November 4, 2001

Edwin R “Chip” Kraft

Director – Network Analysis

Amtrak Mail & Express

Amtrak operates scheduled rail passenger service throughout the United States. Legally, Amtrak is mandated to develop mail and express service to augment passenger revenue, and to reduce its subsidy needs. This authority was reaffirmed by a recent Surface Transportation Board decision. Since then, Amtrak has negotiated agreements with freight railroads for expanded Mail and Express service on its passenger trains.

Amtrak trains operate on fixed schedules. Unlike freight railroads, Amtrak cannot run extra trains to add capacity. Since schedules are driven by passenger as well as freight needs, 7-day a week operation is the norm.On some days, demand for mail and express shipping is weak. But, Amtrak does not cancel the trains on those days.

Passenger train lengths are restricted by both regulatory and operational constraints. Boxcars and roadrailers for passenger trains are limited in number, and they are more expensive than conventional freight equipment.

Given its limited equipment supply and train and terminal operating constraints, Amtrak must allocate capacity only to the most profitable business. Strict capacity constraints lead to a need for effective revenue management capability. Unfilled train capacity is viewed as a lost revenue opportunity.The goal of revenue management at Amtrak Express is both to fill trains, and to balance lanes.

Amtrak’s objective is to maximize profit, not just revenue. A good understanding of costs is needed. Because of the well known “garbage in, garbage out” adage, high data quality is needed to support any modeling effort. Currently our focus is on collecting all data needed to support revenue management, refining that data, and communicating it effectively to key decision makers. That’s where the focus is likely to remain for the foreseeable future.

To provide reliable service, an understanding of network capacity and service capability is needed.Some of the critical success factors include:

-Train Schedules

-On Time Performance

-Train Capacity

-Equipment Fleet Capacity

-Terminal Capacity, Capability and Connection Standards

All this data exists at Amtrak today.The challenge is to systematize collection of that data, and to build a database for storing all that information in a readily accessible way.

Customers generally don’t want to be revenue-managed. Most shippers want to know that capacity will be available for their needs, and that their freight will be moved at a predictable cost. If customers can offer regular freight they can contract for capacity in advance, thereby avoiding the vagaries of spot-market pricing.Such contracted capacity is “set aside” effectively removing it from the day-to-day revenue management process. To effectively manage such capacity commitments, the performance of each contract must be carefully monitored based on:

-Volume and capacity utilization

-Revenue, cost and profitability

-Lane balance

-Equipment turn times

-Demand regularity and predictability

-Peak versus off-peak usage.

An expectation should be established for each of these criteria when each quote is first issued.An exception reporting capability allows early detection of unexpected market trends, facilitates a systematic and ongoing review of the traffic mix, and permits continuous improvement in performance.

Implementation of revenue management will allow Mail & Express to maximize its contribution to Amtrak.Hopefully, this will allow Amtrak to continue providing national railroad passenger service, while minimizing the subsidy burden to taxpayers.