EdSchweppe wrote:
Selling out at a high price point means that Amtrak should either (a) raise prices further or (b) raise the supply of the existing sleeper rooms. It's not an argument for a new, lower-cost sleeper product.
Yes, it is an argument for a new lower-cost sleeper product.
First, as you know, businesses can maximize their profits through price differentiation: selling products to buyers at the maximum price that each buyer will pay, even if the prices vary per buyer.
If Amtrak sells sleeping car space on the Crescent at $600 each way between NY and Atlanta, there are plenty of people who will pay that. So, yes, Amtrak should raise prices until there is equilibrium between buyers and space available in regular sleeping car space.
There are also plenty of people who will pay $110 for a coach seat between NY and Atlanta.
That leaves a gap: I would pay up to $325 for some type of private space with a bed (that's above the cost of flying first class, but I'll pay up to that). I will not travel on a long-distance train in coach (or any type of regular seat). If Amtrak can sell space to me, profitably, at $325, it should do so. That's where a high-density sleeping car space can be offered. Without that, Amtrak is leaving $325 in revenue on the table.
Airlines have figured this out very well recently. Look at American Airlines: it offers first class, business class, premium economy, economy and basic economy. That's a wide range of product offerings, to maximize the fare that each person is willing to pay, segmenting the market.
Second, as you know, railroads are a capital-intensive business. Once railroads' huge overheard has been paid, railroads can make profits by adding additional passengers or carrying additional freight at low marginal costs. So adding a higher-density sleeping car to the Crescent, which usually has 8-10 cars, is a way to add additional revenues without much additional cost (in the big scheme of things).
EdSchweppe wrote:
* Since sleeping car space is priced at (1) a rail ticket for each occupant plus (2) a fixed charge for the room, Amtrak makes more per room if it sells a room to 2 people than if it sells a room to just one person.
Maybe, maybe not; it all depends what the second person costs. Additional linens, coffee/drinks in the sleeper, etc. are probably pretty cheap. But that second person will be getting just as many free meals in the diner, as well as blocking one additional person in coach from paying cash for diner meals.
Amtrak has enough data from years of selling sleeping car space that it should know pretty much exactly the cost of a typical second passenger in a room. That cost is almost assuredly significantly lower than the rail fare for that second person. So in pretty much all cases, Amtrak should make more by selling 2 rail fares + the room charge to 2 people, compared to selling 1 rail fare + the room charge to 1 person.