VIA Rail Final Report

Executive Summary

Contents of the Report
The content of our report includes key findings about VIA rail such as the challenges it faces, missed opportunities, strategic recommendations for each of its gaps, financial implications, followed up with a conclusion and the next steps that VIA rail should take.

Brief Description of the Service
VIA rail is an independent crown corporation that provides Canadians with safe, efficient, and environmentally responsible public transportation. It operates nearly 500 trains every week on 13,000 km of track, and serves 450 communities across the country. It provides a number of services including on board, online, phone, and in-station.

Challenges and Opportunities
VIA Rail faces a number of challenges and opportunities that can that help the company grow and become more profitable. Some challenges that Via faces includes improving upon their food quality and prices as well as entertainment on board the train. On the other hand, Via also has a number of opportunities to develop growth and increase their profits. We noticed that Via is not servicing in certain geographical areas. A prime example of this is the area between Calgary and Edmonton as there is currently no service between these two destinations through VIA. In addition, we discovered that VIA does not provide a mobile application. By not having a mobile application, the company is missing out on providing a method for customers to purchase tickets for the VIA service. A third and final missed opportunity is that we also noticed that VIA Rail is not included on travel-booking websites such as Expedia. Because of this, VIA rail is missing out on cross-promotions and being able to purchase tickets as a part of a vacation bundle.

Outline of Strategic Recommendations
After analyzing the challenges and opportunities that face VIA Rail, we came up with some strategic recommendations to solve these problems. Some strategic recommendations involve increasing food quality, providing more entertainment for passengers, creating more effective brand visibility, and increasing seat occupancy.

Financial Implications
VIA Rail's place as a crown corporation of Canada make it a special case, with the implications of its financial position being far different than if it were a private corporation. Were it a private corporation, Via’s continued existence in its present form, or any form, and would be untenable with its operational ability being either severely limited or impossible. Its operating expenses greatly exceed its revenue, by a factor of almost 2 to 1. VIA Rail can claim a profit of $20 million in 2011, but without government funding, it would have to account for a very large net loss of close to $280 million. VIA would need to dramatically cut costs or increase revenues if it ever hoped to become a private corporation. As it is, VIA Rail will continue to be a crown corporation, as much out of financial necessity as the need to serve Canadians.

Primary Research

The primary research that we used for this report came from asking questions to two VIA Rail managers, passengers that were on-board the train, as well as some fellow classmates who have also travelled with VIA Rail. The answers that we received from the VIA Rail managers were very insightful and helpful for our analysis of the service as well as the final report. The information that we were able to obtain from the managers included VIA’s pricing strategy, service features, market performance, and market positioning. This was all useful information that they provided us with that would have been difficult to find on their website. In addition we also asked a bunch of people riding the train as well as some classmates about their personal experiences with VIA’s service and obtained some very interesting results. From listening to these experiences, it helped us identify some of VIA’s service gaps and come up with strategic recommendations to solve these particular gaps. We also made sure to ask people of different demographics in order to obtain various results.

On top of our primary research we also did a lot of secondary research, which consisted of looking at VIA Rail’s website and specifically in their auditor general reports, annual reports, as well as travel information. From the annual reports, we were able to obtain vital information such as VIA’s consumption patterns, fare pricing, and revenue breakdown by area.
Missed Opportunities

In our service audit of VIA Rail, we identified that its service offering has to do with certain opportunities that are available, but currently are not addressing. First, we noticed that there are certain geographical regions that VIA is not servicing. A prime example of this is the area between Calgary and Edmonton. Currently, there is no service between these two destinations through VIA. Due to the nature of the region with the current state of the oil industry, and the traffic between these two points, for not only pleasure, but business as well, it is quite evident that there would definitely be a market for such a service. Furthermore, there is also approximately 2.5 million people between these two points, once again providing substance so the claim that a Calgary to Edmonton route would be beneficial to the company.

Continuing on with the trend of opportunities currently being missed by VIA, we discovered that they do not provide a mobile application. By not having a mobile application, the company is missing out on providing a method for customers to purchase tickets for the VIA service. Beyond this, VIA is missing out on providing a degree of problem removal for its customers as well. Currently, a person would either have to go into the actual station, or go online to book the tickets. With a mobile application, customers would be able to easily book and manage their travel plans, all from the convenience of a device they carry with themselves essentially everywhere. With the increasing trend towards electronic devices being used throughout all stages of the purchase process (information search to purchase decision), VIA not providing a mobile application to its customers is causing the company to miss out on providing these customers with a smoother, and more convenient purchase process. As for the actual implementation of this recommendation, we believe that this is one of the most easily achievable for VIA Rail. With the level of resources VIA Rail currently possesses, it would not be a large strain on the company to develop and launch a mobile application, as they already have significant IT staff working on the back-end of the VIA service. (On the website, booking system, etc.) Once the initial costs of development are completed, there is little cost associated with the upkeep, yet you have now provided every person with a smart phone with another method of purchasing the VIA service, not to mention in a much more convenient fashion.

Furthermore, we also noticed that VIA Rail is not included on travel-booking websites such as Expedia. There are air options, car rentals, but no rail. So once again, this is VIA missing out on cross-promotion, and being able to be purchased as part of a vacation bundle. This also relates to the concept illustrated above in that the company is missing out on providing their service in a more convenient manner to its customers. Being listed on Expedia.ca or other travel package bundling websites would no doubt be beneficial to increasing usage of the VIA service. People could log on to Expedia, pick a destination they wish to travel to, and also have the option of saving money on their total vacation by choosing to travel by rail, as compared to an airline. As for financial implications of this recommendation, we predict that it would be relatively minimal. Currently, there is a link to Expedia on the VIA website, but not the other way around. Since there is clearly already some sort of relationship in place, we believe that it would not be an overly large stretch to make this connection going both ways. VIA would no doubt benefit from being presented as an alternative on travel booking sites, as it could be shown to new customers as well who are looking to travel, but may not have ever considered, or even known about the rail alternative, thus aiding in the overall goal of increasing market share.

Challenges Facing VIA Rail with Strategic Recommendations

Gap 1 – Food

Through experiencing VIA Rail’s services, we found that food variety and availability both in-station and on-board is a big service gap that VIA has at the moment. All in-station cafeterias excluding Toronto Union station and only few others are very small and have tiny selection of food and beverages. Same scenario applies for on-board services. Although Atlantic Canada, Rockies and Pacific routes do offer hot meals, the busiest route, which is Ontario and Quebec area, does not. This problem was more recognized when a survey was taken from multiple passengers on-board all of whom expressed their dissatisfaction towards VIA Rail trains, especially the ones operating during breakfast, lunch, and dinner time. We believe that VIA Rail could not only please its passengers more, but also increase its other revenue through offering a wider selection along with better quality food and beverages. If VIA could sell $5 worth of food or beverages to each of their passengers more than now, its other revenue will increase by more than $20,000,000. (See appendix A). We believe for an extra fee, the same meal offered to Business passengers should be available to Economy Class passengers as well. (See appendix A) This is a great opportunity for VIA Rail to meet the needs of its customers, build stronger customer relation, and attract more customers. Therefore, our recommendation for this gap would be for VIA to provide better quality hot meals during meal times in order to improve customer satisfaction and revenue. Word of mouth travels fast and if VIA gets a better reputation for its food on board and even within their cafeteria in station, it will tempt more passengers to buy food from Via.

Gap 2 - Entertainment

Another service gap that VIA has is its lack of entertainment options on-board. At the moment the only thing that VIA offers is coloring for kids and magazines for adults.
Of course we do realize that it is the 21st century and everyone has their own source of entertainment; whether it is a book, tablet, laptops, or etc, but we believe that selling toys and books on-board would differentiate VIA from its competitors. Similar to the idea of Monopoly, passengers could collect stamps on-board or in-station by purchasing toys or books. As a reward, they may win an annual cash prize or a free round trip with VIA. This allows VIA to attract and bring in more passengers and even result in passengers leaving competitors and using Via as their primary mean of transportation. This could also allow VIA to advertise the fact that they care about their passengers and would want to not only transport them from one location to another, but also educate them along the way which would result in improving brand equity. A suggestion that has occurred frequently is that VIA Rail should install screens behind every seat like some airlines do. We believe that this is an unnecessary cost that VIA would not receive much return on due to few reasons. First of all, installing screens would be a great cost to VIA. One cost would be the initial purchase and installation of them, but the bigger cost would be paying for movies or games usage licensing fees; which would occur frequently. Another reason that planes do offer screens and VIA does not is the fact that wireless Internet is not available on commercial airlines and therefore the only way they can entertain their customers is through those screens. Furthermore, VIA’s Wi-Fi can also be improved significantly while on board the train. There is nothing more frustrating then when it takes longer than a minute to load a page while surfing the Internet. A recommendation for Via to fix this problem would be to get a stronger, more powerful router on board the train in order for passengers to access information online more quickly.

Gap 3 - Brand Visibility

The next gap we have identified has to do with a low level of brand visibility. First, VIA must also consider that some people simply don’t like purchasing things online, and as a result, we recommend that VIA Rail increase its physical presence. What we are suggesting the company do is be present in major malls and shopping centers. When considering the financial implications, we have decided to recommend VIA set up its physical retail locations in a manner similar to how Canada Post has retail locations within certain Hallmark stores. Doing so will help keep the footprint of the location to a minimum, as well as keep the associated costs low as well. By having an increased physical presence, VIA will once again be better positioned to capture business in urban centres in a more convenient fashion than what is currently being offered. Those who are visiting the mall and will be travelling in the near future will be able to quickly pop in, and get their tickets for the trip, all without having to go too far out of their way.

Moving on, yet another gap that our group identified through our research had to do with the declining market share of VIA Rail. In order to combat this, we recommend that VIA advertise in locations where people who are travelling tend to be, such as nearby airports, or on taxicabs, and city busses. The ideology here is that if someone was returning from a trip, or on their way to a flight to check in, they would see a VIA billboard promoting the inherent benefits (such as lower price, and no wait times, etc.) and reconsider the method of transportation they are using for their trip. This could potentially lead to them choosing VIA next time, especially if they had a negative experience. An example would be someone taking a cab home from the airport, who just spend hours waiting to get off their plane and go through security. They could see the VIA advertisements, and decide that it may be more beneficial to them to travel with VIA next time, in order to save the headaches associated with the airlines.

As for the financial implications, we believe that this type of advertising is easily implemented, as it is well within VIA’s overall budget, as the type of advertising we are recommending is rather traditional, and not overly expensive. As illustrated in the previous example, this advertising could no doubt aid in the goal of attempting to increase VIA’s market share by helping increase brand recognition, and perception as well.

Gap 4 – Seat Occupancy

Upon analyzing the latest annual report from VIA Rail, we noticed one statistic in particular that stuck out to us as an obvious substantial challenge to the company: passenger load factor, or in lay terms, seat occupancy, which was sitting at 55%, meaning quite a few empty seats over a year. While this is seemingly a damning low proportion of occupancy, many service firms operate with similarly low occupancy. However, VIA Rail’s direct competition, in the form of airlines Air Canada and West Jet, are recently reported to have operated close to 82% passenger load factor for the year 2012. We believe VIA has the ability to capitalize on this opportunity to increase occupancy and therefore bringing with it greater revenues, profits and efficiency by implementing several recommendations we’ve collated. The strategic marketing recommendations to follow have all been considered through the lens of increasing ridership, and in turn load factor, while gaining market share from VIA’s aforementioned airline and bus (Greyhound, Mega Bus) competitors.

While VIA Rail does have a few currently available rail passes (Commuter ePass & CanRailPass), these are passes with pre-determined number of trips, time limits and often cities that are pre-set. We recommend an unlimited Monthly Pass with potential for yearly if the pilot of the monthly goes well. Our pass would work on a zone basis, example being travel anywhere between say Ottawa – Toronto, with another potential zone being Montreal – Toronto and further, Quebec City to Windsor. Should the pilot prove successful, there may be the possibility for a customizable option where the consumer may choose their zone start and end points.

The idea of unlimited is powerful in the minds of consumers; to go wherever they want, whenever they want is very appealing, with no pre-arrangements necessary. As each train trip operates at a fixed cost, meaning it costs VIA very similar for the same trip whether a train is full compared to when a train is empty, this pass would add little to operating expenses. As according to VIA’s annual report, operating expenses are high in comparison to revenues, it is important that this pass not add much to operating costs. Beyond generating revenues, this pass has the dual purpose of providing guaranteed revenue by pre-selling customers but also opportunities for secondary revenue (food & entertainment revenue generation mentioned elsewhere in this report).

Other marketing opportunities to increase passenger load factor and ridership is by targeting users of mobile technologies and our already invested VIA clientele. Members of VIA’s loyalty program, VIA Preference, and those who have downloaded our proposed mobile application can be informed by e-mail, application message and through the company’s Facebook page, of current sales. We contend that although VIA does currently advertise through some of these mediums in the form of holiday and seasonal sales, there is the opportunity to advertise for a deal of the day type notification for less popular, less travelled, less occupied routes. A last minute discount alert to potential customers could be generated the day of or the day before a train is to depart when it is about to travel relatively empty. This can be pre-set to auto-generate when a particular train has a sell-through of lower than pre-determined percentage, e.g. below 50% sold. All these deals could be offered and advertised through traditional ticket distribution channels as well.

The idea for one marketing opportunity that would increase load factor came from our interviews with passengers, in particular a gentleman who was travelling with his family. The recommendation that was brought about by this interaction was to offer a discount to those travelling with their whole family. We believe an offer of buying two regular-priced adult tickets and getting two children’s tickets (12 and under), with option of additionally discounted child tickets for families greater than four, would greatly entice and incentivize families to travel with us. The gentleman we spoke to said he enjoyed travelling by train with VIA as it allowed him to divest of the stresses of travel by car (other drivers, confined space) or by air (pre-boarding time, security checks). We believe this offer can be marketed with the message of a family trip being about the family, not the trip and about the freedom to walk around and interact.

The last user segment we believe can be targeted to increase load factor is business consumers, specifically those who travel in the busy Montreal-Toronto corridor. While a lot of business clientele is ingrained in travelling with airlines, we believe we can divert this mindset with some strategic marketing. Cross-promotion with many of the conferences and conventions that occur in Montreal and Toronto is a great opportunity to grow brand equity in the business sector. Being listed as the official travel partner of several large conferences/conventions with a link to discounted tickets for listed attendees through our partners website and e-mail newsletters would go a long way in helping this happen.

Secondary to this, we can also target the many head offices of companies established in Montreal and Toronto with offers of exceptional prices for a pre-purchase of set amounts of tickets. Should companies know how many times a month or a year on average their employees travel, it would be a way for them to guarantee a low price and allow them to better estimate and control their expenses without concern for the price variation and fluctuation commonplace with airlines. The self-employed can be targeted with advertising placement in billboards on the major routes into airports and on taxis that operate on airport routes. All businesses, whether self-employed or corporate, can be attracted by the idea of getting a meal between Montreal and Toronto, not available on a flight, and by the ability to be productive, using on-board wi-fi to do work while travelling. All this without long pre-boarding times, having to be there long ahead of time and sitting idle.

With these recommendations, we believe VIA Rail can attain a much higher ridership and passenger load factor, one more in line with their competition’s. These recommendations will proved VIA with increased revenues, greater profits, larger brand equity and excellent opportunity for continued growth.

Financial Analysis and Implications With reference to Appendix G, we can surmise many ongoing financial challenges to face VIA and clear areas of opportunity that would help grow the company. VIA currently yields 30.8¢ of revenue per passenger-mile with an operating deficit of 34.3¢ per passenger mile. This means that for every passenger that travels a mile, it is actually costing VIA Rail 3.5¢ to move them. Due to this, we can see why it is necessary for government funding of anywhere from 21¢ and up per passenger mile to have VIA Rail function. VIA ran 1.541 billion seat-miles (number of seats multiplied by number of miles travelled by trains) in 2011 with 851 million passenger-miles occurring in that same time, giving us a passenger load factor of 55%. This low percentage is a challenge to VIA and solutions for this are expanded upon in the section discussing increasing seat occupancy. Increased passenger load factor could help reduce the operating deficit and increase revenue per passenger mile. With a passenger load factor of 55%, VIA is in fact only earning 17¢ per seat mile travelled due to these empty seats, emphasizing the need for funding. VIA’s revenues have been down since 2008, with no coincidence that being the year they had the largest passenger-miles, 59% load factor and highest average number of passengers with 141. Now in 2011, with only 129 passengers on average, the typical train is departing with 105 seats empty. VIA had total revenues of $282.6 million in 2011, with $264.8 million of that coming from passenger revenue. With expenses topping $574.7 million, VIA ran an operating deficit of $292.1 million in 2011, reinforcing even further the requirement of government funding, to the tune of $307.5 million (deferred funding included). This illustrates to us that VIA Rail would be in dire straits were it not for this funding; with it, they actually report a net gain of $20.1 million. The Canadian Government’s economic action plan benefited VIA greatly with an investment of $923 million, allowing VIA to have capital expenditures of $237 and $268 million in 2011 and 2010 respectively. Without this infusion of cash, VIA would have not had the possibility of updating many of their stations, rail equipment or tracks and their capacity for growth would be exceedingly hindered. The 3 largest passenger revenue for VIA Rail breakdown into: Quebec City-Windsor Corridor, the Canadian (Toronto – Vancouver), and the Ocean (Montreal – Halifax). The Corridor makes 31.9¢ per passenger-mile and receives 21¢ of funding with costs of 19¢. The Canadian makes 32.1¢ per passenger-mile and receives 36¢ of funding with costs of 29¢. The Ocean makes only 22¢ per passenger mile and receives 55¢ of funding with costs of 33¢. The Ocean has been reduced to 3 times a week recently as evidenced by the low revenue generation and high costs requiring a much larger amount of funding. Comparing these revenue groups to one another, we can determine which groups have the greatest potential for leveraging to increase revenue and profits. Of the two long-distance tourism routes, the Canadian earns 2.96 times more revenue on just 2.03 times more miles than the Ocean. This coupled with 20¢ less funding required per passenger-mile leads us to believe there is potential for exploiting this. To test this data, we also compare the Canadian to the Corridor. The Corridor has 34.66 times more passengers than the Canadian with only 4.83 times more revenue. This gives us a revenue yield ratio of 7.17 in the Canadian route’s favour. However, with the Corridor travelling 4.86 times more miles than the Canadian, this ratio is reduced to the Canadian earning only 1.48 times more revenue per passenger-mile. This illustrates that the possibilities more revenue generation from the Canadian route would offer the best ratio. However, as the Canadian receives 1.7 times more funding than the Corridor, we find the Corridor having the most potential for profitability without outside funding, resulting in our concentration of strategic recommendations and marketing opportunities to mainly this Corridor.

Conclusion

Looking back, we all learned a lot about VIA rail and the services it provides, as well as the challenges and opportunities that face the service. With the recommendations that we have provided, we hope that VIA Rail will take them into consideration in order to develop its growth and increase its profits. If we were to do another service audit on VIA in 5 years from now to see if they implemented any of our recommendations, we all think it would be another great experience to do it again and to see how far VIA has grown in that span of time. On top of that, the staff and managers at VIA rail were friendly and accommodating, while providing us with all the necessary information that we needed in order to complete a successful service audit report. Because of this great service, it would make it more appealing to do another service audit in the future.

Next Steps for VIA

The next steps for VIA Rail would be to implement some of the recommendations that we have provided in our service audit report. In the next few months, VIA can implement some recommendations such as improving its food quality, Wi-Fi, creating a mobile application, and providing more entertainment on board the train as these are not difficult things to implement immediately. It would be interesting to follow up with VIA in a few months to see if they have had any success with implementing these recommendations. In the long term, VIA needs to increase their physical presence to create brand visibility, take advantage of a big missed opportunity by creating a route from Calgary to Edmonton, and collaborate with Expedia to create travel package bundles. Hopefully if we do another service audit on VIA Rail in 5 years, at least some of our recommendations will be implemented and VIA will have will have developed more growth, while being more profitable.

Appendices

Appendix A
According to Via Rail website, Via carried over 4 million passengers during 2010. The passenger revenue was even higher for the following years.
4 million passengers * $5/passenger = $20m

Business Class Food Menu vs. Economy Class Food Menu

Appendix B:

Via’s Revenue Breakdown by Area

Appendix C:
Pricing Comparison Between Competitors (Same destination/date)
Greyhound Pricing

VIA Rail Pricing - $167.86 Round Trip

Air Canada Pricing - $261.93 Round Trip

West Jet Pricing - $261.93 Round Trip

Appendix D:

Potential Risks Facing VIA Rail * Reduced government funding (Economic Action Plan infused near one billion dollars). Precarious operational ability and potential for growth without such investment * Operating and infrastructure costs/expenses (ie. Fuel costs doubled, replacing rail cars)

* Losing market share and relevance to airfare and road travel * Upkeep and upgrading of railway stations with no major revenue generation from these sources (Only 6.3% according to VIA Rail 2011 annual report) * Geographical confinement of majority of revenues (Quebec City – Windsor corridor)

Appendix E:

Flow Chart of Via’s Services

Appendix F:

Other potential challenges and opportunities:

One issue we kept observing when checking pricing online at VIA Rail is the inconsistency and confusion stemming from their pricing chart. Observe:

The Supersaver tier of Business class is the same price as the Discounted tier. The different tiers should have different prices so customers feel there is distinguishable value between tiers. Also, in the description of differences between the tiers of Supersaver and Discounted in Economy class we see no illustrative difference. This would lead to confusion from customers and questioning why there is a need for different tiers.

Appendix G:

Financial Analysis and Implications: We sifted through VIA Rail’s most recent annual report and found several sections that allowed us to analyze VIA’s current financial health and pull from it any potential implications the numbers may pose:

References

"About Via Rail ." Via Rail . N.p., n.d. Web. 7 Mar. 2013. <http://www.viarail.ca/en/about-via-rail>.

"Annual Report 2011." Via Rail . N.p., n.d. Web. 7 Mar. 2013. <http://www.viarail.ca/sites/all/files/media/pdfs/About_VIA/our-company/annual-reports/2011/VIA-Rail-Annual-Report-2011.pdf>.

"Auditor General Reports." Via Rail . N.p., n.d. Web. 7 Mar. 2013. <http://www.viarail.ca/en/about-via-rail/our-company/auditor-general-reports>.

"Our History." Via Rail . N.p., n.d. Web. 7 Mar. 2013. <http://www.viarail.ca/en/about-via-rail/our-company/our-history>.

"Travel Information ." Via Rail . N.p., n.d. Web. 7 Mar. 2013. <http://www.viarail.ca/en/travel-infos>.