Railways flexi-fares: Why the tactic didn’t succeed as it did for Uber and airlines

The eventual arrival of private parties in operating trains and maintaining railway stations is expected to make train journeys in India more expensive soon. Private train operators will be allowed to fix fares, as will be private station developers for access to platforms and facilities like parking.

Raised charges would, ideally, also mean better amenities at stations and inside trains. But this significant change in the way the Indian Railways (IR) prices its services is a good inflection point to examine how the flexi-fare system – which can be called the first experiment by the IR in tweaking passenger fares – has fared since its launch four years back.

At that time, there was virtually no private involvement in the railway network and the flexi-fare scheme was introduced across a minuscule percentage of trains only, to generate some incremental revenue. The scheme envisaged an increase in fares as seats filled up, with an upper ceiling pre-fixed.

But the flexi-fare scheme was watered down within two years of launch and its modest success, at best, shows why the Railways may not find it easy to levy the new charges and raised fares even now, when it is increasingly opening up to private participation.

Tweaks to the scheme saw it being removed from Humsafar trains last year. Humsafar Express is a fully premium service with AC-3 Tier and sleeper class accommodation having all the modern facilities designed and operated by Indian Railways. Its services include long -haul routes.

The maximum-fare ceiling has been lowered and graded discounts are now available in those trains where the scheme still applies. Widespread protests from Members of Parliament and passengers led to the tweaks.

Why flexi?

Across the IR network, passenger fares have traditionally been heavily subsidised through freight earnings, and, additionally, the IR offers heavy concessions to over 50 categories of passengers. A senior IR official had said earlier that in suburban trains, for example, Rs 10 is the fare for travel up to the first 40 km – and that this fare does not even cover the cost of a seat. This has been true for much of the passenger operations, with nearly every passenger being transported at a loss.

In 2019-20, the IR barely managed to reach the previous year's earnings from passengers, falling short of the 10 percent growth target set at the beginning of the year. The amount it lost under ‘social service obligation' or discounts etc was about Rs 50,000 crore. Flexi fares were meant to reduce this amount.

How flexi works

Under the flexi scheme, fares rise by 10 percent on every slab of 10 percent seats filling up, with the maximum being 1.4 times the base fare. Even when the flexi -fare scheme was introduced in late 2016, the government had ensured it was applicable to less than 2 percent of all trains and the highest fare for any seat was capped at 1.4 times the base fare.

This meant an overwhelming majority of passenger operations were spared but this did not stop widespread protests from MPs and passengers. Amid a general outcry against the scheme, it was tweaked in November 2018 to reduce both the number of trains and the highest fare.

First, the IR decided to scrap the scheme for those trains where the occupancy was 50 percent or below. Then, it reduced the highest fare cap to 1.4 times the base fare from the earlier 1.5 times. Now, flexi fares are applicable to only about 140 trains out of the nearly 13,500 trains the IR operated daily before the pandemic.

In 2019, the IR had extended the scheme from March 2020 to the same month in 2021 but since passenger operations had been suspended for months due to the pandemic and even now remain skeletal, the IR's incremental earnings from the flexi-fare scheme are likely to be meagre this fiscal.

Different from airline pricing

There is no fixed maximum limit of fare for airlines (except currently, when the pandemic-induced flight restrictions have also propelled the government to fix fare caps for a limited time-period). But trains have a fixed maximum fare throughout the year, a level over which the fare will not rise, never mind the occupancy of a train.

Then, the airline fare varies significantly depending on the time of operation, stoppages, travel duration etc. But train fare rises only during festivals when the IR operates special festival trains, which do not allow concessions and offer tickets on higher fare. Thirdly, alternative train services on normal fare structure are available on the routes of Rajdhani, Shatabdi and Duronto trains, which have the flexi-fare scheme.

In a circular last week, the IR said the watered-down flexi-fare scheme will continue for another year.

In a written reply in Lok Sabha earlier this year, Railways minister Piyush Goyal had said that the flexi-fare scheme led to an incremental revenue of Rs 4,140 crore so far.

Original Source: https://www.moneycontrol.com/news/business/companies/railways-flexi-fares-why-the-tactic-didnt-succeed-as-it-did-for-uber-and-airlines-6103821.html