INDIAN RAILWAYS INTRODUCED SURGE PRICING ON PREMIUM TRAINS

Indian Railways needs to raise fund for the investment in the expansion. Ministry of Railways introduced ‘Flexi Fare’ model to increase the base fare of tickets with the rising demand, also known as Surge Pricing. The system has been introduced in selected trails for Chair-cars and Sleeper category. The new fare structure will not be applicable to 1AC and executive class coaches.

Train

Category

Rajdhani

Shatabdi

Duronto

No. of Trains

42

46

54

Surge pricing is used mainly when the supply is not flexible in short term. This results into excess demand or excess supply which leads to sub-optimal level. The variable pricing allows to balance demand and supply. Indian railway is looking to use this methodology to balance demand and supply. It is also important to note that flexi fare system can also be sued to influence consumer behaviour.

FLEXI FARE MECHANISM

Under the current system, the base fare will go up by 10% for every 10% seats sold, with a cap of 1.5 times the base fare. While the first 10% of the seats will be sold at the normal fare, the base fare will increase by 10% with every 10% of berths sold. Once half the tickets are sold, the rest will be sold at 1.5 times higher base fares for 2S, sleeper and 2AC coaches, and 1.4 times higher for 3AC coaches.

Fare Structure for Rajdhani and Duronto category of Trains (X= Base Fare)

Charges % of berths

10.00%

10.00%

10.00%

10.00%

10.00%

10.00%

10.00%

10.00%

10.00%

10.00%

Second Sleeper (2S)

1X

1.1X

1.2X

1.3X

1.4X

1.5X

1.5X

1.5X

1.5X

1.5X

Sleeper (SL)

1X

1.1X

1.2X

1.3X

1.4X

1.5X

1.5X

1.5X

1.5X

1.5X

Three Tier AC (3A)

1X

1.1X

1.2X

1.3X

1.4X

1.4X

1.4X

1.4X

1.4X

1.4X

Two Tier AC (2A)

1X

1.1X

1.2X

1.3X

1.4X

1.5X

1.5X

1.5X

1.5X

1.5X

First AC (1A)

1X

1X

1X

1X

1X

1X

1X

1X

1X

1X

Fare Structure for Shatabdi category of Trains

Charges % of berths

10.00%

10.00%

10.00%

10.00%

10.00%

10.00%

10.00%

10.00%

10.00%

10.00%

Chair Cars (CC)

1X

1.1X

1.2X

1.3X

1.4X

1.5X

1.5X

1.5X

1.5X

1.5X

Executive Class (EC)

1X

1X

1X

1X

1X

1X

1X

1X

1X

1X

                       

 

For 2AC and Chair Car, the maximum hike is 50% while for 3AC, it is 40%. Other supplementary charges like reservation charges, superfast charge, catering charges, service tax as applicable shall remain unchanged.

INTERNATIONAL COMPARISON

Recently published article by Lorenzo Casullo, an economist at the International Transport Forum in The Hindu on 20 September 2016, he tried to explain the international cases for flexi fare in railways. Most of the operators in North America and Europe are now following yield-management of rail fares, based on the aviation and coach industries model, and taking advantage of new technologies such as online ticket sales and real-time pricing tools.

Yield management techniques consist of setting differentiated fares for rail services, with prices set at levels all the way down to the marginal costs of providing that service. The opportunity to differentiate fares arises due to the diversity of preferences of rail travellers, both in relation to how much they travel and how uncertain their travel dates are. For instance, flexible travellers able to book their tickets in advance may seek low prices, while business travellers may need to buy a specific ticket at short notice. The approached followed by other countries are:

France – SNCF is following sophisticated yield management system since 1987

USA - In the North-East corridor, Amtrak is following dynamic pricing, the fares go up as more tickets are purchased closer to departure

Italy – Both Trenitalia (Public Operator) and NTV (Private Operator) offers differential pricing to maximise revenue and to attract passengers

COMMUTERS' RESPONSE

The revised pricing system may lead to passengers moving away to airlines from the Railways network. Further, the government faced certain criticism also from the society for increasing the fare without improving the facility. Ministry of Railways would need to make massive investment to improve infrastructure. There is also need to show adequate return to investors if the government is looking to attract private investment.

Also, there is fear that Indian railways should not use this as tool to extract more money from commuters owing to its monopolistic role. However, being an government operator, this is very unlikely. The most important factor is the utilisation of the extra revenue, which should be invested to improve passenger amenities in these premium trains. This will ensure that commuters are happy to pay little more.

INITIAL RESPONSE

Indian Railways has claimed that there is positive response from commuters. Indian Railways claimed to book around 50,000 tickets at higher fares in Rajdhani, Shatabdi and Duronto trains in 3 days (September 9-12, 2016). This resulted into additional revenue of INR 16 million (US$25,000) in first two days. The railway has claimed to launch this initiative on pilot basis for 6 months to understand the consumer behaviour. It will be interesting to see that how this initiative will impact Indian Railways revenue and to help to improve passenger amenities.

UITP RECOMMENDATION

1.    Pick Seat on Premium

Railways should allow 'pick a seat' facility on premium similar to airlines. This feature will allow to collect extra revenue for railways. Further, it will enhance customer facility. This can be implemented for Executive Seat, Chair Cars and AC sleeper class.

2. Dynamic Allocation of Seats to Smaller Station

Indian Railway is still following the old practice of fix seats allocation to each station to ensure that the smaller stations should also get the seats. To ensure the same, Indian Railways do minimum seat allocation for each station but it is causing huge loss to railways. This is inefficient system as lots of seats remained unoccupied as the seats are released at last moment and commuters need to cancel the journey owing to unpredictability of journey.

For example, the case of seat availability for journey from Jaipur to Delhi

Current seat status from Jaipur to Delhi (Ajmer Shatabadi) - Showing waitlist of 80

Current seat status from Kishangrah to Delhi (Ajmer Shatabadi) - Showing 215 available

Most of seats remained unoccupied for return journey from Jaipur to Delhi despite of having demand. Indian Railways should data analytics to allocate seats for each station on dynamic basis only. This can free lots of seats for people in need. Further, in the age of online bookings, is there a need to continue with this old system. Each empty seat is loss to nation. Railways should measure occupancy ratio and try to rationalize it.

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