Indian Railways “Experiments” with Surge Pricing in Premier Trains

Railways to Introduce Surge Pricing

Railways to Introduce Surge Pricing in Rajdhani Duronto and Shatabdi Trains

Over the past few months Indian media has been abuzz with the Surge Pricing systems of Uber, Ola, and other cab services in India. Much has been written and said against the system on the one hand, while surge has also found strong support from many quarters. Many states have gone ahead and put an end to the system. Only to come back from completely unexpected quarters.

The Indian Railways have decided to experiment with “Surge” or flexi pricing (fare) system for some of the premier trains such as the Rajdhani, Shatabdi, and Duronto. Currently, there are some 42 Rajdhani trains, 46 Shatabdi trains, and 54 Duronto trains running across the country; the fares of these are likely to see a change. The system is slotted to be introduced on 9 September, 2016.

How will the Surge Fare System Work?
According to a statement from the Suresh Prabhu led Ministry of Railways, “The base fares will increase by 10 per cent with every 10 per cent of berths sold subject to a prescribed ceiling limit.”

A look at the dynamic surge pricing system:

The base fare of a ticket will increase with increase in demand, but the upper ceiling is likely to be predetermined. With every 10 percent of berths being sold out, the base fare is also likely to go up by 10 percent.

– When half the tickets in these trains are sold out, the remaining will be priced at 1.5 times higher base fares (in case of 2 AC, sleeper and 2 sleeper coaches), and 1.4 times higher base fares (in case of 3AC coaches).

– In addition to the base fare, supplementary charges will be levied. These include reservation, superfast, and catering charges and service tax.
This flexi pricing is not likely to affect fares for 1AC and EC class of travel.

– Berths remaining vacant at the time of chart preparation will now be offered under a current booking option. Current booking fares will equal the base price of the last ticket sold (for that class); reservation charges will be extra.

– Tatkal tickets will be priced at 150 percent of base fare plus supplementary charges. On these tickets, however, no additional charges will be levied.

– No Premium Tatkal tickets will be available on the trains with dynamic surge pricing; number of Tatkal berths available will remain the same. Currently, about 30 percent seats in all classes are earmarked for Tatkal reservations.

– In case the dynamic surge pricing of a lower class exceeds the fare of a higher class, the passenger will be informed of this development and may opt to book the higher class ticket.

What this means:

– Tickets for premier trains such as Rajdhani, Shatabdi, and Duronto and Shatabdi are now likely to cost between 10 and 50 percent more.
– Passengers booking early will be at a clear advantage.
– Fares may be higher during the holiday season.
– Passengers travelling by the same class may pay different fares depending on when the ticket is booked.
– 1AC and EC class ticket fares remain unaffected.

The Surge Experiment
The Ministry of Railways claims to have introduced this flexi pricing or dynamic surge pricing system on a purely experimental basis. The workings of the system and the demand for tickets with the enhanced fare will be reviewed after some length of time. Introduction of this dynamic pricing of tickets is expected to bring in some INR 500 crore more than regular earnings in the remaining 7 months of this financial year.

For now, only about 1.5 lakh passengers travelling on Rajdhani, Shatabdi, and Duronto seem to be affected. This is a miniscule number compared to the 23 million passengers who travel on Indian Railway trains each day. Also, the INR 500 crore that the railways hopes to earn seems insignificant in the face of a INR 51000 crore projected earnings (for this financial year).

The move, however, assumes great significance if we are to assume that the railways is only testing waters before coming up with a similar price hike schedule for all trains.

Railways Faces Flak
The introduction of surge pricing on rail tickets has been severely criticized by many. Firstly, the term “surge pricing” is not quite correct. Surge is a periodic increase in fares when the demand is high, but once the demand drops, base fares are restored. This is not the mechanism on which the railway’s proposed pricing system is built. In fact, it is quite possible that the price of a ticket may exceed that of the higher class, making the pricing quite untenable, critics say.

Also, it now looks likely that about 60 per cent of the berths (excerpt 1 AC and EC classes) will be sold at a price 1.5 times higher than current base fare. Add to this the 1.5 times hike in base fare on Tatkal tickets, and the overall increase in fares is significant. This introduction of surge pricing or dynamic fare system is a soft launch of what is a mid-term fare hike. The government, critics feel, is merely trying to avoid a political backlash by straightforwardly increasing fares.

Another major criticism is that the railways is trying to do away with the rail subsidy available to passengers by introducing this dynamic pricing system on all classes except the 1AC and EC, in which the fares are the highest. This is paving the way for doing away with the subsidy altogether.

Indian Railways will need to tread carefully, though. Introduction of the dynamic pricing system may not go down well with Indian travellers. The airline industry has already made low cost air travel popular; and fierce competition combined with hike in rail fare will allow budget carriers to woo away train travellers. This will be a further setback to the earnings of the railways, which is struggling to find a balance between world class services and affordability.

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