Fare cuts may give low-cost carriers a run for their money

Written by fe Bureau | New Delhi, Feb 26 | Updated: Feb 27 2008, 04:33am hrs
Railway minister Lalu Prasad has slashed upper class fares (AC-I and II) between 7 and 4% during the lean season. The move has once again reaffirmed the railways status as a tough competitor to low-cost air carriers.

Once the new fares come into effect from April 1, passengers traveling in AC first class from Delhi to Mumbai would spend around Rs 2,200, against Rs 2,570 currently. In contrast, air passengers traveling in a low-cost carrier (LCC) would pay between Rs 500 and Rs 4,000 per ticket over and above the Rs 1,700 surcharges, bringing the total cost of travel to between Rs 2,200 and Rs 5,700. While, the LCCs would take shorter duration to reach the destination, it would come without frills such as food and very little space as opposed to the spacious sleeper compartment of a train.

Many of the discounts on the proposed fares will be further enhanced under a variable fare scheme for newly designed high-capacity coaches.

Lalu also announced cuts in passenger fares for non-suburban second-class (ordinary/mail/express) and super-fast trains.

While Lalu is not leaving any opportunity to take the credit of offering lower fares, the aviation players feels the credit should go to their sector as they begin the competition of low fares, which has forced the railways to offer dynamic pricing.

The concessions announced in the Railway Budget are a reflection of shifting market trends and consumers preference towards air travel. The phenomenal 33% growth recorded by the Indian aviation sector in the last year has clearly led the decision makers in the Indian railways to take a hard look at making rail fares more realistic to the common man, Jeh Wadia, MD, GoAir said.

The move is expected to put much pressure on the already battered bottomlines of the countrys air carriers. The Indian market is very price-sensitive and price is a major factor, Ankur Bhatia, MD, Bird Group said. New routes launched by the air carriers were just getting popular but the budget has announced new trains on these routes making it harder for the air carriers, Bhatia added.

Air fares are most probably going to drop after this Railway Budget, especially for low-cost carriers, which were born essentially as competition to the railways, Bhatia said.

The coming holiday season, which starts in April, will be the acid test for the aviation sector, analysts said.

We do not consider railways, at any price, to be directly price competitive due to the vast difference in travel time between the two options. We do not foresee making any pricing changes as a result of the initiative announced by the railways, Bruce Ashby, president and CEO of IndiGo said.

In the last Rail Budget, Lalu reduced fares between 2 and 8% across the board and cut AC first class and AC 2-tier under dynamic pricing essentially cutting the AC first class fares to by 3-6% and AC 2-tier fares by 2-4%.