1. Proprietary and Confidential
Two Pricing Optimization Applications at Amtrak: ShareFares – Amtrak’s Small Group Fare OneTouch – Amtrak Group Optimization Model
INFORMS June 6, 2006
Proprietary and Confidential

2. 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, Amtrak’s incremental revenue has been significant, because it includes the first two riders at full far.
Proprietary and Confidential
September 20, 2018

3. Pricing Example; NYP to WAS
Number in Group
Avg. Fare
Share Fares
Price per Rider
Discount Amount, All Adult
Percent Discount, All Adult
Fare w/ 2 Adults plus Children
Discount Amount, w/Children
Percent Discount w/Children 1
$76
none 0% 2
$152 3
$228
$160
$53
($68)
30%
$190
($30)
16% 4
$304
$167
$42
($137)
45%
($61)
27% 5
$380
$175
$35
($205)
54%
$266
($91)
34% 6
$456
$182
$30
($274)
60%
($122)
40%
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.
Proprietary and Confidential
September 20, 2018

4. Dilution Has Been Minimal
Number in Group
Distribution of Riders before ShareFares
Percent of Purchase made in compliance with 7 day APR
Expected Groups Subject to Dilution (as a percent of riders on each departure) 1
83%
30%
N/A 2
13% 3
2.0%
0.60% 4
0.9%
0.27% 5
0.2%
0.06%
> 6
0.3%
0.09%
Total
1.02%
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.
Proprietary and Confidential
September 20, 2018

5. ShareFares has Been Very Successful
In it’s 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 couldn’t 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
Proprietary and Confidential
September 20, 2018

6. 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
Proprietary and Confidential
September 20, 2018

7. Solution = OneTouch – Amtrak’s 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
Proprietary and Confidential
September 20, 2018

8. 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.
Proprietary and Confidential
September 20, 2018

9. 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
Proprietary and Confidential
September 20, 2018

10. Proprietary and Confidential
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.
Proprietary and Confidential
September 20, 2018

11. Proprietary and Confidential
What is it Worth?
$40 – 5 Legs
$90 – 12 Legs
$80-10 Legs
$150 – 16 Legs
CHI
CUM
PGH
CLE
TOL
HMI
CHI
Proprietary and Confidential
September 20, 2018

12. Group Evaluation - Displacement
Capacity = 80
Group Size = 25
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
Proprietary and Confidential
September 20, 2018

13. Proprietary and Confidential
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
Proprietary and Confidential
September 20, 2018