Fair Or Unfair, Flexi-Fares Need Repair

Indian Railway Catering & Tourism Corporation's Flexi-Fares strategy jolts passenger occupancy and premium trains revenues – can dynamic pricing engines solve the revenue optimization challenge?

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25th November 2016, Profisor Team makes a day trip from Delhi (The Capital City) to Ludhiana (Major City in North Western State of Punjab).  An early start to the day . . all preparations done for a two-fold agenda 1. Conduct regional-level research for analysing a political party’s penetration using social media data and 2. Meet Professor Doc. K. S. Mann, Dean of Student Training & Placement Cell and Heads of IT Department at the Guru Nanak Dev Engineering College in Ludhiana to establishing an internship program for graduate and master level students. 

Week before this planned travel, we booked our train tickets for Shatabdi Express, a premium Indian train that runs during the day usually with two types of passenger coaches – An Executive Class and A Chair Car.  Quite recently, on 9th of September 2016, Indian Railways Minister, Suresh Prabhu, had introduced Flexi-Fares (or Dynamic Fares) claiming to rake-in additional INR 500 Crores (USD 77 Million) by 31st March 2017.  Much less to our surprise we paid 40% additional fare compared to our past travel experience and discovered a lower passenger occupancy in our coach.  Is this the result of Flex-Fare System?  Or Surge Pricing?  The Uber Ola Debate!  Upon further enquiry, from fellow travelers and train staff, we concluded with mixed, yet divided, responses.  Passengers opined that the new fare system was negatively impacting the train occupancy rates, while the train staff appeared more optimistic hoping for improvements sooner than expected.

As the calendar turns into December 2016, a big question looms on the face of Railways Minister, who has a strong bend towards technology, especially the use of social media for listening to train passengers and improving passenger experience.  Does the Flexi-Fare system work?  Owing to further decline in occupancy rates, on December 19, 2016, Railways tweaked the Flex-Fare Structure, offering 10% rebate on seats left vacant after chart preparation. 

Today we are in the month of March 2017 which marks the end of a financial year.  Economic Times reports, “Flexi-Fare system in premier trains to be revised again: Indian Railways”.  Railways earned about an additional INR 260 Crores from the Flexi-Fare System, nearly 48% short of their planned target of INR 500 Crores, and continued to face lower occupancy rates.  What that means is fewer people travelled between 9th Sep 2016 and 28th March 2017, on trains operating with the Flexi-Fare System, paying a higher fare for the same journey, which in result contributed to the additional INR 260 Crore earnings.  That’s quite a dent in the passenger’s pocket!  Unfair!  While that’s an opening statement for a big long news hour debate, let’s explore the dynamic pricing challenge for Indian Railways.  Can Dynamic Pricing Engines Help Accomplish Higher Passenger Occupancy and Optimize Revenues?

Here are some informational facts about Indian Railways and the Flex-Fare System or The Dynamic Pricing Engine.

How does the Indian Railways Flexi-Fare System Or Dynamic Fares Work?

• First 10% Seats of the Total Seats are sold at Base Fare
• Base Fare rises by 10%, in batches, for every next 10% Seats of the Total Seats
• Maximum Base Fare rise is restricted to 50% for most Seat Types
• Maximum Base Fare rise is restricted to 30% for 3rd AC Seats
• No Fare Increase for 1st AC Or Executive Class Seats

What was the impact of Flex-Fare System on Revenues and Occupancy Rates?
​Delhi to Mumbai travel is one of the most heavily booked journey and an equally relevant travel route for both domestic and international Airliners in India.  A 10-week analysis of the route presents us with the following stats:

Delhi – Mumbai Rajdhani Express Train
​Period Between 9th September 2016 to 19th November 2016

Delhi – Mumbai Rajdhani Express Train
​Outside Festive Season Between 9th September 2016 to 15th October 2016

AKR, Mumbai – Hazarat Nizamuddin, Delhi Train
​Period Between 9th September 2016 to 19th November 2016

AKR, Mumbai – Hazarat Nizamuddin, Delhi Train
​Outside Festive Season Between 9th September 2016 to 15th October 2016

Against the principles of Dynamic Pricing, the current Indian Railways Flexi-Fare System changes fares based on Supply.  Such an analysis must begin with a Segmentation exercise, a study of the Demand Supply factors and the total inventory of train seats pan-India, to arrive at trains and categories of seats that offer revenue enhancement opportunities.  Opportunities that reflect operations research and data-oriented statistically prudent methods for successful implementation of Dynamic Pricing, Upselling, Resource Optimization, Meals Cost & Sales Optimization, Route-wise and Segment-wise Meals Personalization, Train Schedule Optimization (although politically driven . . ) . . and many more . . . .

Are You Flying High Enough? - Offers insight into how such studies are performed in the Airlines industry.

Data is rich.  Technologies are emerging.  In today’s times where Data Scientists are joining hands with business to solve computational problems, Indian Railways must make a genuine effort to evaluate all factors that contribute to the study of Dynamic Pricing of train passengers, and exercise caution when analysing the impact of fare changes on the travelers’ pockets.