Getting surge right PDF Print E-mail
Saturday, 10 September 2016 08:33
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Important to raise tariffs without getting priced out



It is unfortunate that the Railways appear to be backtracking on the surge-pricing it introduced in the Rajdhani, Duronto and Shatabdi—except for 1AC and executive chair car to remain competitive—and, in the face of flak, there is talk of the model being ‘experimental’ and open to review. Given the Rs 30,000 crore of annual passenger subsidies which, in turn, ensure that freight rates have been jacked up to uncompetitive levels, planning surge-pricing is a great idea, though it has to be done carefully. Railway minister Suresh Prabhu has, in any case, been trying innovative solutions to get the fare/freight mix right and this has included lowering rates for long-distance coal carriage and increasing them for short-distance as well as introducing better trains such as the Gatimaan which have a higher fare structure—once the Talgo is introduced on various Rajdhani routes, presumably this will also have higher rates since it will have better service than the Rajdhani, including a much shorter travel time.

It is, of course, odd that a government which realises the importance of surge-pricing for Railways should try to put curbs on similar surge-pricing by taxi aggregators such as Ola and Uber—the plan is to amend the Motor Vehicles Act to empower states to put caps on the surge. It is true the Railways surge also has a 50% cap, but the Railways is different since, unlike the taxi aggregators, its surge pricing cannot result in more supply getting created quickly. In even the case of airlines where there is, periodically, a demand for putting an end to the surge formula, the government has resisted the pressure since an investigation showed that most tickets are sold at the standard rate.

The reason why the Railways has to be cautious about surge-pricing in the air-conditioned class is that it has already lost a lot of ground here. From a small fraction of the Railways upper-class business—as represented by the AC-1 and AC-2 category of travel—in early 2000, the number of domestic air travelers today (largely on low-cost carriers, or LCCs) is more than 50 times the number travelling in AC-1 and six times the number travelling on AC-2. The fare for AC-2 is marginally lower than that for low-cost carriers and the number of passengers travelling in AC-2 fell from 25.15 million in FY15 to 24.98 million in FY16. At an aggregate level, just 0.3% of all passengers on the railway network travel on AC-1 and AC-2, but they accounted for 8.7% of all passenger revenue in FY16; 54.4% of passengers travelled on suburban trains but yielded just 5.7% of total passenger revenues. In such a situation, it is advisable to examine the results of the surge-pricing very carefully in the air-conditioned classes. If the surge results in traffic falling, it will be important to withdraw it, but there is a definite case for bringing in surge-pricing into other trains and in the non-AC sections at the earliest. Apart from hiking passenger collections, it will also give the Railways more assured revenues as passengers will try to shift to buying tickets as early as they can to avoid the surge.



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