^VIA's fare policy is just good business - with the fleet constrained by government, one can set prices high. VIA has no obligation to set prices at a level that some demographic might prefer. It's supply and demand pricing, Selling 300 seats at $20 or selling 200 seats at $30 delivers the same revenue, and the 200 seat train is probably cheaper to operate.
The fleet replacement reflects a status quo for fleet size, but VIA has options to enlarge the fleet if they raise the capital for HFR. That could lead to more equipment and more seats. It would depend on the business case - if VIA adds a train, can it sell those additional seats and at what cost? Does it make sense to procure one more trainset? If the breakeven point on the 200 seat train is $15 per seat, then $20 might fill the train where $30 might not.
- Paul
If you take the average implied cost per passenger and multiply it by the load factor from my analysis below, the breakeven is $68.60 per passenger on the Montreal to Quebec City route assuming a 100% load factor (which is not feasible on a train). Given that there is almost no route to profitability for VIA as shown in my analysis below, the only justifications for funding VIA are political and social. For this, I ask you to refer to the bottom half of my analysis below.
It's not an apple-to-apples comparison. The cost to offer a business class seat on an airplane is substantial. The fare pricing is also substantially higher than Economy which limits the customer base.
This is VIA anticipating a growth in business traffic. And that is both a good thing and understandable if you understand corporate travel policies. There's a lot of corporate travel policies (including the government's own policies for public servants) which will allow business class on a train in lieu of economy airfare. This is what will allow VIA to grow its business travelers. And that is not coming at the expense of economy travelers, but in addition to them.
Desjardins-Siciliano specifically stated that this effort was aimed at growing marketshare against driving. I don't get how that can be accomplished by making fares so high that people bus instead. If VIA can't compete against buses, they most certainly can't compete against cars. I'm taking him at his word and trying to understand how this can be done.
If you do the math, the revenue generated by VIA from business class in the Montreal to Quebec City corridor is roughly equivalent to economy class once you account for the differences in seat density and differences in service. Yet the decreased seat density in business inhibits the ability for VIA to maximize the total passenger capacity of its corridor fleet. I'll edit this post once I have time to clean up my charts.
^This is a chart of revenue and passenger numbers in the Montreal-Quebec City Corridor that I got from an
ATI Request. For reference, the load factor on this route was relatively consistent at 70%. The current ratio of Business to Economy (J/Y) passengers is 1:3. The adjusted fare accounting for seat density is around $15 higher. However, the incremental revenue generated from business passengers can be offset by incremental expenses attributable to the additional services these passengers receive (meals, snacks, lounge access, etc.) If VIA decides to reduce its J/Y ratio to 1:2 as proposed in the
NGEC presentation. Ceteris paribus, supply/demand dictates that adjusted per seat gross revenue from business class fares will fall below that of economy class.
As seen in the chart VIA's unadjusted average business fare barely covers the blended implied cost per passenger, with economy fares falling far below it. On Tripadvisor and other traveller forums, there are comments saying that VIA's business class isn't necessarily worth it given its higher cost and low added value. In fact, the only real difference I've noticed between the two classes is the food, drinks, and slightly wider seat. These reviews could suggest that VIA is already maximizing their Business class revenues (at least with cash passengers). Furthermore, if VIA decides to increase Business Class fares, it could jeopardize its status on corporate travel policies. As a result, I can't see how VIA will be able to run trains profitably without radical changes to its operations.
From the
2014 APM Q&A "Viewed strictly as a science, the ultimate goal of traditional Revenue Management is to maximize total revenues through proper segmentation of demand. As a Crown corporation, however, VIA Rail has an additional mandate, which is to maximize the utilization of our fleet so that we continually carry more Canadians across greater distances. The challenge of VIA Rail’s Revenue Management team is thus to maximize both revenues and ridership while maintaining a reasonable average fare that reflects the true value of our products and services. "
I can't see how the configuration of the base train set in the new fleet achieves this under a status quo fleet replacement only scenario (remember HFR hasn't been approved yet, and may not happen unless shovels are in the ground). From a political perspective, the optics today of middle/upper-class people riding "fancy" trains with a per passenger subsidy that is roughly equivalent to a lower-class person's Greyhound/Megabus fare doesn't look good. I'm concerned that an exacerbation of this through a focus on business travellers could be one day politically wielded to disband VIA's corridor services given that busses are a vastly more cost-effective method of public transportation. I hope I'm wrong, but the numbers I see don't add up.