Economics of running premium trains in India - has railways lost its sheen in era of aviation growth?

Abstract

As on date, IR runs ~100 pairs of premium trains but no one knows the exact cost of running a train. While the zones are aware of the average fare-box revenue generated from the trains, the costs have not been analyzed using any costing model similar to ‘Should cost Model’. Unlike a big manufacturing/services, which has a fixed cost head and a variable one where documentation is carried out for both the cost heads while calculating net or gross profits, in IR fixed cost (or depreciation) is never done while calculation of variable costs is done only in few trains/zones. There are lot many stakeholders involve in operating a train, right from Maintenance (Cleaning, Mechanical & Electrical), Linen Management, Catering, Operations (Loco Pilot, Asst. Loco Pilot and Guard), IRCTC and others. It would be very tedious process to calculate the costs associated with each of these heads as tariffs/rates of some of them are decided at zone level through tenders and some are fairly standardized across all levels. When it comes to revenue side, fare box revenues (revenues associated with selling of tickets) can be calculated easily since in premium trains as all the tickets are booked trough IRCTC portal or PRS counters but some of the zones don’t keep account of the revenues generated (even if they do, nothing was mentioned in response to RTIs in this regard). Advertisement revenues were next to zero, despite several policy measures implemented by IR to improve its non-fare box revenue. Recently implemented dynamic-fare scheme did help in garnering more revenues from premium trains but it has severely hit on the occupancy side of Indian Railways in premium trains. The idea of this project was to understand different cost heads and to calculate the profitability of premium trains in general.