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Thursday, December 26, 2013

Railways introduce Dynamic Pricing of Tickets

A little more than two years ago, I wrote a blog article on Dynamic Pricing of Tickets in Railways. I argued that this is a fairer system public, generates higher revenues for Railways, and is basically a win-win situation for all stake holders.

I was extremely happy to see the news paper article a few days ago that the Railways is introducing Dynamic Fares on a Rajdhani like train between New Delhi and Mumbai. Here are links to news articles in Times of India, Mint, and Outlook. And an even better news is that the public seems to be lapping up all the seats available on these special trains. Read the articles in Times of India, DNA, and Business Standard.

As I had said in my earlier blog, the public has gotten very used to the idea of dynamic pricing because of the low cost airlines, and they will be happy to pay the premium to Indian Railways that they currently pay to a tout.

This is a very limited experiment. Just one train. And with a lot of unnecessarily harsh rules, which will not be in the interest of either passengers or railways. But a first step is essential to cover any distance. As of now, the Railways have announced only a few journeys on a special Rajdhani type train, like a holiday special. I hope the success of the experiment will encourage them to keep this train running and extend the scheme to more trains.

The scheme has been kept simple - only end to end tickets, no discounts of any kind, no waiting list tickets, and the fare starts from the Tatkal fares of other Rajdhanis, and keep going up as the seats get filled. All Tatkal rules are applicable, including no refund on cancellation. It is the last rule, which I find strange. Who does it help. In my opinion, no one. If there is to be no refund, then why have RAC at all. After all RAC is supposed to be Reservations against Cancellation. You are not allowing cancellations. Does RAC make sense.

If Railways were to allow cancellations albeit with higher charges than usual (say, Rs. 200 per passenger), then they would be able to sell more tickets, and generate more revenues on most days. I hope that IR only wanted to have very simple rules in the beginning, and soon would introduce cancellation on such fares. These fares are different from Tatkal in the sense that in Tatkal, you buy the ticket only one day in advance, but here you could buy tickets up to 15 days in advance. One could argue that cancellation of trip in the last 1 day is rare, and it will be difficult to sell that seat at the last minute, but cancellation of the trip in the last 15 days is not rare, and hence a lot more people will wait till the last day to purchase tickets, causing uncertainties to passengers, but also, Railways would not be able to guess the demand till late and hence unable to increase the prices to the extent it could otherwise, thus losing revenue.

Also, they can be a bit more aggressive in pricing than what they have been for the first train. That the whole train was sold out about a day before the departure time means that there would have been people willing to pay even higher price than the 35% or so premium they could charge. My goal would be that anyone should be able to travel in a train with just 8-10 hour notice at a price less than what one currently pays to the touts. If a train is getting fully booked 24 hours in advance, it means that pricing was not right.

How do we move forward from here.

First, as I already said above, they need to fine tune their algorithm. And remember, that this would become lot more complex when they introduce in more trains, introduce it for tickets booked from intermediate stations, in different classes, and so on.

Two, reconsider the refund policy. Railways will have to do it at some point in time. They can not have a zero refund policy even politically when dynamic fares get extended to many trains and many classes. So they better rethink this now, before the parliament forces them to do so.

Three, introduce it in AC-1, AC-2, Executive class in all trains. Don't have to start with Tatkal fares. Start with regular fares. And slowly increase based on seats sold and the rate of selling those tickets, and also the history of those trains on certain days of the week and holidays, etc.

Then introduce in AC-3 class in all trains. When it comes to SL and sitting classes, may be they should first introduce them in holiday specials (but then they better run on time), then on superfast trains, and then slowly on trains which are always in demand, and then all other trains.

Another excellent idea that Railways have introduced is that dynamic fares will be allowed only on IRCTC website, and not available through PRS terminals. This would ensure that there are no fights at the ticket windows, where the clerk tells the price to a customer, and by the time he types in all the names and other details, the fare has gone up. Given that they are only available online, you can only fight with your PC. In the beginning, protecting their clerks from people who don't understand dynamic pricing was very important. But also, we all know that the cost of booking tickets through PRS is much higher for Railways than through IRCTC, but we pay more for IRCTC and less for PRS booking. There is a need to move passengers to online booking, simply because it costs less to the railways. Such moves will definitely make online booking more popular, though eventually, Railways would have to start charging a surcharge for PRS booking and remove surcharge for online booking.

Overall, a great beginning and I hope this will be extended to all trains.


Manu Thambi said...


Dynamic pricing is a great idea.

But I think the cancellation fees have to be a significant fraction of the fares (Rs 200 probably is not enough). Otherwise, everyone (even somebody who is thinks he has a small probability of travel) would book at the earliest date (15 days?) to save on the higher fares later. If they don't end up travelling, they are out only Rs 200. This will result is all the tickets going too early, and lots of cancellations on the last day.

Perhaps a good way to price the cancellations would be to charge the difference between the price at which you bought the ticket, and the current price at cancellation time plus a processing fee. This will encourage people to cancel early, if they know that they are not travelling. Haven't thought about this too long, so probably there are issues with this.


chitta said...

There is another aspect to "cancel with refund". This can be used in product differentiation, as they do it in airline pricing in many airlines. There can be refundable tickets priced much higher than non-refundable tickets. Once the Railways has some more experience on how high the prices go the refundable tickets could be priced a bit higher than that.

Manish Kumar said...

Good idea.
I never understood, why railway charge extra on e-ticket than PRS booking? May be employee lobby/union behind it!! I seen many people who have internet access still opt for PRS booking, just to save few rupees.

Deepak said...

Sir, this is how they are doing it for now...

Anshu Sharma said...

I tried to book 2 3rd AC ticket. At time of booking it was showing 5 available after payment i Got RAC. The cost was way more than 1st AC. And now i cant cancel the ticket. I see that confirmed tickets are available in 2AC but cant book it, since I already paid for 3ed AC ticket. I was forced to travel with my wife and son on a single side lower berth.
Either they should not allow RAC or allow cancellation of RAC. They are simply looting the people.

Dheeraj Sanghi said...

@Anshu, IRCTC and Railways should have an agreement that the berth offered and the price offered would remain locked for 30-60 seconds. I too have faced this problem that it shows me a berth available and when I pay, it tells me that nothing is available. But this is not a problem with premium class only (of course, money involved is higher), but happens with Tatkal also. Indeed it happens with normal quota also when you are trying for that last berth, but at least in normal quota, you can cancel. You only lose one transaction out of only 10 allowed per month.

Chai Beedi said...

Cancelling Railway Tickets Are Now Gone Costlier