Modeling discounted fares for passenger dedicated lines

Abstract

The construction of high-speed railway passenger lines in China has being a thriving process, and the pricing has always been the main problem confronting the high-speed railway although the business model has not been finalized yet. Different income levels of consumers result in different degrees of sensitivity to the ticket price and thus different affordability. This article introduces the pricing method and builds up the pricing model in terms of discounted fare, and attempts to figure out how to optimize the high-speed railway pricing as well as how to maximize enterprise's profit through different ways of arranging seats. Beijing-Shanghai passenger line is taken as the object for empirical analysis. With the overall starting of the construction of our country's high-speed passenger lines and the continuing expansion of the network scale of railways, a network of express passenger lines named verticals and four horizontals as well as three inter-city express passenger traffic systems will be built. At present, we adopt cost plus pricing, considering only the distance factor in pricing. However, fare is the main source of revenue for passenger lines. Too low fares will reduce the operational efficiency and prolong the time of investment recovery while too high fares will force the price-sensitive customers to change their ways of travelling, thus losing competitiveness over other forms of transportation. To solve this problem we adopt a discounted fare scheme, in which tourists will find a balance point between time and price, and then our profit can be maximized.