I. Winter – and cash – is coming
It has become a yearly ritual : when the holiday season is approaching, rail operators rush to make their schedule ready for the single day where they usually make the highest revenue in the entire year. That day is the sales opening for the winter season. Millions of travellers eagerly wait for the exact moment when they can start booking tickets to spend Christmas with their family at a reasonable price – and before anyone else does.
So why do most rail operators wait so late to open Winter sales (usually 2-3 months in advance) while tickets can usually be booked up to 6 months in advance during the rest of the year?
One may argue that creating a special event on a single day (such as a Black Friday for Transport), as opposed to opening sales on a rolling 6-months period, is a strong plus from a marketing point of view:
- by playing with the “fear of missing out” of customers who will purchase tickets just because they believe that everyone else is buying and there will be no more attractive fares if they don’t,
- by making sure, through massive communication, that price-sensitive customers don’t miss the date to get fares they deem acceptable to pay.
Yet, what we observe is that many operators hardly advertise the event, and some would surely appreciate to avoid all the bad-buzz concentrated on that single day after so many late-sleepers did not manage to get an acceptable fare as they would have by waking up at 6am.
II. The competition for slots is deepening
In European rail, mid-December is traditionally the start of a new network schedule, which, for production planning reasons, is hard to anticipate as much as during the rest of the year. For operators, autumn sales openings are usually the result of a long rush to get production and pricing ready once slots have been confirmed by the infrastructure manager during the Summer period. With new rail competitors preparing to enter the rail market in countries like France, Spain, Germany, competitions for train slots will increase and legacy operators are unlikely to be able, in a foreseeable future, to confirm schedules much earlier than today.
But airlines manage to start sales long before definitively confirming flight schedules, and adjust flight times after bookings have started. While for customers the sales rush is grueling, rail operators could probably open bookings earlier – either by accelerating their production planning roadmap, or by proceeding the same way as airlines. Is there however, from a revenue perspective, a case for operators to do so?
III. A bird in the hand is better than two in the bush
Customers do not wait for sales opening to be willing to purchase their holiday tickets. When an operator’s trains are not open for sales on a given period, potential customers will have the following options:
- try again later when – hopefully – sales are open,
- choose, when possible, a train from a different rail operator or a different mode of transport. Customers value the certainty of having secured a way to reach their holiday destination, and will thus be ready to that end to choose a different operator even if that leads to a lower value-for-money,
- chose not to travel with public transportation (and use e.g. a private car instead).
Only in the first case can an operator “catch up” for lost bookings before sales have started. Category 2 customers are lost (perhaps also for future trips if the customer enjoys a better travel experience with a competitor) and Category 3 are unlikely to change their mind later on during a high-demand / high-price period.
The load curve (in red) for late sales opening will thus always lag behind the one of operators that can start selling much earlier (blue curve):
Loss depends on many parameters (cf. next section) but typically amounts to a few percentages of total revenues, which can represent a significant amount once converted into hard currency.
IV. One exception
Since there’s no systemic rule, each individual operator situation needs to be analyzed to draw a conclusion regarding loss due to late sales opening. Common criterias to be quantified are:
- how hard is modal and inter-modal competition, leading to a risk of substitution?
- how difficult is it to reach destination by private car? (travel – inc. distance but also possible traffic jams during peak hours, luggage volume to be carried, etc.)
- how strong is the capacity constraint for the operator?
During holiday season specifically, capacity constraint can play a significant role that can lead to an exception to the general rule stated in the previous section. Indeed, assuming the operator’s capacity supply is not sufficient to address demand (i.e. there is capacity shortage), any missed sale opportunity does not reduce the final number of total bookings, and hence does not lead to a loss of revenue.
This situation somehow appears paradoxical since capacity constraint, which has in this case a positive impact, otherwise induces a loss – a beautiful example, as we find many other in Transport, of two losses cancelling out.
As always, real life is not so binary, since capacity shortage:
- is usually observed only on a fraction of trains on a given date, reducing the loss without fully cancelling it,
- strongly depends on pricing (e.g. higher price lowers demand and thus reduces the risk of capacity shortage)
Revenue Management efficiency is thus a key component in terms of processes (to guarantee that prices are built with as much anticipation as possible), but also a crucial lever to adjust prices depending on how early sales can start.
V. The cost of early sales
Opening sales as early as possible is a long-sought quest. While competition is set to increase, operators will get under growing pressure to allow bookings with much more anticipation than today. Meanwhile production constraints – which are not easy to work around – are likely to become tougher.
When sales are concentrated on a very short period of time (typically a few % of yearly revenues in just a few hours), a real time Revenue Management solution is essential to monitor and adjust pricing dynamically. Legacy Revenue Management systems usually raise alerts too late, when the sales rush is over or when inadequate fares are already fully sold. Software like Cayzn provides real time surveillance dashboard as well as alerts and business rules engines that can be triggered live (up to every new booking) to optimize revenues during sales openings.
Do you want to find out more on how Revenue Management can help you offset some of the loss, or contribute to overtake your competitors by opening sales earlier, or by skillfully adjusting your prices when your competitors start to sell ? Wiremind can help, just contact us.