Lalu railroads airlines with 30% AC fare cut

NEW DELHI: The low-cost airlines had already been feeling the heat of rising fuel costs. And, now the Lalu Prasad-led Indian Railways had decided to turn on the heat more by announcing a cool 30% cut in AC fares. It is understood that the fare war would be launched by the minister on October 4, when he would announce an all-time low AC train fare (Rs 500 per passenger). “There could be a second round of fare revision. We had reduced AC fares up to 18% in Budget ’06. It was purely a commercial decision. The outcome was as per our expectations. Our earning growth from the upper classes went as high as 14%. We would like to take it further by slashing fares for the second time,” a senior Railways official said. The Railways will slash fares up to 30% — on certain selected sectors first and gradually move to routes which are competing with low-cost airlines. “Such decisions would be based on the principle of price elasticity of demand,” the official added. There are some low-cost carriers, which believe that they have a definite advantage over the Railways in terms of dynamic pricing and speed. “We can’t have any competition from Railways as we work on the principle of dynamic fare management.

It is all on how early you book your ticket. It ranges from free to Rs 900 on early booking. Whereas Railways fare structure will always remain static,” GoAir MD Jeh Wadia said. But Railways may also resort to differential pricing system in a major way. “We would offer discounts as high as 20% in the lean periods, while a surcharge of 4% would be levied during the peak season,” a Rail Bhawan source said. Some low-cost airline operators are already feeling the tremor posed by the Railways. “It is definitely a welcome news for train commuters. It would obviously pose a stiff competition for the low-cost operators. The Railways runs trains on diesel, where price hikes are moderate. In the case of aviation turbine fuel, the prices are skyrocketing. The government should take some initiative bail us out,” SpiceJet MD Sidhant Sharma said. High cost of operation is reflected in the bottomline of budget airlines. Air Deccan, which is the market leader in this segment with a share of 21%, has posted a net loss of Rs 340 crore for the 15 months period ended June 30, ’06.