Railways flexi-fare policy rests on naive and unclear assumptions

The ministry of railways has introduced a new pricing mechanism for the three premium trains—Rajdhani Express, Shatabdi Express and Duronto, numbering 142 in total, plying across India with a combined daily passenger load of about 1,50,000. As per the new pricing scheme, which has come into effect from 9 September, fares for these trains are set to rise by a minimum of 10% to a maximum of 50% of the base fare, depending on the demand and class of travel. Indeed, it appears that Railways is testing waters with this new pricing system before it finally rolls out higher fares in other passenger segments in the near future. The new pricing strategy is premised on the assumption that the reservation prices of high-end customers travelling in 2AC and 3AC is greater than the current price, implying an opportunity to extract additional consumer surplus from these segments. A public private partnership model to build up commercial infrastructure for better customer services like luxury waiting rooms, better toilets and food courts with appropriate user fees will help increase revenue while enhancing customer satisfaction.