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download (1)I read an article in a leading Irish newspaper recently which has a typical cost volume profit theme underlying it.

The article related to the “Western Rail Corridor”,  a route from Sligo to Limerick which had been closed down many years ago. In recent years with the help of local campaigns and some political backing, some of the lines re-opened. According to the article:

“A report by consultants drawn up before the service began concluded that, even with healthy passenger numbers, it would not be able to wash its face and would need hefty subventions. And the passenger projections in that report were substantially higher than those that actually travelled in the first few years”

It seems the passenger volumes have been quite low in recent years too. But then Irish Rail did something – they lowered fares and made tickets available online. With online fares as low as €6, the passenger number have increased from 23,000 to 41,000 in the year to November 2014. I do not know what the operating costs are, or whether these passenger numbers are sufficient in the long term, but it is a classic example of the relationship between price, cost and volumes. Assuming the costs are the same at 23,000 or 41,000 passenger levels,  the rail company is likely to be better off – maybe not making a profit on the route, but at least covering more of its costs.