Despite fare hikes, Indian Railways likely to miss target

By: |
Published: April 1, 2017 6:34:20 AM

The flexi-fare system and differential pricing launched by Indian Railways (IR) earlier this year has since led to significant — though not steep — increase in passenger revenues from the “reserved categories”.

flexi-fare system, Indian Railways, Mohammad Jamshed, Rajdhani, Shatabdi, Duronto trains, Tatkal ticket booking The flexi-fare system and differential pricing launched by Indian Railways (IR) earlier this year has since led to significant — though not steep — increase in passenger revenues from the “reserved categories”. (Source: PTI)

The flexi-fare system and differential pricing launched by Indian Railways (IR) earlier this year has since led to significant — though not steep — increase in passenger revenues from the “reserved categories”. Revenue from the segment — which accounts for about 60% of overall passenger receipts — rose 6.6% till March 20 this financial year, while the unreserved category, which has not been impacted by the implicit fare changes, saw only a flat growth of 0.66%, data reviewed by FE show. The revenue growth has been steeper in the AC 3-tier (10.2%) and chair-car (12.3%) categories.

However, the overall passenger revenue growth till March 20 at 4.3% was only marginally higher than than 4.1% registered during the April-August period of the year (the flexi-fare system became applicable in Rajdhani, Shatabdi and Duronto trains on September 9 last year and differential pricing scheme for some other trains followed). What this proves is that any meaningful correction of the cross-subsidy problem faced by the national transporter will require explicit, across-the-board fare hikes. There is under-recovery of close to R30,000 crore from the passenger segment while freight on a handful of bulk commodities is the transporter’s milch cow. Scope for freight increases is very limited as the railways is already losing heavily to roads in this segment and coastal shipping and the launch of a dedicated freight corridor could matters worse for it.

“Till February, the net gain from surge pricing has been R240 crore and in March, there should be an additional R40-50 crore gain,” said Mohammad Jamshed, member (traffic), Railway Board. As per a recent report by Kotak Institutional Equities, “IR may introduce dynamic pricing across the board after its initial success on routes selected for trials. The limited launch has shown that enough travellers are prepared to pay up to 40% more for rail bookings. Most journeys on such routes with two weeks or less to departure are more than 70% occupied, even in off-peak months. This figure must near or cross 80% by the journey date to yield higher earnings than before.

On an average, air travel costs 2X (two times) AC train costs — widespread usage of dynamic pricing would reduce such a gap.” Under the flexi-fare scheme, the fare increases by 10% with every 10% of berths sold, subject to a maximum prescribed limit of 1.5 times in the select premium trains, which make up for 0.35% of the total passenger traffic.

IR had originally projected its gross traffic receipts (GTR) to grow 10% in 2017-18 — passenger revenue 12% and freight 5%. These estimates were revised downwards in the general Budget — GTR is now pegged at Rs 1.72 lakh crore, against the original estimate of Rs 1.84 lakh crore. Overall passenger revenue till March 20 stood at Rs 44,066 crore and achieving even the revised target of Rs 48,000 crore for 2016-17 looked difficult.

To make passengers buy tickets under the flexi-fare system, the railways has brought some modifications over the last three-four months. There is a discount of 10% unsold tickets from the last flexi-price paid and no 30% Tatkal fees was charged in the trains under the flexi-fare scheme. “We reduced the seats blocked for Tatkal, and we observed that since now 90% of the seats were available for booking for passengers and confirmed tickets were available, people were buying even at 1.4 and 1.3 times surge price,” said Jamshed.

You might also want to see this:

The transporter has also introduced various categories of trains with differential pricing schemes for Suvidha — which charges as much as 3.9 times the actual ticket price — Antodaya, which charges 15% higher, and Gatimaan, which charges a flat 50% extra. However, these trains have also seen enough footfalls. Jamshed says the railways will be making more changes to make flexi-fares more passenger-friendly. “There could be certain adjustments and we are looking at different kinds of structures,” he added.

The Kotak report, however, cautions, “If competition constrains yields for airlines, low yields could drive business gains through higher market share as passengers could move to air from rail.”

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.