destinations at the weekend. The size of the fleet itself could also be adjusted, to match seasonal demand by, for example, repairing freight locomotives and wagons in the summer and passenger stock in the winter.

The facility of being able to run extra trains and use extra carriages did not come free of charge, they had to be kept on standby, the track layout had to be suitable, and shunting locomotives had to be kept available to move things around. And flexible staffing arrangements were needed to make the whole thing work. But this was nevertheless yield management, as revenue was being earned from resources which would otherwise have gone for scrap. The old-time railway managers knew what their were doing. It might be termed “smart yield management”.

Mix & Match no more
The kind of flexibility that the old-time railway managers enjoyed was dependent, amongst other things, on certain technical decisions. Fixed formation trains are a new phenomenon and must be distinguished from multiple-unit electric and diesel trains which are joined and separated as the service requires. Anyone who has had the use of a train set will know that one of the most important features of trains is that vehicles can be added or removed at will. It is only possible, however, if everything on the railway has a standard interface for the buffing, coupling, braking, heating and electrical systems. Hornby and Trix didn’t mix. On the full-size railway, it used to be that all stock was compatible with all other stock. Trains could be made up of carriages old and new, belonging to several different companies, and pulled by a locomotive belonging to yet another. The same applied even to international trains. At important junctions such as Basle, it was usual to see trains composed of a selection of carriages from all over Europe: Germany, France, Italy, Belgium, the Netherlands and Denmark.

Around forty years ago there was a change in thinking, which brought trains such as the British Inter City 125, having a lightweight locomotive at each end and a fixed set of carriages in between, which could be changed only with difficulty. At around the same time, rolling stock become more complex and also hugely expensive, partly to cope with the demanding conditions of higher speed running. Complexity eventually multiplied itself to the point that some fixed formation trains have essential equipment in each one of the vehicles and so are unable to run unless they are complete. A further difficulty is that vehicles not specifically designed to run in the train cannot be added without expensive modifications, if at all. A Voyager cannot be lengthened just by inserting a standard Mark 3 coach. If the need for extra vehicles arises, as happened with the Pendolino, the entire production line must be started up again, which is a costly and difficult thing to do. The entire contemporary railway operation is conducted with rolling stock resources squeezed to the limit.

The underlying design principles result in built-in inflexibility. It works directly against a philosophy of smart yield management which would optimise the railway system and its resources as a whole and provide the service which best matched supply to demand.

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