Business Management Case Study
It may not be apparent today, but 100 years ago, the United States was the world leader in passenger rail service, with independent rail carriers setting speed records in the era of steam and competing on the opulence of their on-board service. Trains on major routes tended to be identified by name, rather than number, and entered cultural lore through stories and music.
(As an example, check out https://www.youtube.com/watch?v=piUWIqWSthA and listen to THIS original version by Arlo Guthrie)
The westward thrust of America was made possible by these railroads, and the various independent companies that operated the trains created their reputation on passenger service. Here in Ohio, the State is trying to re-create viable passenger rail in the most important economic corridor connecting Cleveland to Cincinnati through Columbus. The strategy is to upgrade existing rail infrastructure (sorry speed enthusiasts, this will be no TGV nor Shinkansen) and to relieve road congestion while also reducing pollution.
You might think that railroad operators in Ohio would be anxious to participate in such a project that would be funded largely from Federal coffers rather than their own retained earnings. Alas, not so, since the economic reality is that globally, NO passenger rail service can stand on its own without subsidies or incentives. The money is in freight haulage, and, as another explanation for freight over passengers shared with me by a railroad veteran, “Coal and grain don’t complain.” Federal funding of passenger rail service comes with an additional operational burden that the passenger train must have right of way, which can mean shunting a profitable freight shipment of 100+ cars to a side track, awaiting a long-delayed, scheduled passenger train of just five cars.
Although Ohio is a major crossroads in the national rail network, no major railroads are headquartered within the state. This lack of local expertise means that the preliminary project studies on feasibility, prior to any formal application for federal funding, will rely on a team of BM 3130 students, who bring the energy of a diverse education with the enthusiasm to participate in the restoration of America’s heritage.
Columbus, as the likely geographical hub of this and any future expanded network, is not a major manufacturing center. But, it does have some huge advantages to attract passenger traffic:
As the state capital, politicians and lobbyists represent a steady stream of potential users into and out of the city, and most will likely want to appear to their electorate as environmentally conscious
Large corporate headquarters and distribution centers attract business travelers
The OSU campus population includes an estimated 30,000 Ohio residents
Tourism opportunities and special events bring travel opportunities between all three cities
At the same time, your team was aware of the East Coast start-up MegaBus that offered a low fare model for bus travel with frequent service within the congested Northeast corridor that was now expanding into and through Ohio. The upgrades to I-71 improved driving conditions and reduced travel times. Another concern was that expanding the service to too many additional stops (Akron, Canton, outerbelts) would create slower service, less competitive with bus in terms of time and cost. So, even the availability of federal funding facing the reality of the current Republican majority with a goal to hold down pork barrel spending meant that there was no certainty for moving this project forward.
Your team put together a business plan, recruited the support of the three major Chambers of Commerce and any other willing constituency, and applied for an ODOT grant to study the passenger rail option consistent with the mission of reducing auto usage.
When the study team prepared preliminary demographics of the ridership, they determined that the most successful economic model at the outset would be express service connecting the downtowns only with gradual addition of local stops as funds and demand developed. They also recognized the need to streamline operations to hold costs down.
This translated into running a dedicated five-car train plus one power unit (locomotive) (together referred to hereafter as a “trainset”). Each car had a capacity of 100 seats. While there was limited space for standing room, the economic model assumed load factors would be limited to available seats only.
The team also studied current travel patterns and surveyed potential users extensively. Of course, the faster the service, the higher the start-up costs to upgrade the track. These studies suggested a “tipping point” of two hours as what would be required to attract, or really to capture market share, away from the roads. To make the appeal stronger without stretching capital investment, the ideal trade-off was determined to be a 100 minute travel time between Columbus and both other cities (Cleveland, Cincinnati), excluding station stop time.
The start-up plan for a trial period was to operate two trainsets, starting simultaneously in both Cincinnati and Cleveland. A one-way trip comprised a journey of Cleveland-Columbus-Cincinnati OR Cincinnati-Columbus-Cleveland; no other combinations or partial segments were planned. Any time the train was at a station, a stop time of 20 minutes was scheduled regardless of city. At the end of a completed, one-way journey, each train was out-of-service for cleaning and maintenance (C & M), which was allocated 70 minutes. (Hint: A train arrives in Cleveland, for example, and takes 20 minutes to unload passengers. The empty train is moved out of the station to a service track for the cleaning & maintenance, then returned to the station for the trip back to Cincinnati after an elapsed time of 70 minutes. Then, a new trip starts back to Cincinnati with 20 minutes in the Cleveland station to load- see second Hint below.)
Question #1- 2 points
If the trains operate with an anticipated capacity cushion of 10% for the start-up and only within the hours between 5:00 a.m. and 10:00 p.m., what is the TOTAL SEAT CAPACITY available per day for a completed trip (i.e. Cincinnati to Cleveland or reverse)?
HINTS: This question does not resemble any other course problem, but a logical approach using information provided should lead to a solution.
Since passengers can leave the train in Columbus and that seat can be re-occupied, we cannot determine capacity Utilization unless we know each traveler’s itinerary. So, the capacity measure must be Seats available per one-way run, end-to-end, not actual passengers.
Assume at each destination- i.e. end of a trip- the train takes 20 min to unload before it goes out-of-service for cleaning, but then starts a new cycle for the return journey with 20 min to load.
A train does not have to make a complete round trip in the day; it can start in Cleveland and end in Cincinnati, for example, but must reach a destination city of either Cleveland or Cincinnati (i.e. only completed one-way journeys allowed) within the time boundaries.
