The Hindu Business Line : Running luxury trains turns costlier

New Delhi, March 22 Luxury train operations in India just got more expensive for State tourism departments, the IRCTC and other hospitality players, like the Oberoi Group, eyeing the sector.

The Indian Railways has revised its policy for luxury trains to ensure assured recovery of its costs. Earlier, the Railways was able to recover costs only if the occupancy levels of the luxury trains crossed 50-55 per cent.

So, while the Railways is making money in the Palace on Wheels (Railways joint venture with Rajasthan State Tourism arm), it has been losing about Rs 6-7 crore per annum in the Deccan Odyssey (joint venture with Maharashtra’s tourism arm).

Currently, there are three such trains — Palace on Wheels, Deccan Odyssey and Golden Chariot (Karnataka Tourism’s venture, launched a few days ago). The Punjab Government, IRCTC and the Oberoi Group are prospective players. The prospective players are revisiting their business plans as they feel the Railways has now shifted the entire risk onto them.

But, the Railways feels that the new norms would propel operators to improve their services by covering more attractive destinations and aiming for higher occupancy levels. The Deccan Odyssey has 20-35 per cent occupancy levels even in its fifth year of operations. The Railways argues that it cannot take a hit on luxury services where people pay $400-500 per day.

“The older policy was designed in such a manner that the Railways had to bear most of the fixed cost of operations (haulage cost for providing locomotive, tracks and signalling infrastructure), while the partnering tourism departments took care of variable costs (food, services inside train),” said a source.

NEW vs OLD POLICY

Under the new policy, the luxury train operator has to pay haulage charges to Indian Railways to run the train for the first three years of operations. After that, the Railways will also take a part of gross revenue (of five to 10 per cent) depending on the occupancy levels.

For up to 50 per cent occupancy, the Railways will take five per cent of revenue, while for occupancy levels of up to 60 per cent, the revenue share is six per cent, and thereafter the share increases in the same pattern. Gross revenue includes train ticket charges, and earnings from all on-board and off-board services such as food, beverages, spa, gym and souvenirs.

Earlier, the revenue from ticket sales was shared between the Railways and the tourism department in line with the ownership pattern (for a 50:50 joint venture, the earnings are shared equally).

Another deviation is for capital expenses on coaches and interiors, where the luxury train operators will now have to bear the entire cost. Earlier, Railways provided the coach shells while the operators spent on interior costs.

Apart from new players, the revised norms are applicable for those that have started operations in the last five years-impacting Deccan Odyssey and Golden Chariot.