Optimizing distance-based fares and headway of an intercity transportation system with elastic demand and trip length differentiation

An efficient fare structure combined with good service quality can stimulate demand and increase revenue. This paper presents an optimization approach for an intercity transportation system where demand is sensitive to fare and wait time and the fare sensitivity further varies with trip length. The approach jointly optimizes service headway and distancebased fare structure to maximize total profit, subject to service capacity and fleet size constraints. The optimal fares are also differentiated on the basis of trip length. An efficient solution method is developed and applied to solve the profit maximization problem. The model is applied to a case study of the Taiwan High-Speed Rail System. Numerical results, including optimal solutions and sensitivity analyses, are presented. Insights that may lead to managerial decisions are discussed.