Indian Railway Catering & Tourism Corporation's Flexi-Fares strategy jolts passenger occupancy and premium trains revenues – can dynamic pricing engines solve the revenue optimization challenge?
25th November 2016, Profisor Team makes a day trip from Delhi (The Capital City) to Ludhiana (Major City in North Western State of Punjab). An early start to the day . . all preparations done for a two-fold agenda 1. Conduct regional-level research for analysing a political party’s penetration using social media data and 2. Meet Professor Doc. K. S. Mann, Dean of Student Training & Placement Cell and Heads of IT Department at the Guru Nanak Dev Engineering College in Ludhiana to establishing an internship program for graduate and master level students.
Week before this planned travel, we booked our train tickets for Shatabdi Express, a premium Indian train that runs during the day usually with two types of passenger coaches – An Executive Class and A Chair Car. Quite recently, on 9th of September 2016, Indian Railways Minister, Suresh Prabhu, had introduced Flexi-Fares (or Dynamic Fares) claiming to rake-in additional INR 500 Crores (USD 77 Million) by 31st March 2017. Much less to our surprise we paid 40% additional fare compared to our past travel experience and discovered a lower passenger occupancy in our coach. Is this the result of Flex-Fare System? Or Surge Pricing? The Uber Ola Debate! Upon further enquiry, from fellow travelers and train staff, we concluded with mixed, yet divided, responses. Passengers opined that the new fare system was negatively impacting the train occupancy rates, while the train staff appeared more optimistic hoping for improvements sooner than expected. As the calendar turns into December 2016, a big question looms on the face of Railways Minister, who has a strong bend towards technology, especially the use of social media for listening to train passengers and improving passenger experience. Does the Flexi-Fare system work? Owing to further decline in occupancy rates, on December 19, 2016, Railways tweaked the Flex-Fare Structure, offering 10% rebate on seats left vacant after chart preparation. Today we are in the month of March 2017 which marks the end of a financial year. Economic Times reports, “Flexi-Fare system in premier trains to be revised again: Indian Railways”. Railways earned about an additional INR 260 Crores from the Flexi-Fare System, nearly 48% short of their planned target of INR 500 Crores, and continued to face lower occupancy rates. What that means is fewer people travelled between 9th Sep 2016 and 28th March 2017, on trains operating with the Flexi-Fare System, paying a higher fare for the same journey, which in result contributed to the additional INR 260 Crore earnings. That’s quite a dent in the passenger’s pocket! Unfair! While that’s an opening statement for a big long news hour debate, let’s explore the dynamic pricing challenge for Indian Railways. Can Dynamic Pricing Engines Help Accomplish Higher Passenger Occupancy and Optimize Revenues? Here are some informational facts about Indian Railways and the Flex-Fare System or The Dynamic Pricing Engine.
How does the Indian Railways Flexi-Fare System Or Dynamic Fares Work?
What was the impact of Flex-Fare System on Revenues and Occupancy Rates?
Delhi to Mumbai travel is one of the most heavily booked journey and an equally relevant travel route for both domestic and international Airliners in India. A 10-week analysis of the route presents us with the following stats:
Delhi – Mumbai Rajdhani Express Train
Period Between 9th September 2016 to 19th November 2016
Delhi – Mumbai Rajdhani Express Train
Outside Festive Season Between 9th September 2016 to 15th October 2016
AKR, Mumbai – Hazarat Nizamuddin, Delhi Train
Period Between 9th September 2016 to 19th November 2016
AKR, Mumbai – Hazarat Nizamuddin, Delhi Train
Outside Festive Season Between 9th September 2016 to 15th October 2016
Against the principles of Dynamic Pricing, the current Indian Railways Flexi-Fare System changes fares based on Supply. Such an analysis must begin with a Segmentation exercise, a study of the Demand Supply factors and the total inventory of train seats pan-India, to arrive at trains and categories of seats that offer revenue enhancement opportunities. Opportunities that reflect operations research and data-oriented statistically prudent methods for successful implementation of Dynamic Pricing, Upselling, Resource Optimization, Meals Cost & Sales Optimization, Route-wise and Segment-wise Meals Personalization, Train Schedule Optimization (although politically driven . . ) . . and many more . . . .
Are You Flying High Enough? - Offers insight into how such studies are performed in the Airlines industry.
Data is rich. Technologies are emerging. In today’s times where Data Scientists are joining hands with business to solve computational problems, Indian Railways must make a genuine effort to evaluate all factors that contribute to the study of Dynamic Pricing of train passengers, and exercise caution when analysing the impact of fare changes on the travelers’ pockets.
Why Technology needs a special focus when aiming for revenue or inventory cost optimization?
Before we explain the role of technology, let’s remember the problem statement. Case in perspective is Revenue Optimization – a challenge to manage perishable inventor sales within a defined lifetime of the inventory to improve revenue. We discussed the imperatives of Factor Analysis and Statistical Models in our previous viewpoint – Statistics Can Be Majestic If The Factors Have Characteristic. Multiple factors, rising counts of data and studying multiple data relationship requires intense analysis. Make it a real-time problem and you need a robust compute-intensive solution, ready to deliver at speed, at scale and with highest precision at scale. One miscalculation or wrong choice of factor that contributes to the problem of revenue optimization can sink the ship.
Are You Flying High Enough? A use case that offers insight on how dynamic pricing helps optimize revenue.
Achieving revenue optimization through a technology based solution is an act where machines prescribe different price points for a product, based on a real-time analysis of all the factors that contribute to the demand and supply analysis of such product. Hence, technology architecture plays a significant role in delivering these accurate price prescriptions. Let’s break this further into a study of different aspects of technology.
Emerging technologies have far superior capabilities compared to the ones we currently operate – data consumption, data processing, data cleansing, parallel computing and analysis. Their viability, flexibility, strength and scalability must be adjudged before putting any ideas to practice.
Next up, the last 100 meters, Products Or Solutions, Seek Advise To Plan Wise Investment in People is not a new subject, yet it is the most sought after business agenda for organizations across the globe. Why? Why now? Is it the global markets crisis? Unemployment or underemployment? Job cuts? Rising pressures to perform? Changing business landscapes? Alignment or re-alignment of organizational strategy? Changing People culture? Renewed focus on diversity at workplace? Or a strategic focus on People to make a positive impact on the ROI? . . You may find or name more reasons, the name of the [New] game is People Analytics. Let's examine some interesting yet contrasting views from across the globe that are summoning us for well calculated, sound, decisions on People at workplace. 
Not hearsay and not a revelation either - a recent study "Learning to Fly", from AON Hewitt in 2015, suggests ". . that the CHRO is a critical stakeholder in defining the strategy of a firm.". This re-affirms that an organization’s prime focus is on People at workplace – their role in business strategy and business performance. CHRO’s strategic agenda is next on the radar. We ask some indicative and leading questions that pave the roadmap for measuring success. Again, only if there are proven methodologies to quantify and measure success!
For long organizations have made decisions based on intelligent intuitions and often undertaken initiatives to replicate well surveyed best practices. Yet, today, there is a strongly felt need for making more conscious and weighted efforts to design and develop solutions around People – to scientifically study the overall impact of this machinery on organization’s ROI. From identification and selection, on-boarding, retention, capability development, talent management, employee engagement, collaboration, diversity, employee performance, team performance, project performance to business performance – organizations are looking at Analytics to pave the way for making more sound decisions.
Wait, has anyone treaded into this vast domain of People Analytics? Are there any sophisticated, tried and tested (proven) models that may be contextualized and utilized? Not a comprehensive list, but here’s a quick highlight of select industry practices.
Does it mean that there are well-established and prevalent People Analytics practices and or ready tools to deploy into business? No! Let’s take a look at the global trends ~ Deloitte University Press – Global Human Capital Trends 2015 Report. There’s dearth of talent across industries and capability gaps are on the up-rise.  ‘Culture & Engagement’ is one of the most significant challenge across industries and regions. 
All unadulterated and glaring gaps are in our faces. Let’s face the music! Is there one specific reason that may reflect on these issues? No! There are numerous challenges and hurdles, some technical and others that relate to the level of acceptance, for the lack of use of Analytics around People at workplace. You may find these relevant to your business and operations context. Technical Challenges:
Other Challenges:
Where does one start? What should be the approach? Are there ready products in the market? Are products the way forward or should one undertake a solutions route? Can we leverage our existing business and operations capabilities? Do we need to upskill our People? Does that mean additional costs? Can we establish a case for investment into People Analytics? How does one embark on this journey? We recommend a tailored approach, leveraging your existing in-house business and operations potential, towards the development of comprehensive People Analytics capabilities.
We invite more questions and enquiries on the way forward, approaches and the design of a road-map towards intelligent use of organizational data to establish robust People Analytics capabilities. Continue to watch this space for more. You may write to us on people.analytics@profisor.com. Credits: AON Hewitt "Learning to Fly" Study 2015, Deloitte Global HR Trends 2015, Deloitte Millennials Survey 2016 & HBR.
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