By slashing rail fares across the board, Lalu Prasad has taken away the cost advantage of low-cost airlines, leaving them with just the time advantage.
BANGALORE: By slashing rail fares across the board, railways minister Lalu Prasad has, in a flash, taken away the cost advantage of low-cost airlines, leaving them with just the time advantage. With a 3-8% cut, railway tickets would now be marginally lower than airline tickets.
But this has only slightly ruffled the feathers of airline operators who say that the rail fare reduction was too small for them to adjust their current prices.“We are unlikely to adjust our air fares as a result of the AC train fare reductions announced,” said IndiGo president & CEO Bruce Ashby.
What the budget carriers feel is that competitive train fares will stimulate train, without taking away traffic from air.
“What it may do is that passengers of second sleeper class may graduate to AC 3-tier and that of AC 3-tier may graduate to AC 2-tier. So, this will help rail passengers to upgrade higher class,” said IndiGo CFO Sanjay Kumar.
GoAir managing director Jeh Wadia shared Kumar’s views. “Railways have static fares. So, if you book in advance there is no cost advantage. However, air travellers get huge discounts if they book in advance. So, despite the cut announced in the Rail Budget, air tickets bought in advance could turn out to be cheaper than AC first class fares,” Jeh said.
In a bid to counter Lalu’s move, Jeh is planning increase the number of seats offered at lower fares.
“Earlier, air fares were at a premium 10-15% to second AC fares, now they are at a premium of 13-18%. A 3% difference doesn’t bother us,” said SpiceJet Ltd CEO and chairman Siddhanta Sharma.
Aviation analysts feel that lower rail cost, even though marginal, will succeed in putting the airlines on guard against competitio..
“A 3-8% cut is not of much consequence but airlines have to watch out for concessions beyond 10%. And if the cost of air travel become 1.5 times of rail travel then the time advantage that airlines give will not hold much appeal,” said an analyst from an international broking house.
And it is not just airlines that Lalu is taking on. By cutting freight rates on diesel, petrol and minerals (including iron ore and lime stones) again he has set the stage for intense competition with road transport companies.
“As it is road transporters operate on very thin margins. This will crimp their margins further. Some may not even be able to survive it,” says Gati Ltd, head marketing, Manoj Agarwal.
TNT India Ltd managing director Abheek Mitra said that budget announcement would escalate competition but since the Indian economy was growing at a healthy pace, road transport firms would be able to absorb the impact.
“Yes, it will increase competition at cost level but we will still have advantage in terms of quality of service and transit time. We will evaluate the impact and accordingly react to it,” said Mitra.
Manoj Chandra, head, market development and brand communication, AFL Private Ltd, does not see it impacting the trucking companies in a big way as today’s capacity is far below demand.
“What may change the scenario are the three-stack and two-stack containers, which will increase the capacity, but that will take some time,” says Chandra.
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
)
){kind=small}
){kind=small}
)
)
)
)
)
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}