|The right surge strategy|
|Thursday, 15 September 2016 00:00|
Double railway fares and still keep passengers happy
Given it is the relatively well-heeled that travel in the Railways’ air-conditioned coaches, it is not surprising that Railway minister Suresh Prabhu has chosen to focus his surge pricing strategy here – given that rail travel will still be cheaper than air, this may not be a losing strategy, at least in the short run. But even if you assume that passengers will not migrate to airlines despite the much-shorter travel times, estimates are the Railways won’t earn more than Rs 500-700 crore in a year through the surge strategy. That’s hardly going to move the needle, given the Railways lost around Rs 33,000 crore in the passenger segment in FY15. Should Prabhu and prime minister Narendra Modi wish to be more aggressive in cutting these losses, an analysis by Niti Aayog Member Bibek Debroy and Officer on Special Duty Kishore Desai has some important pointers. While their Rs 33,000 crore estimate of passenger losses in FY15 is not very novel – they do point out, though, that a fifth of this is due to inefficiencies in Railway operations – what is interesting is the results of the disaggregation analysis. Not surprisingly, the largest losses of around Rs 19,000 crore in FY15 took place in the second-class category, followed by Rs 9,000 crore in the sleeper class and Rs 4,500 crore in the suburban/metro category – the air-conditioned category breaks even though the expensive AC I class actually loses money, making it unclear why that has not been abolished.
In the Delhi-Lucknow segment, Debroy/Desai find the second-class train fare is Rs 185 versus a staggering Rs 420 by bus, more so when you consider a bus journey is so much more uncomfortable; for a Delhi-Chandigarh journey, the comparative numbers are Rs 110 and Rs 200 – for the air-conditioned class, train journeys are more expensive, costing Rs 1,140 for Delhi-Lucknow versus Rs 900 for a comparative bus journey. At an aggregate level, this means that while higher train fare can trigger a migration to buses in the AC segment, fares in the sleeper/second-class are 60-100% cheaper than bus journeys. Given bus journeys, especially over longer distances are not as comfortable as trains, what this means is there is considerable scope for Prabhu to hike passenger fares in the lower categories and still keep passengers happy. It is no one’s suggestion that train fare in the lower categories be doubled but the Debroy/Desai analysis suggests that, at the margin, passengers will still be better off.