The study of SNCF prices as an analysis of a state-controlled tariff

9Justifying the use of the term “tariff” as meaning the sum necessary to buy a train ticket enables us to specify our approach to the subject. Let us first recall that the transactions studied concern relatively homogenous goods whose prices—more precisely price systems—are durable over time and in so being can be publicly displayed. The etymology of the word “tariff” is a reminder of this. [12] It should also be pointed out, as Steiner highlights in his economic sociology book on organ transplants, setting a tariff is the result of work by experts who devise models conforming to the requirements of governments and not the result of a simple meeting of commercial interests as is the case for market price setting (Steiner 2010: 204–5). The work of tariff construction (rail, postal, electricity, etc.) results in the writing of a script, to use an expression from the anthropology of technology. This script, which can be revised from one period to another, in this case is a mathematical formula or algorithm that enables the price of each train ticket to be determined.

10In a public company such as the SNCF, the state (through its representatives) is involved in the rules for setting prices for the goods exchanged. Does this mean, however, that the public authorities do not intervene in price setting in other markets? Answering this question in the affirmative would be to deny the role of the state in the economy, a field in which it is probably most involved (Bourdieu 2000). A tariff, even when not set by the state, is regulated by the legal framework that restricts the conditions for exchange and influences price setting more or less directly. Safety regulations (health, food, etc.) relating to the selling of consumer goods, labour legislation and more generally all the regulations that govern commercial exchanges (Fligstein 1996) are constraints that guide companies’ pricing policies. But the public authorities are still more influential in the French railways and, more generally, in all historically monopolistic utility sectors (electricity, gas, coal, postal services and telecommunications) than in other markets.

11The state is both the owner of the SNCF and financial guarantor of the company. Thus, in contrast with the private sector where a firm’s repeated losses would mean its eventual dissolution, market sanctions are only indirectly applicable to the French railways. Two types of situation are possible. If the state owner decrees that the SNCF’s priority is not to make a profit or to balance its books, it may well decide, if necessary, to replenish the company’s coffers each year from public funds. This is the system that tended to prevail in France until the end of the 1950s. A contrario, if the state thinks that the SNCF should meet its public service obligations—the definition of which varies from one era to another—by limiting its recourse to public funds, self-financing and even making a profit, it can force it to reform its management and in particular to revise its tariff setting system.

The contexts and power relations underlying the “work of tariff setting”

12Given that the price of a train ticket is a tariff, it does not materialize ex nihilo. We must, therefore, look at the work of “price setters” who reject certain tariff systems and construct new, more appropriate ones that conform to the principles of fairness they support, but also identify who the tariff setters are with a view to understanding their motivations. As such, if we compare the social profiles of price setters to those of other agents in the SNCF, their uniqueness is clear: the engineers, educated in mathematical economics in the 1950s–60s and the young graduates from business schools of whom some came from the private sector in the 1980s had social characteristics that dispose them to act against the prevailing doxa in the rail “field” (Bourdieu 1980a) and in so doing to innovate. Price setters rely on economics in the broad sense (Muniesa and Callon 2009) to transform tariff systems. Economic theory, statistics, econometric forecasting techniques, market research tools and also current practices observed in other economic sectors—in particular air transport in the United States—are all resources they use to justify the adoption of new price paradigms. [13] The influence of economics on social reality should also be considered in light of the interplay of actors and interpersonal networks that enable the diffusion of marginalist thought and the gradual evolution of price formulae in the railways: the rail tariff setters thus use the ties they have with senior civil servants and SNCF directors, who are often former classmates at the École Polytechnique or were teachers at the grandes écoles of which the price setters are alumni. [14]

13Accurately analysing the process of SNCF price model transformations requires, moreover, placing it back in the context of the politico-institutional environment that surrounds it (Fligstein 1996). Since the early years of the Fifth Republic, an increase in respect for technico-economic expertise has been observable. Economists close to power and senior civil servants seeking to rationalize the state, in particular within the Ministère des Transports (Ministry of Transport) (Mazoyer 2012), contributed to the promotion of economic expertise (Dulong 1996). [15] The actions of this modernizing “small group of pioneers” (Gaïti 2002) benefitted from the development of planning in France (Fourcade 2009). It was also nourished by the socialization to economics of future elites encouraged by the introduction of the discipline to the curriculum of the École Nationale d’Administration (ENA) (National School of Administration) and the Institut d’Études Politiques (Institute of Political Studies) in Paris (Kolopp 2011). At the turn of the 1980s–90s, “economic belief” (Lebaron 2000) further extended its sphere of influence. The development of new public management (Bezes 2009), and the spreading of a “market culture” from the United States and the UK within certain grandes écoles and business schools where the public and private elites were educated (Lebaron 2009) is one of the expressions of this. It is thus also the legitimization of recourse to economics and to its theories and models within the upper echelons of the state that facilitated tariff innovation in the SNCF.

14Setting a price is also “carried out with” the tools and techniques available to the tariff setter as well as the competitive context (Barrey 2006), all are elements that define the contours of the space for possible tariff formulae. The challenge to rail transport’s de facto monopoly in terms of transport (competition from road and later air transport) and anticipation of the legal opening up of the rail sector to competition have tended to be presented as requiring tariff innovation. The development of information technology and marketing techniques [16] made the development of yield management possible during the 1980s–90s.

15Finally, the work of tariff setting is tied up with conflicts and the evolution of power relations between the actors (individuals and groups) involved in the French railways. The “Wright system” model for electricity pricing adopted in the United States at the end of the nineteenth century was not the most efficient but was the most favoured by powerful industrialists in the sector (Yakubovich et al. 2005). The company strategies (of which price is one of the elements) that were adopted in the same era in the US rail sector were the result of a particular interpretation of the legal framework (US antitrust law) imposed by economic actors in positions of power (Dobbin and Dowd 2000). In our case, it was the overhaul of the SNCF’s senior management in favour of directors who supported price discrimination, along with a lack of interest in tariff issues from trade unions that enabled tariff innovation.

The tariff setting work of Allaisian engineer-economists

25In a basic system like tariff equalization, accounting for costs is relatively easy. Simply define or reassess the price of a standard kilometre based on forecasting operating expenses, the number of passenger-kilometres and tonne-kilometres for the coming year. This simple technique, nevertheless, becomes a constraint when one wishes to differentiate transport costs. All the more so given that simply determining operating expenses on the railways proves to be a “formidable undertaking” (Hutter 1950: 63). Changing tariff setting requires the construction of a new framework for measurement that meets specific management objectives—pursuit of a balanced budget—, and justifying that it conforms to the principles of public service set out in the Cahier des Charges de la SNCF.

26From the 1940s, a theoretico-empirical rethink on tariff setting in the railways began. It was conducted in 1947 by Roger Hutter and Marcel Boiteux, two economists close to Allais [27] who endeavoured to show the benefits of constructing a tariff based on marginal cost and not on a journey’s length and the goods’ value. [28] Marcel Boiteux related his own experience at the SNCF thus: “One day Maurice Allais said to me: ‘My friend Hutter would like someone to help him think over remodelling rail tariffs, you should go and see him and work with him.’ So I started examining the problem. … When I said that tonne-kilometre prices should be different for when travelling full and travelling empty, I was looked at wide-eyed. This was considered totally extraordinary because the tonne-kilometre was a sort of transcendental thing that one was not entitled to question” (quoted by Bungener and Joël 1989: 25–6).

27Applying marginal-cost tariff setting—more precisely at the “marginal cost of development,” in order to anticipate costs associated with traffic peaks over the year to come—means selling a train ticket at the cost of producing an additional unit. Prices thus vary according to journeys, seasons, train time and rate of seat occupancy. According to Allais’s theory of social efficiency—the theory for which he received a Nobel Prize in 1988—, cost transparency and a strict application of marginal-cost tariff setting in rail transport are a sine qua non condition for the maximization of social efficiency, which is synonymous with the general interest (Allais 1948). Reflecting the cost of production in a price signal enables consumption to be rationally directed. Avoiding distorting the choices of network users guards against wasting productive resources, the user adopts the most suitable means of transport (train or car) depending on their needs and the value they attribute to using that service. Thus, tariff setting based on marginal cost, because it can mimic a perfectly competitive market by calculating a virtual price to aim for, is the best management alternative in a natural monopoly like the railways.

28The marginalist precept supported by the engineer-economists aimed to optimize the economic management of the business by estimating the market. It is true that optimization issues were far from alien to the engineers and were a good fit with the “computational thinking” (Vatin 2008) of the Polytechniciens in the grands corps who managed the SNCF at the time. [29] Nevertheless, during the period of post-war economic reconstruction and growth, the “économie de forces” [30] dominated. This meant producing more each year by rationalizing use of the network and materials and minimizing the use of fuel by locomotives and maximizing wheel traction on the rails. Another issue was how to respond somehow to the demand for passenger transport by running relatively comfortable trains that ran faster and faster, arrived on time whatever the technical limitations while making it a point of honour to meet the numerous safety regulations. The issue of balancing the company’s books was certainly not completely ignored, but it was not an essential issue for the SNCF management, with the state acting as a guarantor. Like other key industrial sectors, the essential aim of the railways was primarily to contribute to the modernization of the French economy (Kuisel 1981).

29Thus, while Allaisian engineer-economists believed they had theoretically demonstrated that tariff de-equalization was an instrument for making users and public companies accountable and proposed a practical solution to the problem of competition between road and rail, SNCF engineers and senior civil servants continued to assert that public service rail transport required a uniform price for each kilometre (Boiteux 1993: 46). Economics cannot change reality in an autonomous way. To have an impact on the world, a new theory must not simply be stated but must also be supported by influential actors who diffuse it through various channels. At the time, Allais propagated his vision of the economy in the private sector and in public companies, as well as in the upper echelons of the state through his interpersonal connections with senior managers and civil servants and also via his ties with the engineering grandes écoles (Denord 2007; Fourcade 2009). He also spread his ideas through seminars, such as the one he led at the Café Cérou in the Place Saint-Sulpice, Paris, that brought together a dozen people coming, in particular, from the SNCF (Bungener and Joël 1989: 19). At the same time, Hutter recommended marginal-cost tariff setting and the need for profound commercial reform of rail transport in three articles that appeared in the Revue Générale des Chemins de Fer, the reference journal for SNCF engineers (Hutter 1950). In addition to a famous article on this subject that appeared in the prestigious journal Econometrica which led to him being elected president of the Econometric Society (Boiteux 1956), Marcel Boiteux spoke highly of the virtues of marginal-cost tariff setting in public monopolies at the École Nationale des Ponts et Chaussées. [31] During the post-war years, marginalist thinking therefore spread and tended to permeate and stimulate debate on reforming the management of public companies.

The origins of tariff de-equalization: A crisis of legitimacy for the SNCF management

30The political conditions for a reform in tariff setting emerged at the turn of the 1960s. The Rapport sur les obstacles à l’expansion économique (Report on the obstacles to economic growth) led by Jacques Rueff and Louis Armand [32] drew attention to the existence of a distortion between costs and prices in rail transport, leading to large losses for the SNCF. This was damaging to the development of the national economy, in particular within the context of the Europeanization of trade following the signature of the Treaty of Rome in 1957. Members of the committee then suggested that for the transport of goods by rail there should be “a moderate and progressive de-equalization of tariffs, resulting in some cases either in these being lowered or raised” (Premier Ministre 1960: 22). A guidance note stated that it would be appropriate to “bring to a conclusion the studies by the SNCF to ‘deequalize’ [33] their tariffs, meaning now setting tariffs dependent on their real costs, varying according to journey, time and goods.” [34] The committee’s recommendations were heeded. By weighting each goods transport service based on cost, the 1962 reform was the “greatest upheaval to tariffs undertaken since the beginning of the railways.” [35]

31The Rueff–Armand report only dealt with the rail transport of goods. But such a reform filtered through to promote reform of passenger transport tariffs. Members of the committee thus said that, in general, the SNCF “should determine its commercial policy based on the real costs of the services it provides” (Premier Ministre 1960: 23). Such recommendations were the first evidence of changes to the mindsets of the politico-administrative elites. From the 1960s, the idea that, like the major government departments, the SNCF was a bureaucratic and paralysed organization (Crozier 1970) began gradually to spread. Railway engineers were increasingly criticized for developing the business along productivist lines, without worrying about the effect their behaviour had on public finances. Numerous experts and economists, who were increasing in number and influence within the Ministère des Transports (Mazoyer 2012), along with a growing proportion of senior civil servants in charge of the sector believed that the SNCF should no longer seek to satisfy demand for transport at any cost. It was not the public that should finance the running of the business from the public purse, but customers—that is both “shippers” (goods transport) and passengers—through an appropriate tariff structure.

32A well-known report coordinated by Simon Nora [36] crystallized this redefinition of the place and role of public companies in France. In addition to the savings that public monopolies should make, the report advised that the state owner should grant them more commercial autonomy: it was in this context that the first programme contract was signed between the state and the SNCF in 1969. According to the Nora report, public companies should also be encouraged to be more “inventive” and “rational,” urged to modernize their management style drawing on the private sector, which was considered to be the model to follow par excellence (Nora 1968). In short, as the Prime Minister, Jacques Chaban-Delmas, suggested (Assemblée Nationale 1969: 2253), it was necessary to “make public companies be true companies by restoring control over decision-making to them.”

New company strategies and new leaders: The beginnings of tariff discrimination for passenger transport

33It took time for the mindsets of the political elites to change, and also to convince the engineers in the grands corps working in the rail-company and ministries of the merits of marginal-cost tariff setting. [37] Studying the make-up of the SNCF management since its creation shows a change in career profiles of staff beginning at the turn of the 1960s with the arrival of a new generation of engineers—this also reflected changes to ways of thinking within the state. [38] The advocate of marginal-cost tariff setting, Hutter, who attained the position of deputy director general in 1966—and who supported the new director general, Guibert, a former student of Allais—, also called this period the “colonels’ revolution” (Picard and Beltran 1994: 37). As was customary, the new directors of the SNCF were Polytechniciens from the state’s technical corps (Corps des Ponts et Chaussées and Corps des Mines). But in contrast to those who had managed the company up to then, the new senior managers were interested in economic theory and more specifically Allaisian mathematical economics, and wanted to redirect the management of the railways in line with a vision they called “technico-economic.” After several years of experimentation, it was in 1970 that it was established that ticket tariffs had to better reflect fixed costs, especially on short journeys. A fixed supplementary charge was introduced into the tariff setting formula. The increase resulting from this fixed charge could not however raise train ticket prices by more than 15%. [39] The formula for this “binomial tariff” is expressed thus:

34P_x→y = A + D_x→y × C

35where A is a fixed supplementary charge.

36Although limited and tightly controlled, this early tariff discrimination was a major qualitative and symbolic leap. But for the advocates of marginal-cost tariff setting, it did not go far enough. The new SNCF marketing manager, Jean Ravel, still complained of having to “fight against the inertia inherent to all public services” (quoted by Montbrun-Guttierez 1978: 223). This atypical manager—he was not a Polytechnicien and built a career at Air France—was the first to recruit young graduates from the business grandes écoles on a “large scale,” in particular from the École des Hautes Études Commerciales (HEC) in Paris, by going directly to the schools to find students. [40] Helped by these new recruits, he wanted to take railway management in a commercial direction, in particular by introducing the principle of timetable and seasonal variation. Based on extensive surveys, the marketing department produced a new profile of typical passengers. SNCF users were not a homogeneous clientele, but customers with diverse needs and expectations. That was why the company had to strive to meet demand for transport in a more appropriate way, in particular demand from the wealthiest passengers (Lacôte 1974: 14). Thanks to the knowledge gained from the market research work, and following on from the change in the grammar of tariff setting, it was possible to increase the SNCF’s revenues and thus to balance its books. To do this, the clients who were most price sensitive or were the most flexible in terms of when they could travel were to be encouraged to journey at off-peak times in order to even out the peaks in demand.

37In September 1979, at the initiative of Ravel who had since become passenger sales manager, the SNCF introduced new deals (Couples, Family, Senior and Leisure tariffs) and a three-colour calendar. Time slots during the year were classified in three colours: blue for “off-peak,” white for “normal” periods and red for peak times. Symbolically the new SNCF tariffs were similar to the “yellow tariff” and “green tariff” introduced for electricity by the EDF in the 1950s. But the SNCF’s three-colour calendar was inspired more by the “blue–white–red” colouring of tariffs introduced by the Canadian National Railway in 1962. [41] This system enabled the Canadian company to increase traffic by more than 60% in five years and to quickly achieve financial equilibrium (Lacôte 1974: 219). Henceforth, the price of a train ticket would also vary as a function of demand for transport during a time or calendar slot. A parameter was thus added to the price formula, which could now be expressed thus:

38P_x→y = A + D_x→y × C × ∆_t

39where ∆_t is a parameter whose value varies depending on period in the three-coloured calendar.

40It seems that blue–white–red tariff setting was a commercial innovation that was introduced with little fuss. The Confédération Générale du Travail (CGT) (General Confederation of Labour) and Confédération Française Démocratique du Travail (CFDT) (French Democratic Confederation of Labour), which were the two main trade unions at the company, were certainly opposed to the SNCF’s commercial strategies from time to time, but trade union declarations at the time mostly reflected preoccupations concerning downsizing and station and line closures. Any objections to the tariff paradigm have not, in any case, been formative or been a constituent element of the “identité cheminote” (“railway worker’s identity”). [42] The SNCF did not lack arguments to support the new tariff: thanks to time variation, it better managed the network and limited the company’s losses despite growing competition from road transport, which also enabled it not to increase the average price per kilometre. Moreover, the rail company continued to offer some tickets without additional charges, even reductions on previous tariffs, presenting less wealthy customers, who might not normally have travelled, with the opportunity to take the train. But to do this they had to accept travelling off-peak (“blue” tariff). The new SNCF pricing policy thus highlighted the change of reference for economic fairness based on operating costs, which was established in the railways during the 1960s–70s. But the development of the train à grande vitesse (TGV) (high-speed train) programme presaged a new way of setting tariffs, substituting the measurement of marginal costs by the utility each passenger associated with a transport service.

Abandoning the kilometric scale

42By removing the principle of the kilometric scale, the 1980s reforms marked a significant turning point in the history of railway tariff setting. In 1981 the first chink appeared in a subtle way—because it was invisible to and painless for passengers—with the introduction of the first high-speed train. To attain unparalleled speeds on rail, TGV technology required special rail tracks. The ligne à grande vitesse (LGV) (high-speed line) built between Paris and Lyon was 87 kilometres shorter because it avoided the town of Dijon. However, passengers continued to pay the same price as they would to use the traditional Paris–Dijon–Lyon line. The SNCF wanted to make a quick return on the investment associated with developing the TGV project. [43] Moreover, at certain times of the day or week, ticket prices were increased by 20%. Finally, just like the airline industry, the SNCF implemented an obligatory reservation system with a charge (+ 8 francs in 1981). The TGV Sud-Est project was intended to win back customers from higher socio-occupational groups. Carrying standing passengers was therefore out of the question. The price formula for a train ticket on the TGV Sud-Est line is expressed thus:

43P_x→y = p_x−y × N + R

44where p_x−y is the basic price for journey x–y, N is a coefficient equal to 1 in normal periods, and 1.2 in peak periods and R the price for reserving a seat on the train.

45The tariff reform that accompanied the development of the TGV was perceived by railway workers’ unions as an attack on the traditional model of public service. [44] However, it did not give rise to any specific protests. [45] Further tariff complication followed over the course of the decade, reinforcing the SNCF’s marketing policy initially developed for the Paris–Lyon TGV. In order to limit competition from air transport over long distances, the SNCF introduced the principle of degression of kilometre prices in 1986. Alongside this the company launched the Joker programme with a view to filling the least occupied trains: prices were no longer linked to distance but fixed according to market conditions. [46] To qualify for such tariffs, passengers had to buy their tickets in advance (J-8, J-30, [8 or 30 days in advance] etc.). Then, authorized by the new plan contract signed with the state, the SNCF introduced the Résa 300 system when launching the TGV Atlantique in 1989: prices for the high-speed trains would henceforth vary according to four levels. The tariff changes in the 1980s clearly involved a redefinition of rail transport services. While passengers benefited from the greater comfort (guaranteed seats) and speed of the TGV, it would no longer be possible to board trains without having first booked a seat. This change enabled the SNCF to know the occupancy rate of each train in real time and assess customers’ price sensitivity, the data at the heart of the emerging tariff setting system: yield management.

The origins of yield management: The importation and implementation of a new tariff setting model

46At the end of the 1980s, eager to “dust down” an SNCF that was considered aging with respect to the functioning of the French economy, but also convinced of the imminent liberalization of European railways and the expansion of air transport, some executives wanted to reinforce the market orientation of the company. The director of the SNCF passenger branch, Jean Marie-Metzler, [47] thus decided to set up a new work group: the Groupe de Recherche Long Terme (GLT) (Long-term Research Group). The composition and organization of this group of a dozen people contrasted with the professional culture and esprit de corps of railway workers at the time. The GLT had a flexible and informal structure, which did not feature in the organization chart of the company, although the SNCF was reputed to be very bureaucratic. Also, and unusually, members of the group were mostly recruited from outside the SNCF, a contribution of “fresh blood” that would encourage the emergence of new ideas. GLT managers were young (in their thirties on average), often business school graduates and, in part, from the private sector. Finally, and doubtless most importantly, members of the team had a more competitive vision of the business. It was for this reason that they were recruited.

47The GLT wanted to propose a profound upheaval of the price models in operation at the SNCF. Different options were studied, among which was an intensification of marginal-cost tariff setting, tariff setting “at market prices” and also the implementation of a yield management system. It was the latter solution, considered the most innovative, that would be adopted. [48] Yield management is a tariff setting scheme that emerged in the highly competitive aviation industry in the United States. [49] Until the 1970s, companies like American Airlines, Delta Airlines and TWA had monopolies on the routes they served. The airlines’ operating conditions (ticket prices and routes offered) were tightly regulated by the federal government, a situation that was not dissimilar to how the French railways operated, with the exception that the aviation companies were not public companies. At the beginning of the 1980s, deregulation in the aviation sector led to major changes in the organization of the industry. New small more flexible aviation companies staffed by younger and less well-paid people, began to compete with the big companies, which saw their revenues eroded. In response, most of them began a price war. This strategy did not produce the desired effect since, even when completely filling planes, the big companies continued to lose money. Moreover, on certain routes, business travellers used to flying frequently by plane and buying their tickets a few hours before take-off found themselves prevented from boarding because of a lack of space. Most of them, however, were prepared to pay a higher price than the one demanded by the companies. It was in this context that revenue or yield management was born, first at Delta Airlines, and then soon developed in a more elaborate form at American Airlines. [50]

48Until then, ticket prices were fixed within each company by a team of employees using just one means: their personal intuition. The possibilities opened up by the development of information technology in the aviation sector changed the situation however. Delta Airlines spent two million dollars on reorganizing their reservation system in an attempt to “sell the right product to the right customer at the right time for the right price” (Cross 1997: 132). Thanks to this investment, the company’s revenue rose by 300 million dollars in 1984, an increase of 100% in its annual results. More ambitious again was the system American Airlines introduced between 1985 and 1988: the Dynamic Inventory Allocation and Maintenance Optimizer (DINAMO), the first truly automated yield management system. [51] In three years, the extra revenue produced thanks to this system reached $1.4 billion dollars (Smith et al. 1992). Yield management was born. It is said that this new strategic weapon is transposable to all sectors faced with fluctuations in demand and where fixed costs are high.

49When Metzler decided to equip the SNCF with a yield management system in 1987, this tariff setting tool was virtually unknown in France. [52] No French company had yet tried such a tool, much less a company in the public sector. Some members of the GLT were thus sent on a mission to the United States. The aim of this trip was to buy a computerized reservation and capacity management system with a view to transposing it to the French railways for the forthcoming opening of the TGV Nord line. The SNCF eventually turned to American Airlines to develop the Système Offrant à la Clientèle des Réservations d’Affaires et de Tourisme en Europe (SOCRATE) (System Offering Customers Business and Tourism Reservations in Europe). [53] They still had to convince the company’s management of the value of purchasing such a system.

50In 1988, the SOCRATE project was presented to the SNCF senior management and board of directors by Metzler, who had to demonstrate the value to the company of changing tariff model. There was no opposition from the company’s senior management, but instead a sort of immobility in the face of an unfamiliar technique whose practical effects were unknown. Based on an initial econometric model and on a study commissioned by an international strategy consultancy, an uncommon, even unheard of, practice in the SNCF at the time, the GLT highlighted the increase in revenue that would result form a profound reform to tariff setting: “We have shown that the implementation of a yield system would enable margins to be improved by 4% in comparison to current imperfect tariff setting, which is complicated and has many exceptions. It was sufficient to offset the costs of the SOCRATE project, which nevertheless involved a profound change to the system of ticket distribution.” [54]

51Metzler’s social characteristics would have facilitated negotiations with company management. [55] The “grandes lignes” director had spent almost his entire career in the SNCF and took an active part in the birth of the TGV, the project which the company considered to be a technological achievement and an economic success. As a result he enjoyed a certain legitimacy among members of the senior management. Moreover, like the SNCF’s chief executive and three of the four deputy chief executives, Metzler was a member of the Corps des Ponts et Chaussées. [56] He benefitted in this regard from a form of limited solidarity that exists between members of the grands corps and graduates of certain grandes écoles (Finez and Comet 2011), but also from symbolic power allowing him to propose redefining the train ticket tariff setting system. The development of the SOCRATE project (1988–93) coincided, moreover, with the arrival of a new generation of executives at the top of the SNCF—with more diverse educational profiles, often graduates of ENA or business grandes écoles, sometimes coming from the private sector—who were particularly in favour of the company’s financial success (Finez 2012).

52The yield management system introduced on the LGV Nord high-speed line in 1993 was in part similar to the TGV Paris–Lyon tariff model. Train ticket prices were calculated based on a minimum price for each rail journey depending on the captiveness of the micromarket. A supplement was added to this base tariff when travelling in peak periods along with an obligatory fixed reservation fee. Yield management also introduced quotas of reduced-price tickets, the scale of which varied depending on train occupancy levels, the time of ticket purchase and prices offered by competitors. Price levels also depended on a series of criteria: whether the ticket was refundable or exchangeable (with or without cost), possession of a railcard, etc. Finally the SNCF practised a policy of overbooking: meaning selling more seats than available on a train, with the knowledge that some passengers would not turn up when the train leaves.

53Price setting relied on the work of a team consisting of around fifty people in 2012. Located in the business district of La Défense, the yield managers in the Centre d’Optimisation Commerciale (COC) (Commercial Optimization Centre) adjust ticket prices in real time, using increasingly complex computer algorithms. Their work entails optimizing train occupancy rates while ensuring that ticket prices are as close as possible to the maximum sum each consumer is prepared to pay to travel. This means giving priority to the most affluent customers, in particular those travelling for business, without, however, excluding revenue from other passengers (young people, families, people on lower incomes, etc.). Yield management, the tariff setting technique that soon spread across the whole TGV network and then to Corail (non-TGV national) trains in the 2000s, thus aims to maximize the company’s revenue.

54It is hard to gauge the extra margins that yield management actually produces. What the director of the COC says about the strategic role of real-time tariff setting for the company is however illuminating: “Once introduced, yield management is not expensive to run … When you make one euro more, it’s practically an extra one euro margin. This euro turns almost entirely into profit! You can see the lever effect, can’t you? One percentage increase in turnover represents about 50 million euros for the TGV. Although one point might seem small in terms of the company’s margins, it’s actually enormous. … I’m not going to tell you how much more yield management extracts. I can however tell you that it’s commonly accepted that, thanks to these techniques, operators can increase their revenues by a range of 3% to 10%. Then it depends on the techniques used and the maturity of the market, brand image, etc. … As for us, we’re probably number one in the world in the railway sector, ahead of Virgin and Amtrak.” [57]

Yield management as a new principle of fairness

55When yield management was introduced, the trade unions protested against what they saw as “class tariff setting.” [58] The new tariff system effectively prevented less wealthy customers from travelling at peak times, thereby encouraging social divisions. Some unions, like the CGT, also emphasized that ending the kilometric scale amounted to undermining the “historical foundations” of the principle of fairness in rail transport. [59] The president of the SNCF at the time, Jacques Fournier, asserted in contrast that the tariff innovations were part of the huge changes that were affecting all public service utilities (e.g., electricity and telephone) and that the principle on which yield management is based was “analogous to that which had presided over the introduction of the three-colour calendar” (Fournier 1993: 51–2). There was thus no reason to be worried about the effect of introducing SOCRATE.

56It is true that the incremental nature of the innovations and the hybridization of price models that resulted might give the impression of a sort of continuity between blue–white–red tariffs and yield management. [60] In reality, the foundations of the two tariff setting models differ profoundly, as much in terms of the nature of metrological operations enabling the price of train tickets to be fixed as from the point of view of the management objectives they serve. The adoption of yield management signified the abandonment of a price calculated on the basis of costs in favour of tariff setting based solely on the utility passengers accord to the transport service. Moreover the new tariff system was meant to make the company a profit and was not simply aimed at balancing the company’s books. A recent brochure published by the Centre d’Optimisation Commerciale describing a revenue management analyst’s work clearly states: “At the SNCF, your role is to optimize receipts and the occupancy of a portfolio of trains in your charge (15 to 20 trains per day, or a turnover of 150 million euros on average).” Yield management was thus a change in tariff setting paradigm and not simply the automation of price discrimination as it existed in the 1970s and which would have been made possible by developments in information technology.

57It would, however, be wrong to believe that the introduction of yield management in the SNCF and its expansion over the course of the last two decades could have been done without taking into account the requirements of social justice and debates around its compatibility with the principle of public service. As with marginal-cost tariff setting, the adoption of this new pricing system was accompanied by efforts at moral justification. Yield management “is not, in essence, contrary to consumer interests and public service, quite the contrary,” stated a recent parliamentary report (Assemblée Nationale 2008: 39), confirming the opinion of the Conseil d’État (1993) which recognized the need for the SNCF to abandon the kilometric relationship and to vary prices in order to “improve the profitability of the service depending on the particular characteristics of its clientele.” Using a price–quantity demand curve, it is easy to show that tariff discrimination potentially allows the satisfaction of more consumers than a single price (tariff equalization) or moderate price discrimination (three-colour tariffs). In doing so, yield management can contribute to a form of increased wellbeing for individuals in society.

58Such analyses are similar to the position supported by the SNCF general management and the GLT. The president, Jacques Fournier, claimed that as long as ticket prices “stretched over a sufficiently wide range, … there is no basis for] criticizing them from the point of view of the fight against social inequality” (Fournier 1993: 52). For Metzler (1988), the SNCF was a productive organization, which like other public and private companies, must adapt to changes in behaviour and mentalities: “customers are changing. They’re more demanding, they’re better consumers” and is tending even to behave like a “perfect homo œconomicus.” It is therefore necessary for the company to adapt and to seek to satisfy passenger demand in a rational way—with the understanding that we are talking about “economic rationality” here. There is an element of an old principle from the liberal political economy in this discourse (Smith 1776), which would have it that the meeting of particular interests (the passengers’, who want to minimize their expenditure, but also the SNCF’s, which must seek to make a profit) contributes to the general interest. Because it really is the general interest, defined as the satisfaction of most, that is at issue: Metzler, as a Polytechnicien and member of the Corps des Ponts et Chaussées, was one of its strongest champions. [61]

59In this respect it is interesting to note that yield management is an application of utility tariff setting theory formulated by Jules Dupuit in the middle of the nineteenth century (Dupuit 1844). According to this liberal Ponts et Chaussées engineer, differential tariff setting, which consists of requiring each network user to make the maximum contribution they are willing to pay, enables the needs of the greatest number of people to be satisfied. [62] At the time it was set out, Dupuit’s utilitarian theory had little influence on the state engineers in charge of regulating the railways (Ribeill 1993). The recommendations stemming from it were effectively judged to be against their economic morality. They considered that tariff setting should be based on running costs in order to conform to the principles of measurement in industrial engineering (Grall 2003: 386). The adoption of real-time tariff setting by the SNCF in 1993 was thus an implementation of an old principle of utilitarian fairness in terms of access to transport, a “higher morality” (Vatin 2002) that had remained just a theory for nearly a century and half.

60The paradigm shift is also, however, part of the historical process of increasing autonomy of the SNCF from its masters. It is true that the state is still supposed to control the company’s tariff setting policy: prices must not exceed certain fixed bands (Perennes 2012). Too great a gap—which remains at the discretion of the public authorities—between the most expensive and cheapest tickets would be judged contrary to the principles of public service. In 2008, the price of the same physical seat on a TGV could vary between 1 and 3 (Assemblée Nationale 2008: 39). Recent changes in the SNCF’s marketing policy, encouraged by the adoption of a decree (Assemblée Nationale 2011) granting the company greater tariff setting freedom, were accompanied however by an increase in the spread of prices.

61Doubt could also be cast on the whether the state owner has a real tariff regulation policy, in particular concerning the fluctuation of prices between the minimum and maximum bands. In the opinion of a senior civil servant who was in charge of monitoring prices in the Ministère des Transports, the state should not interfere with tariff setting policy on the SNCF “grandes lignes.” And what is more, it does not do so: at the end of the 2000s, “we used to receive an Excel document. We would open and glance at it, that’s all. We wouldn’t check anything. … I don’t see why the state should control prices either. For me, a large part of the SNCF’s operations, like the TGV, are like the private sector. … The state should behave like a shareholder.” [63] What this senior civil servant says is as much symptomatic of the changing attitudes among the elite in this sector as it is of the consolidation of the contractual relations the rail company has with the state. The public authorities, having become “state shareholders” (Delion 2007), encourage public companies to generate profits. Thus they can limit the financial support they offer, even reap “dividends” from those that make a profit. Between 2008 and 2013, the SNCF has thus paid nearly 800 million euros to the state.

62***

63Three structuring paradigms emerge through the various reforms to railway tariff setting introduced incrementally since 1938. The first model, which pre-existed the SNCF, fixed ticket prices according to distance travelled. Then in the decades following the war, the uniform per-kilometre tariff was slowly abandoned in favour of a new principle: the price of a ticket should henceforth approach operating costs as much as possible. Finally, in the 1980s–90s, marginal-cost tariff setting was replaced by yield management, a price system based on the utility passengers attribute to a transport service.

64The SNCF tariff changes resulted from the work of a few entrepreneurs in economicity who acted in political, competitive, social and also technical contexts that defined the space of possibles for the tariff formulae they proposed. Without developments in road and air transport in the second half of the twentieth century and the opening to competition from European railway markets in the 1980s, without a transformation of the mindsets of state elites and the process of management rationalization in public companies, without changes to power relations within the senior management of the SNCF, the question of the financing of French railways would have been posed in a completely different way and the responses given would have been of a different nature. The motivations and capacities for action of the price setters should be sought in their social characteristics. Tariff innovators were “allogeneic” actors and “in-house” managers whose profiles and ideas were relatively specific with respect to the norms and images of the SNCF of its times. Boiteux and Hutter were engineers educated in mathematical economics and convinced by the Allaisian theory of social efficiency, Metzler and the GLT were imbued with the values that prevail in the private sector. The peculiarity of the social profiles of these entrepreneurs in economicity—which, a priori, limited their influence—was compensated for by the ties they had with certain executives or by the fact that they themselves occupied elevated positions in the sector.

65This historical sociology of tariff setting emphasizes the crucial role of economics in the adoption and justification of new price formulas. The SNCF price setters used economics senso lato in order to demonstrate that their forms of economicity benefited passengers, the SNCF and the state. Originally, the per-kilometre tariff was based on a classical principle of market fairness: it is fair that all network users pay an identical price for the same service. In his theory of social efficiency, Allais highlights the unintended consequences of a price that is proportional to distance and suggests adopting marginal-cost tariff setting. This was intended to guide consumers to consumption that was better suited to the general interest and promote a balanced SNCF budget. Backed by developments in computing, yield management made possible tariff setting based on the differing utility that passengers accord to the same service. Yield management enabled the SNCF to broaden its customer base and reap additional profits each year. These two successive redefinitions of the general interest were accompanied by a redefinition of the principle of public transport services.

66Twenty years after having introduced SOCRATE, reforms to tariff setting in the French railways are far from over. The changes to tariff setting for national passenger transport have been retraced in detail. We now need to know how price systems have evolved and will evolve at the same time in other railway markets (rail freight and international and regional passenger transport), which also faced in recent years with increasing intra- and intermodal competition. Furthermore, the creation of the Réseau Ferré de France (the French Railway Network) in the context of European liberalization of the railway sector now raises the question of tariff setting for infrastructure use. Historically, access to the network was free and was based on a simple principle: passenger trains had priority over the transport of goods. The gradual opening of markets however has dramatically shifted the management of train paths from the world of engineers to that of economists (Crozet 2011: 222–4). Two economic “truths” confront each other today. Some experts believe that rail tolls should cover all costs and that the prices for train paths should be fixed in a way that selects traffic depending on the disposition of users to pay. Others, more interested in competition being effective—in accordance with recommendations from the European Commission—, assert that setting tariffs to cover all costs would have a dissuasive effect on new entrants that might compete with the SNCF. This is the reason why it would be preferable to set tariffs at marginal cost, the inherent losses being covered by the state.

67The history of railway tariff setting is certainly a history of increasingly complex price models. Yield management profoundly changes the conditions for the meeting of supply and demand since potential customers are confronted with the Centre d’Optimisation Commerciale’s powerful algorithms in a situation of information asymmetry. Passengers seem relatively comfortable with this situation and have internalized the fact that it is possible to travel on the network at a cheaper price as long as they spend time in front of the computer, are sure they will not change their minds (the cheapest tickets are non-exchangeable and non-refundable), are flexible about travel times, anticipate the probable changes in ticket prices from one day to the next, etc. Therefore, has the yield management system—whose operation is based on the standard hypothesis of homo œconomicus—had “theory effects” (Garcia 1986) on passenger behaviour? To what extent has the necessary computational logic needed to buy a ticket transformed passengers into rational consumers? In the absence of data allowing us to make sound hypotheses, such questions must remain unanswered for the time being. However, they offer a stimulating research perspective for those who want to understand how demand reacts and is restructured in the face of changes to the services offered by the SNCF, of which price is one of the components.