Jun 29, 2016

Railways likely to lose more passengers if Airfare-capped

New Delhi: The government’s move to cap air fares to tier-II and tier-III cities at Rs.2,500 is likely to further erode the

market share of the railways in passenger traffic. Once the reduced fares for air travel are put in place, there would be very little difference between premium rail fares and what airlines would charge to cover the same distance. Sections of customers could, therefore, shift from railways to airlines, given that the travel time is far lesser in case of the latter.
Though the government has not come out with a detailed policy on the regional connectivity scheme (RCS) announced recently and named the airports which will come under this scheme, the broad contours of the policy

suggest that states ready to give specified tax sops (less than 1% VAT on aviation turbine fuel and waiver of airport charges) will be able to get airlines to start new services to their cities.

Hypothetically, if the Jaisalmer airport, which currently does not have any scheduled operations, gets connected with the Jaipur airport, passengers travelling in the AC first-class and paying Rs.2,300 for the

12-hour rail journey between the two cities, will have to shell out only an additional Rs.200 under the RCS for travel by air that takes 75 minutes.

Similarly, if the Malda airport in West Bengal gets connected to the Bagdogra airport, existing railway passengers in premium classes will likely to find air travel more attractive as they can save five hours in journey time.

Indian Railways has witnessed a decline in passenger bookings — from 839 crore in FY14 to 818 crore in FY16. The number of passengers travelling in the AC first-class has fallen 4.1% since FY14.

On the other hand, the aviation sector has experienced a 20.34% annual growth in the passenger traffic in 2015. Domestic passenger traffic witnessed a growth of 21% in April over the same month in 2015.

“In the last three years, airlines have continuously been eating into the railways’ share of passenger traffic. The trend is likely to accelerate, moving forward due to fall in airline fares, the economic growth and increased per capita income of people. With the recent thrust on regional connectivity, many of the non-operational routes will witness airline operations and with the government capping fares, many people would shift to this faster mode of transport,” Abhay Krishna Agarwal, partner, infrastructure & PPP, Ernst & Young, said.

The government plans to revive 160 airports and airstrips, and each of it will cost around Rs.50-100 crore. On its part, the railways has lined up a series of semi-high speed and luxury trains, but it remains to be seen how well it can compete with airlines.