Fare cut too little to cause air turbulence

VOICES FROM COMPETITORS: Some freight traffic may get diverted to roads.

The minor reduction in rail passenger fares is unlikely to have a significant impact on air travel since the difference in air and railway fares is very significant. However, the railway minister’s decision to leave freight rates unchanged compared to a downward revision in truckers’ freight rates, due to the recent 6-10 per cent decrease in fuel prices, may divert some freight traffic from the railways towards roads.

AVERAGE FARES                                          (in Rs)
	1st AC	2nd AC	Reduced  1st AC	2nd AC	Airfare
Delhi-Mumbai	3,305	1,975	3,239	1,936	5,075
Delhi-Bangalore	4,625	2,765	4,532	2,710	5,625
Mumbai-Chennai	2,526	1,497	2,475	1,467	5,083
Mumbai-Hyderabad	1,910	1,139	1,872	1,116	2,925
Mumbai-Bangalore	2,369	1,420	2,322	1,392	4,333

“The railways are already losing some freight traffic. Keeping that in mind, some changes in freight rates should have been announced. There are some commodities like iron ore and cement which have no other option but to use railways. But some other commodities may shift to road transport. Also, the use of commodities like iron ore and cement has anyway decreased due to the slowdown in the economy and the construction sector. Unchanged freight rates will have an even more negative impact,” said Akhilendra Sahay, president, Feedback Ventures.

Sanjay Sethi, head of infrastructure in Kotak Investment Bank, added: “You have to also take into account that fuel prices have been revised recently. This might make the road sector more competent and might divert some traffic from the railways.”

“But you have to remember that railway freight is for more long-haul destinations, while road carriage is for shorter distances. So the shift may not be immediate,” he added.

Recently, prices of petrol and diesel were reduced by around 10 per cent and 6 per cent, respectively. This would significantly reduce costs of road carriage.

Meanwhile, on the impact of the railway fare cut on airlines, executives and industry experts said that at a time when the difference between air and railway fares was 35 per cent, the market had already been too segmented for a marginal decrease in railway fares to have any adverse impact on airline traffic.

“The difference is already too significant for there to be any shift from air to rail (travel) now, though that cannot be ruled out,” said Peeyush Naidu, principal consultant, PricewaterhouseCoopers.

Sanjay Aggarwal, CEO of SpiceJet, added : “A drop of 40-50 per cent in airfares did not swing enough demand in our favour. I do not believe a 2 per cent reduction in rail fares would have any impact on air travel.”