1. PRICING AND REVENUE MANAGEMENT
LTC – Lebanese
Transportation Company
Consulting Report
Mohammad Kassab
Rabih Hasbini

2. Table of Contents
Executive Summary........................................................................................................................3
Introduction....................................................................................................................................4
Methodology..................................................................................................................................5
The Metro.......................................................................................................................................6
Metro route................................................................................................................................6
Scope ..........................................................................................................................................7
Findings......................................................................................................................................7
The Model ..................................................................................................................................8
Assumptions...........................................................................................................................8
Network Revenue Management .............................................................................................9
Optimization...........................................................................................................................9
The New Metro Design ........................................................................................................11
Optimization of the New Model...........................................................................................11
Conclusion............................................................................................................................12
Short comings of the model..................................................................................................12
The Busses....................................................................................................................................13
The Ethical Perspective.................................................................................................................16
Appendix.......................................................................................................................................18
Survey 1....................................................................................................................................18
Survey 2....................................................................................................................................20
Optimization model for metro .................................................................................................21
First Model............................................................................................................................21
Second Model.......................................................................................................................21

3. Executive Summary
After almost 5 years since the introduction of Metro Dubai, we as a group are studying
the possibility of introducing a similar idea on the coastal line of Lebanon, along with a
private bus transportation company in Beirut.
The project which will be part of the revival of the transportation industry in Lebanon
will yield almost 243,150,000L.L of revenues only from charges of the Metro coming
towards Beirut, thus given this information and the fact that the Metro’s expenses per
day are almost 400,000 USD we believe that the project will be a success and will yield
profits for the Lebanese Government.
In the sections that follow we present our study of the whole project using multiple
revenue management techniques including Network revenue management and Surplus
management.
Towards the end of the report, we tackle some of the ethical issues that relate to the topic
along with the benefits of this project on different aspect of the Lebanese economy and
environment.

4. Introduction
Lebanese Transportation Company is a Lebanese firm which is targeting the
transportation industry in Lebanon. Considered one of the most crowded countries in the
Middle East and having the worst record in traffic accidents in the Arab world, Lebanon is
so desperate for an alternative and new safe public transportation system. This project
which is going to be studied and implemented by LTC consists of two modes of
transportation that together will bring financial and environmental benefits and will
complement the public transportation systems already available in the city. Since the
issue of public transportation has become a ‘hot topic’, we decided on working on a
project which would benefit the country and the population as well as generate profit.
On one hand in this project we will be targeting transportation between Lebanese coastal
counties, secondly we will try to implement our resources and benefit from them to ease
transportation inside Beirut.
A metro rail that passes along the Lebanese coast connecting the major coastal cities in
Lebanon that are commonly most related to each other might be the optimum newest
and most applicable systems that could be executed in the country to supplement the
other modes of transport, e.g. Buses, Taxis and Marine transport.
On the other hand, in order to improve our customer service and to assure providing an
exclusive riding experience to our passengers, we decided on adding another service
which will also help in reducing car traffic and will increase our contribution. Because of
the poor civic organization in the cities, the metro will not be able to arrive to inner

5. residential cities, however; we will exploit Beirut metro station, and use it as a bus station
too.
Methodology
We started our market study with a survey. We sent it to 200 people who were asked
about whether they will be willing to use a metro rather than driving their private car or
using public buses and services. We also tried to know people’s maximum willingness to
pay for such a service. [See Appendix]
Since we could not find any previous information or data about a similar study, we looked
carefully for information about Dubai’s metro which was considered as a huge success for
the country. We tried to benefit from their approach and relate the strategies they used
in pricing and segmenting to the scenarios we have.
Optimizing for the metro part of the project, we initially started solving by cutting the
metro in different booking limits and protection levels for more than one fare according
to demand and willingness to pay of each group of customers. However, because of the
huge differences in demand among different areas of the country and due to lack of
information, we found this approach to be suboptimal and moved to network revenue
management, which will be described below in details.
Regarding the Beirut bus system, we profited from the availability of data about
passengers’ willingness to pay and prices offered by other alternatives in the market and
used it to bring up the prices that will maximize customer satisfaction and pull passengers

6. towards our service rather than other services by offering low prices with good services
while still maximizing our revenues.
The Metro
Metro route
The Lebanese Metro will cover the coastal line of Lebanon from Tyre in the south to
Tripoli in the north. Stations will be present at every major city along the coastal line,
which include Tyre, Sidon, Beirut, Jbeil and Tripoli. The Lebanese Metro will cover a
length of 190 Km connecting more than 3,000,000 people around Lebanon. A view,
from satellites, of the area that the metro will cover is found below.
The Metro will cover the area drawn in red.

7. Scope
For the sake of simplicity and for making our study more reasonable, we will only
consider the metro heading towards Beirut for study.
Findings
To continue with our project, we decided to conduct a survey that would target people
from the segment that the metro targets. The survey was basically conducted in order to
ensure that a metro would be a welcomed idea in the Lebanon. We were able to survey
200 people from different places around Lebanon, mostly Sidon and Byblos, and we
were able to come up with the following important information.
1. We asked the people about their willingness to pay in order to board the different
sections of the metro, and the results we got were put in a spreadsheet and then
we computed the average willingness to pay for both section which turned out to
be 6500 L.L and 4000 L.L for the Gold and Silver sections respectively.
2. After providing the information about their willingness to pay, people were
asked if they would prefer riding in the gold or the silver section. 38% of the
people living in Sidon preferred the Golden section while, 43% of people from
Byblos preferred this section. For the other two cities, we assumed that the
people willing to enter the golden section will be 30%.

8. 3. The last important finding we got from the survey is about student discounts.
More than 90% of the surveyed people believed that students should get special
discounts on their ticket prices whether in the golden or the silver section.
Along with the survey that we conducted we did some internet research on different
points that would help us in commencing our project. The most important was
getting the population in the four cities (other than Beirut) that include a metro
station. The results can be found in the table below.
City Population
Tripoli 600,000
Sidon 120,000
Byblos 60,000
Tyre 64,000
The Model
Assumptions
A few assumptions have been made in order to commence with our project. The
assumptions are listed below:
1. 10% of the people living in each major city will be heading to Beirut on each
single day. Thus our demand from each city will be = Population* 10%.
2. Since not all people will be using the metro, we assumed that 60% of that
demand is going to use the metro. Thus people using the Metro = Population *
10% * 60%.

9. 3. The total capacity of a Metro train is 643, as in the Metro Dubai model.
4. The distances between the major cities in Lebanon, in which the stations are
present, is almost the same, 40Km. So we assumed that the distances are the
same, and thus the Metro covers the distance in the same time interval which is
30 minutes, given that its real velocity is 75Km/h. Then, 40/75 = 0.5 , which
means 30 minutes.
Network Revenue Management
Network management is important in industries that wish to gain from revenue
management approaches, especially industries that sell products that consist of more
than one resource. Network Revenue Management can lead to important increases in
profitability compared to managing revenue by fare classes.
Optimization
After demonstrating the need of network revenue management in the case of our
Metro we now move to the optimization on excel. The following data were entered:
Decision Variables: Xi X: number of passengers boarding the metro from each
ODF.
Objective: MAX Total Revenues
Constraints: Xi >= 0
Xi <= Demand

10. Number of people boarding the metro on a particular day is less
than total capacity of the metro over a whole day.
Number of people boarding the metro from a particular city is less
than or equal to the demand from this city.
The optimization of the model gave us the following results:
People boarding from Tyre to Sidon Gold: 1152
People boarding from Tyre to Sidon Silver: 2688
People boarding from Sidon to Beirut Gold: 2736
People boarding from Sidon to Beirut Silver: 4464
People boarding from Tripoli to Byblos Gold: 6173
People boarding from Tripoli to Byblos Silver: 14403
People boarding from Byblos to Beirut Gold: 1548
People boarding from Byblos to Beirut Silver: 2052
Yielding Total Revenues of 169,886,000 L.L.
This model although is fulfills the demand of Tyre, Sidon and Byblos misses greatly
on the demand of Tripoli. People demanding a silver ticket from Tripoli is 25200 yet
only 14403 from them are granted the ticket because of the capacity constraint.
Because of this problem we decided to make changes to the Metro model and
design.

11. The New Metro Design
After facing problems with the previous model, our team decided that some changes
need to happen if we want to solve the problem of people demanding tickets from
Tripoli. The new idea is to change the routes of the metro and split them into two
routes. The first is from Tyre towards Beirut including Sidon, and the second is from
Tripoli towards Beirut including Byblos. Moreover, the capacity of the metro trains
is not the same along the two routes due to demand differences. On the first route the
capacity of each Metro train is 250 while it is 600 on the second track. Moreover, the
number of trains on each track differs. The first track has 4 trains and thus a train
reaches each station every 30 minutes, while the second track has a total of 8 trains
and thus reaches a station every 15 minutes. The difference in the number of trains
and the time intervals is all due to demand.
Optimization of the New Model
After changing some of the features of the Metro and the tracks, we re-did the
optimization problem based on the Network Revenue Management system, with the
same decision variables and objective function, yet with minor changes in the
constraints as we had to accommodate for the changes in capacity of the trains in
each route.
The results on this new optimization are ideal, as we were able to accommodate for
all the demand that was generated and thus were able to reach a optimal result we
were hoping for which is seating all demand while maximizing our revenues. The
results of the new optimization are the same as the old results, with a change in the
Tripoli-Byblos seated passengers.

12. People boarding from Tripoli to Byblos Gold: 10800
People boarding from Tripoli to Byblos Silver: 25200
Yielding Total Revenues of 243,150,000L.L.
Conclusion
We can see from the previous results that the improved model has yielded a higher
amount of profits than the first model. The new model has increased profits by 43%
from 169,886,000 L.L to 243,150,000L.L.
Short comings of the model
The model that we are working on is definitely not an ideal model due to some deficits.
One major deficit is that the model is a deterministic model. This is due to the fact that
the demand in the model is deterministic and not probabilistic. Another flaw in the
model is the fact that Network Revenue Management is not the optimal solution for such
0
50000000
100000000
150000000
200000000
250000000
300000000
0 0.5 1 1.5 2 2.5
Revenues
Revenues

13. problems, yet it is a practical solution that would lead to satisfying results in most of the
cases.
The Busses
The project also includes a private bus network station right next to Beirut’s main metro
station. By introducing the bus station we can accommodate to the transportation of
tourists, the workforce, and the students and maximize consumer welfare. The buses will
have 2 routes that will cover almost all Beirut. The routes are as follows.
Route 1:
Waterfront DT
Waterfront Ain el Mreisse
Waterfront AUB
Waterfront Hamra
Waterfront LAU
Waterfront Koreitem
Waterfront Verdun
Waterfront Jnah
Waterfront Mazraa
Waterfront Mar elias
Route 2:
Waterfront Monot
Waterfront Sodeco
Waterfront Ashrafieh
Waterfront Adlieh
Waterfront
Furn el
Chebbak
Waterfront Hazmieh
Waterfront Ghobeira
Waterfront Salim Slem

14. Service off-peak price
WTP BUS OFF PEAK 1000 1500 2000 2500 3000 3500 4000 4500 5000 5500 6000 2000
2000 1000 500 0 -500 -1000 -1500 -2000 -2500 -3000 -3500 -4000 0
2000 1000 500 0 -500 -1000 -1500 -2000 -2500 -3000 -3500 -4000 0
3000 2000 1500 1000 500 0 -500 -1000 -1500 -2000 -2500 -3000 1000
3000 2000 1500 1000 500 0 -500 -1000 -1500 -2000 -2500 -3000 1000
waterfront 1500 500 0 -500 -1000 -1500 -2000 -2500 -3000 -3500 -4000 -4500 -500
Hamra 2000 1000 500 0 -500 -1000 -1500 -2000 -2500 -3000 -3500 -4000 0
2000 1000 500 0 -500 -1000 -1500 -2000 -2500 -3000 -3500 -4000 0
1500 500 0 -500 -1000 -1500 -2000 -2500 -3000 -3500 -4000 -4500 -500
2000 1000 500 0 -500 -1000 -1500 -2000 -2500 -3000 -3500 -4000 0
2500 1500 1000 500 0 -500 -1000 -1500 -2000 -2500 -3000 -3500 500
demand 10 10 8 3 2 0 0 0 0 0 0
revenues 10000 15000 16000 7500 6000 0 0 0 0 0 0
Price Range
The first route buses will make 10 stops some of which are Downtown, Koreitem, Mar
Elias, Verdun, Hamra, and Ain el Mreisse for work and tourist purposes; AUB and LAU
for student purposes. The second route will cover 8 locations which include the other
major parts of Beirut such as Achrafieh and Sodeco.
The private bus system that we decided to implement will be modeled around a surplus
pricing strategy. The buses will only take people from waterfront to these locations and
will not pick anyone on the way. We decided to survey the people of Beirut about how
much they would be willing to pay for a bus ride from Waterfront to each and every
location we designated at off-peak and at peak hours. We decided to offset this
willingness to pay distribution against the major transportation means in Beirut which is
the “Service”. We got how much the “Service” charges a customer from Waterfront to
each location designated at off-peak and at peak hours. An assumption was made that
peak hours were from 7:00am till 9:00 am and from 3:00pm till 5:00pm. These 4 hours
were set as peak and the other 12 hours were off-peak hours since we operate 16 hours a
day.
Throughout the survey and the public bus system, we set a price range from 1000 LBP
to 6000 LBP in order to get the surplus from each location at both peak and off peak
hours. We will take Waterfront-Hamra as an example.

15. Service Peak Price
WTP BUS PEAK 1000 1500 2000 2500 3000 3500 4000 4500 5000 5500 6000 2000
4000 3000 2500 2000 1500 1000 500 0 -500 -1000 -1500 -2000 2000
4000 3000 2500 2000 1500 1000 500 0 -500 -1000 -1500 -2000 2000
5000 4000 3500 3000 2500 2000 1500 1000 500 0 -500 -1000 3000
5000 4000 3500 3000 2500 2000 1500 1000 500 0 -500 -1000 3000
waterfront 3500 2500 2000 1500 1000 500 0 -500 -1000 -1500 -2000 -2500 1500
Hamra 4000 3000 2500 2000 1500 1000 500 0 -500 -1000 -1500 -2000 2000
4000 3000 2500 2000 1500 1000 500 0 -500 -1000 -1500 -2000 2000
3500 2500 2000 1500 1000 500 0 -500 -1000 -1500 -2000 -2500 1500
4000 3000 2500 2000 1500 1000 500 0 -500 -1000 -1500 -2000 2000
4500 3500 3000 2500 2000 1500 1000 500 0 -500 -1000 -1500 2500
demand 10 10 10 10 10 10 8 3 2 0 0
revenues 10000 15000 20000 25000 30000 35000 32000 13500 10000 0 0
Price Range
We can see from the model the WTP distribution at off peak hours from a sample of 10
people and the surplus at each price we set from the range offset with the “Service” off
peak price of 2000 LBP. Using the “Countif” function, we got how many of the surplus
at each price is positive or at least 0 against the “Service” price and that was our demand
at each price. Getting the revenues at each demand with its price we can see which price
will maximize our revenues at this specific off peak hour route. In this example we get
16,000 LBP in revenues at a demand of 8 and a price of 2000 LBP. As for the peak
hours of this route we have
Collecting these information for each of the 18 locations we have we can get our optimal
total revenues.
The private bus system will only be implemented in the city of Beirut since it’s the
capital of Lebanon and all tourist attraction sites are there as well as major workplaces
such as Solidere, and banks as well as the major universities such as AUB and LAU.
The buses will leave every 30 minutes to accommodate for the metro stops and we will
have 4 buses at each of the 2 routes to accommodate for traffic issues.

16. The Ethical Perspective
Our new project will:
 Provide reliability, ease and comfort.
 Target environmental concerns through decreasing the amount of pollution each
individual is creating at one time since the sheer number of people would take the
same transportation mode (metro) and use less number of cars among and inside
the countries.
 Decrease transportation costs for the individual especially since the gasoline
prices continue to increase.
 Minimize traffic jams and congestions: decrease car usages and reduce the deadly
accidents that are frequently accruing especially on highway streets linking coastal
countries. Because many students living in Byblos for example drive daily to Beirut
to attend their classes at AUB and other employees use their private cars to go to
their work each morning, massive traffic jams could be reported during early
hours of the day and in the evening. In addition to this, it can be estimated that
there are at least two cars within each family, and increasingly all members of the
family that are eligible to drive are purchasing a car of their own. This phenomena
not only presents both traffic and pollution problems; but also creates a problem
for parking spaces.
 Eco-friendly system: the new metro will not have the risk of causing noise
pollution or parking spots being taken by those using the transport system since it
will be built on the Lebanese coast line.

17.  Modernity: The fact that the Metro is being built in the 21st century make it
smoother, safer, faster, and cleaner than practically any other similar mode of
transportation.
 Outlying regions: The Metro's route is set to include several outlying areas, and as
such will give people living in those areas opportunities in the city that would
otherwise be denied them.
 Cheap. – Money saving because the cost of ticket for riding the metro is definitely
lower compared to gas, car maintenance and amortization/ insurance of your car.
 Environment-Friendly. – Less traffic on the streets and your share in saving the
earth from pollution emitted from your car.
 Convenience – You can reach your destination on time and without any problems
with traffic which makes riding the metro a good thing to do.
The advantages of rail transit systems exceed any other form of mass ground transport
in dependability, speed, ease, comfort and safety. Such a system will reduce land
consumption, congestion, as well as air and noise pollution. Electric train systems
significantly cut dependence on oil but with our continuous power outages in Lebanon,
we might face some difficulties. Actually, two of the possible drawbacks we might
encounter in a metro project in such a country like Lebanon are the dependence on
electricity as well as the high cost it will incur.

18. Appendix
Survey 1
This survey about a Metro in Lebanon is conducted as part of a student project in the
American University of Beirut.
1. Would you consider using a Metro in Lebanon?
Yes
No
2. The Metro will be divided into classes, a Gold higher class and lower Silver class, the
Gold will provide more services.
How much would you be willing to pay for the Gold Ticket?
How much would you be willing to pay for the Silver Ticket?

19. 3. Would you board the train on the Gold or Silver side?
Gold
Silver
4. What is your preferred payment method?
Pre-paid Cards
On the spot
5. Do you think a Metro in Lebanon would decrease traffic?
Yes
No
6. Do you believe student should get a discount?
Yes
No

20. Survey 2
How much are you willing to pay for a ride from Beirut Waterfront to the following
destinations within Beirut?
DT
Ain el Mreisse
AUB
Hamra
LAU
Koreitem
Verdun
Jnah
Mazraa
Mar elias
Monot
Sodeco
Ashrafieh
Adlieh
Furn el Chebbak
Hazmieh
Ghobeira
Salim Slem

21. Second Model
Number ODF Fare Demand People Seated Capacity ( G/S ) Total Capacity / Day
1 Tyre- Saida Gold 6500 1152 1152 6176 20576
2 Tyre-Saida Silver 4000 2688 2688 14403
3 Saida-Beirut Gold 6500 2736 2736 7840
4 Saida-Beirut Silver 4000 4464 4464 12758 Tyre Saida 3840
5 Tripoli-Jbeil Gold 6500 10800 6173 6173 Saida Beirut 7200
6 Tripoli-Jbeil Silver 4000 25200 14403 14403 Tripoli Jbeil 20576
7 Jbeil-Beirut Gold 6500 1548 1548 8848 Jbeil Beirut 3600
8 Jbeil-Beirut Silver 4000 2052 2052 11728
Revenues 169,886,000
Number ODF Fare Demand People Seated Capacity Capacity Tyre-Beirut
1 Tyre- SaidaGold 6500 1152 1152 2400 8000
2 Tyre-SaidaSilver 4000 2688 2688 5600 Tyre Saida 3840
3 Saida-BeirutGold 6500 2736 2736 3040 Numberof CartsfromTyre toBeirut SaidaBeirut 7200
4 Saida-BeirutSilver 4000 4464 4464 4960 4 Tripoli Jbeil 36000
5 Tripoli-Jbeil Gold 6500 10800 10800 11520 Jbeil Beirut 3600
6 Tripoli-Jbeil Silver 4000 25200 25200 26880 Capacity Tripoli Beirut
7 Jbeil-BeirutGold 6500 1548 1548 16512 38400
8 Jbeil-BeirutSilver 4000 2052 2052 21888
Numberof CartsfromTripoli toBeirut
8
Revenues 243,150,000
Optimization model for metro
First Model