Research On Pricing And Revenue Optimization In Railway Passenger Transport

Nowadays, with the development and reform of China railway, how to improve the competitiveness, management ability and service level has become an issue of railway passenger transport. In China railway passenger transport, fares now generally guided by the government, and the method of seat allocation is static without update. In a market economy, the railway is also facing competition from other modes of transportation such as airline, road, etc. The method of managing fares and seat allocation mentioned above are difficult to adapt to the change of passengers’ demands, so the revenue may not good. Therefore, this paper analyzed the necessity and feasibility of adopting flexible fare policy and revenue optimization method. According to the experience of airline revenue management, considering the practicability and effectiveness of our methods, and based on the theory of revenue management, consumer choice model, consumer choice preference, consumer utility, econometrics, pricing and optimization, this paper researched China railway passenger transport’s discount pricing and revenue optimization in the following four aspects.(1) Based on the theory of differential pricing, this paper proposed a model of differential pricing for railway passenger transport. Through theoretical derivation and experiment results, the paper proved that the additional costs result from discount fares constraints and passenger diversion to low-priced products or high-priced products would reduce the expected revenue. And the more fares are set, the more the expected revenue is returned. The conclusions above provide a theoretical basis for market segmentation, differential pricing, and setting constrains to passengers and determining the number of fares of each OD.(2) Assume that market segmentation can be done according to passengers’loyalties to railway, based on consumer choice theory in competition, the paper studied the method of computing discounts in competition. In order not to interfere with ticketing system’s work, the method first predicts airline discount fares, and then uses the results as input parameters to compute discount fares.(3) Assume that the optimal prices are chosen from a discrete set and considering demand uncertainty, the paper proposed a dynamic pricing model for China railway passenger transport. The paper first analyzed the optimal price properties when booking time and seats available are changing, and then studied how to calculate the optimal price. The experiment results in Matlab verified the optimal price properties and provide theoretical support for dynamic pricing in practice.(4) The paper studied a dynamic nesting seat inventory control model for railway. According to the differences between airline and railway, the paper first proposed a nesting strategy for ODF in railway according to ODFs’values. In the calculation of ODF’s value, considering demand uncertainty, to make the model more practical, the paper adopted stochastic approximation method to improve the efficiency of calculating ODF’s value.