Railways’ surge pricing leaves domestic airlines smiling

The Indian Railways’ decision to go in for surge pricing is likely to bring cheer to both airlines and flyers. Surge pricing for three trains — Rajdhani, Shatabdi and Doronto — could see passengers shifting to flying as the fares for an AC II tier seat on these trains in some cases will work out to be higher than the airfare.

For flyers the good news is that since most airlines are running to near full capacity and plan to induct more aircraft, they are unlikely to increase air fares in the near future.

“(The surge pricing) will benefit airlines as some of the excess demand may move to airlines now that the fare gap will narrow,” said Sanjiv Kapoor, Chief Strategy and Commercial Officer, Vistara, adding that “as fares work on demand and supply dynamics, if there is a steep surge in air ticket cost, the same traffic may move back to railways. So, there will be a natural check and balance.”

According to Amber Dubey, Partner and India head of aerospace and defence, KPMG, with surge pricing, more passengers will switch to flying especially on long distance routes.

“Travel between Delhi-Mumbai on the Rajdhani takes 18 hours. In the same time, a person from Delhi can actually fly to Mumbai, do three meetings and be back in Delhi,” he points out.

Dubey is of the opinion that the switch from rail to air travel was likely to happen in routes which are over 500 km.

“The impact may be seen when the festival season starts in October. Growth in air traffic during October-December may end closer to the 28 per cent mark,” he predicts. In July, domestic airlines recorded a growth of almost 26 per cent in the number of passengers flown as compared to the same period in the previous year.

Sharat Dhall, President of Yatra.com, felt that the recent surge in railway fares will change the perception of average travellers.

“For travellers making advance bookings, this is a favourable time to book as air fares are highly unlikely to increase given the current scenario,” he added.

Analysts that BusinessLine spoke to agreed, as they felt that domestic air fares were unlikely to move northwards as airlines plan to induct more aircraft though in the current market scenario they are unable to fill the planes that they are operating.

Welcoming the Railways’ move, a senior official of a Delhi-based airline said, “it will take some of the heat from the focus being on air fares”.

In the past, Members of Parliament and the public have voiced anger at rising domestic air fares when demand for air tickets has risen.

However, Ajay Jasra, General Manager, Corporate Affairs, SpiceJet, told BusinessLine that while it was “too early” to comment on what the airline will eventually do, it was “evaluating whether it should increase or leave” its base fares which are currently at par with what the Railways charge for travel in IInd AC.

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