To reduce its cross-subsidy burden, Indian Railways runs special trains, mostly on a dynamic pricing model. But it has struggled to adapt this model, taken from the air travel sector, to rail travel. The Suvidha train must avoid the pitfall
Among all the major issues that plague Indian Railways, cross-subsidising the passenger service from freight service is the most critical one. Cross-subsidisation is a double whammy. On the one hand it hurts IR when new trains are introduced, as the recovery ratio of passenger service is 50 per cent on average. On the other hand, although IR earns a handsome profit in freight operations, the high charges of freight services has reduced its share of freight traffic to about 35 per cent, which is further dwindling. Without addressing the problem of cross-subsidising passenger fares from freight revenues, IR cannot think of re-capturing its freight share and increasing passenger services as well.
To avoid cross-subsidy, passenger fares have to be increased beyond 100 per cent for sleeper class, seating and second class (general compartments), as the lion’s share of cross-subsidy has been going to these classes. Passenger price increase, especially of these classes, has political ramifications, and hence it remains either untouched or only slightly modified for many years. But, the fares in ordinary inter-city buses and luxury buses have been, on average, at least 50 per cent and 100 per cent more respectively than the average sleeper class fare, let alone general compartment fares.
As a result, there is huge demand for train tickets. The hidden way to reduce cross subsidy has been to introduce new trains with higher fares, with more AC coaches and no general compartments, so that the cross-subsidy has been minimal. IR knows this opportunity and introduced the Garib Rath in 2005 and the Duronto in 2009 as part of this larger scheme. In 2013, premium trains with dynamic pricing were introduced, where the fares across the classes would increase when the available seats are reduced, like the dynamic air fare model. The motive behind introducing such special trains since 2005 was to introduce passenger services, whose fares don’t warrant any subsidy, irrespective of whether a rural-friendly or poor-friendly or market-friendly Railway Minister has been at the helm.
A closer look at these special trains will give us some interesting observations. Unlike the Garib Rath and Duronto trains, where the fares are equal across passengers, premium trains did not achieve higher occupancy mainly because the fares for the last 30 per cent tickets were too high in relation with other competing modes. Anomalies, such as 3AC fares being higher than 2AC fares and 2AC fares at par or higher than air fares, were also reported.
To overcome such distortions, IR decided to bring in Suvidha trains on the pattern of premium trains but with the upper bound for fare set to thrice that of Tatkal fare. For Suvidha trains, it was decided that the minimum fare would be the Tatkal fare. The first 20 per cent of the tickets are available for Tatkal fare and the fare for the remaining tickets increase till thrice that of the Tatkal fare for each class. The concessions are not applicable for these trains and there are no second class (general) compartments in these trains, which is the most subsidised passenger segment.
The philosophy of keeping higher fare for a portion of tickets in Premium or Suvidha trains ensures that some seats are available for passengers who want to travel on account of emergency at the 11th hour before departure. The average fare paid by the passenger for a Suvidha train may be about 2.5 times that of general quota fare, which eliminates the cross-subsidy.
However, there is a caveat. This elimination of cross-subsidy happens only if the Suvidha train operates with 100 per cent occupancy. But past experience shows that when fares increase beyond an acceptable level (more or less equal to air fare) in the dynamic pricing model, the occupancy rate is as low as 60 per cent to 70 per cent. It is a two-fold loud message from the passengers. First, the upper-bound fare is too costly and second, there is no value addition to compensate for the higher cost.
The first Suvidha train was introduced between Gorakhpur and Anand Vihar (Delhi) on July 13. As per the revised pricing pattern of Suvidha trains, the upper-bound rail sleeper fare equal to three times the Tatkal fare will be higher compared to bus travel, and the upper-bound fare in AC classes equal to three times that of the Tatkal fare in Suvidha trains will be higher than the AC bus or car travel cost (when a family of three travel in a car) and will be closer to low-cost carrier air travel cost.
IR may have to reduce the upper-bound fare to twice that of Tatkal fare if it has to achieve an occupancy rate higher than 90 per cent. For IR, the aim is to achieve maximum revenue from Suvidha trains. This will happen when the optimal fare is charged from passengers. The response of the passengers to the pricing in Suvidha trains will be known within a month of operation and price correction may then be carried out.
In India, in terms of inter-city trips, given the average speed of 60 kmph of our trains, the distance between 500 km and 800 km forms ‘dusk till dawn’ travel. Given Indian travellers’ clear preference for night travel for these distances, IR should identify high demand origin-destination pairs of 500 km to 800 km distance, with enough track to accommodate Suvidha trains, where 95 per cent of the traffic originates and ends at Origin-Destination cities. By making these trains non-stop on the pattern of Duronto trains, the travel time may be reduced up to 20 per cent, that too during the night hours. Introducing dusk-till-dawn trains, with no stoppages in between, will increase the value proposition of these trains.
The successful running of Suvidha trains (with occupancy rate closer to 100 per cent) is imperative for IR to expand these services in the future, thereby gradually reducing the cross-subsidy burden.
(The author is a doctorate in public systems from the Indian Institute of Management Ahmedabad. Views are personal)