Eric Nordling, General Manager at Expretio makes the case for filling Europe’s trains through smarter pricing
Making rail more attractive and accessible is a shared political agenda across Western governments – improving affordable and sustainable transport for citizens while reducing the size of rail subsidies for taxpayers.
As a Revenue Management advocate (borderline evangelist), I believe price is the pathway to fix both.
In this article, I share my view on the fundamental economics of transportation and the behaviour of passengers that use it, built around one simple idea: Europe’s railways already own almost all the capacity they need to grow – they just aren’t optimally pricing that capacity. Everything below, from the physics of an empty seat to the historical comparison with aviation, comes back to that point.
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Cost-based pricing and willingness to pay
First, we must agree that cost is not a great way to set rail fares. Even if we’d like to eliminate subsidies entirely, the chance of that is low. There will always be some cost that gets subsidised, so total cost is never fully covered by ticket sales alone. Attempting to recoup total cost through higher ticket prices would actually reduce overall revenue, as we’ll see later on.
Price, for rail fares as for many things we buy, is more a function of demand than of cost. Most consumers don’t think about what it costs to produce what they buy; they think about what they’re willing to pay for it. A home with an ocean view probably costs about the same to build as one without, but demand makes it more expensive. A rail seat at 2am and one at 5pm cost roughly the same to provide, but demand for them is very different. This demand-driven approach to price is often called Willingness to Pay. Understanding the purchasing decision from the passenger’s perspective – their willingness to pay – is key to setting the optimal price.
Marginal cost – what an empty seat actually costs
Even though total cost isn’t the right basis for setting fares, there is one small piece of cost we do need to know: marginal cost.
Marginal cost is what it costs to put one more passenger into a seat that would otherwise travel empty. This is deliberately the simplest case: no other passenger is displaced, no higher-value seat is given up, and we’re talking about a standard seat, not a catering-inclusive first-class one where food and drink add real variable cost. It’s the floor for any fare we would set, not the whole picture. It is a way of establishing the absolute minimum any price should ever be, before we get to the more interesting question of what a passenger is actually willing to pay.
We can work that floor out with a bit of physics. A typical 8-car electric intercity unit weighs around 360 tonnes empty and seats roughly 520 people. Running half-full, that’s about 22 tonnes of passengers on board for a total of some 382 tonnes, meaning one additional passenger adds about 0.02 per cent to the train’s mass. A 300km intercity run, for example, takes roughly 5,000–5,500 kWh, costing somewhere in the region of €900–€1,200 at typical large-user European electricity rates. Based on that share of mass, one extra passenger would increase cost by roughly 18–24 euro cents – less than a small pastry.
So: any fare for an otherwise-empty seat that clears 24 cents is pure profit on the marginal cost of energy. That’s the floor. But a floor tells you what not to go below, not what to charge – for that, we need to understand demand.
Demand elasticity
For the most part, demand for rail transportation is elastic. Take a route with 100 passengers a day paying €55: cut the fare to €45, and it wouldn’t be surprising to see volume grow to 135. That’s roughly an 18 per cent fare cut producing a 35 per cent increase in passengers – and total revenue rising accordingly.
To state it plainly: a lower fare can produce more total revenue. Many people are tripped up by this and find it counterintuitive. I’ve seen it play out thousands of times over the years.
Rail doesn’t just compete with itself – it competes with alternative ways of making the same trip, or not making it at all. This is cross-price elasticity, and my favourite example is the family weighing up rail against the car. It doesn’t take much of a fare increase, especially once multiplied by four people, to tip that decision towards driving. There are millions of family trips across Europe that a moderate fare reduction could tilt the other way, back onto rail.
Willingness to pay, again
All this talk of lower fares needs the earlier point restated: prices should ultimately be set by willingness to pay, not simply cut across the board. The hard part of revenue management is knowing the demand level for a specific departure, and reserving fare reductions for the seats that would otherwise go empty without letting someone willing to pay full fare slip through on a discounted one. That’s dilution, and it’s the main thing that separates good revenue management from simply discounting.
Complex networks, and the technology to manage them
None of this is one fare on one train. A single service can serve hundreds of markets, each with its own demand curve and dozens of possible price points, which makes for thousands of combinations of fares and capacity to manage across a single departure, multiplied across a whole timetable. This is precisely the scale problem revenue management systems exist to solve: doing the calculations and trade-offs across all those combinations to find the mix that uses capacity best, informed increasingly by machine learning that can spot demand patterns a manual process never could.
Opportunity abounds – but it’s a different shape of opportunity
So how does this add up to an opportunity for governments and rail operators across Europe?
Here’s the scale of it. In 1975, world population was around 4.1 billion and global airline passengers were an estimated 400 million that year. Through the 1980s, revenue management and modern pricing techniques spread through aviation and became standard practice. Fifty years later, in 2025, world population had roughly doubled to 8.2 billion – but airline passengers had grown more than 12-fold, past 5 billion a year.
Europe’s railways haven’t grown anything like that fast. Rail travel has grown well ahead of population across the continent for decades – concentrated heavily in the high speed corridors of France, Germany and Italy, which together carry the large majority of Europe’s high-speed rail passengers – but nowhere near aviation’s trajectory.
It’s tempting to say the goal is to close that gap and chase aviation-style growth. That’s not realistic, and it’s worth being honest about why: airspace can expand by building more planes and opening more routes; a rail network’s physical capacity – tracks, platforms, paths through busy junctions – is far more fixed. Rail is probably not going to 12x, but it can do better than it does now.
That said, physical capacity isn’t actually the constraint that matters most here. Aside from the busiest high-speed corridors, average utilisation across most of Europe’s rail networks is low, and many departures run with empty seats. The opportunity isn’t to somehow invent capacity the network doesn’t have; it’s to fill the capacity it already owns.
That is exactly what the tools above are for. Marginal cost tells us how far fares can fall before we’re actually losing money on a seat – a matter of cents, not euros. Elasticity tells us that lower fares can bring in more revenue, not less. Cross-price elasticity tells us there’s a pool of car journeys that price alone can pull onto rail. And revenue management technology is what makes it possible to do all of this seat by seat, departure by departure, without discounting the seats someone would have paid full fare for anyway.
Getting there, though, means fares need to be free to respond to demand in the way this article describes – which is not the case today for large parts of the network, where complex rules and fixed formulas govern much of what can be charged. Reducing those rules, and simplifying fares so operators can price more responsively, is a significant step that would let this opportunity be realised. Rail’s growth over the past fifty years shows what’s possible even under today’s constraints. With a shift in mindset – and with the aid of the technology now available to manage it – the power of price optimisation could be brought fully to bear on rail across Europe, and the results could be extraordinary.
Email: info@expretio.com
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