Applying Low-Cost Airline Pricing Strategies to European Railroads

European railroads must reduce costs and increase revenues if they are to remain successful during the coming years. This is especially true as intermodal competition, for example, from low-cost airlines (LCAs) increases, but also because of the coming intramodal competition, as new companies will be free to offer passenger rail service throughout the European network. Many strategies that railroads might use to achieve these objectives can be modeled after the LCA industry, which is pioneering implementation of innovative and creative business concepts in the transportation industry. European railway companies have used two approaches to address competition: applying pricing strategies to their regular networks and organizing subsidiary companies to offer new services. It has been difficult to introduce yield management strategies on regular service because of the structure of railway networks. Deutsche Bahn tried an ambitious program called PEP in 2003. The PEP program created customer confusion and revenue losses for the railroad; it was replaced with a new approach after several months. More recently, railroads have introduced yield pricing on a small number of specific trains. France and Italy have established separate affiliates to test new marketing strategies and service concepts. Both programs have been successful. Application of LCA pricing strategies to European railroads is described. Experience has shown that successfully transferring these strategies to the railroad business has not been simple, but as intermodal and intramodal competition continues to increase, European railroads must become more innovative.