For every surge, a dip

By: | Published: November 21, 2016 6:16 AM

Sensible of Railways to look at lean-season fare cuts

ola-uber-reuRailways is looking at surge-dip pricing in the more expensive classes, it would do well to apply the same logic to the ordinary classes as well.

Not surprisingly, given the political furore over surge pricing by taxi aggregators like Ola and Uber, the Railways decision to do surge pricing some months ago also came in for a lot of flak, and people talked of how, despite trains being half-empty, passengers would end up paying higher fares. Why it mattered, of course, was really about the possibility that this would make the Railways even more uncompetitive. As it is, Railway fares on various air-conditioned classes are quite similar to air fare of low-cost airlines—so, given that airlines are a better way to travel over longer distances, this would result in Railways losing market share. It appears, based on a report in The Economic Times, the Railways will be taking care of that through the oft-neglected part of surge pricing, dip-pricing. On trains that are less than a certain capacity—much like the flexi-fares announced for the freight segment—the Railways will lower fares and become that much more competitive vis-à-vis low-cost airlines; and given this will now be determined by a formula, the revisions will be automatic and therefore timely. Indeed, given how the Railways end up losing around R800-900 crore on the upper end of the air-conditioned classes, this is a welcome strategy. Sooner, rather than later, the Railways will also need to take a call on whether it even wants some of these classes or perhaps reduce the number of bogies for them in each train—while the Railways lost R500 crore on the AC-2 class in FY15, it made a profit of R900 crore in AC-3.

Indeed, while the Railways is looking at surge-dip pricing in the more expensive classes, it would do well to apply the same logic to the ordinary classes as well. A study by NITI Aayog’s Bibek Debroy and Kishore Desai had found, for instance, that while second-class buses charge 75 paise per passenger per kilometer, the Railways charge a mere 38 paise; for sleeper classes it is 92 paise for the bus and 57 for Railways. The Railways, the Debroy-Desai study showed, lost over R11,000 crore in FY15 on account of second-class travel. An organisation that, a mid-term review this year showed, is spending R114—as against the target of R92—to earn every R100, cannot afford such inefficient pricing.

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