IIPM’s 36th Glorious Year of Academic Excellence
Lalu clearly had other plans. He not only rewrote the macro model (introducing new lines, newer trains, connections etc), but restructured even the minutest of minute processes – from new business models to book rail tickets through mobile phones, tatkal sewa, replacing plastic cups with kulhads (giving employment to the rural industry rather than to plastic manufacturers) to name a few. But what transformed Indian Railways was a critical number Lalu never forgot. Lalu knew that he could never make enough money from individual travellers (something LCCs have been trying sine die).
So, the area he targeted was transportation of commercial goods. Where he gave to the masses, he sucked the commercial goods transport clients clean. Today, the bulk of earnings of Indian Railways (more than 70%) come from this sector! His brilliant pricing strategies in the commercial sector allowed him to make Railways an immediate cash rich proposition within one year of his taking over [The negative cash reserve, which Railways had in 2004, turned into surplus next year. In 2005, Railways made a cash surplus of Rs.9,000 crore, which increased to Rs.14,000 crore in 2006. It crossed Rs.20,000 crore in 2007 and finally reached a surplus before dividend of Rs.25,000 crore in 2008, with net earnings reaching a whopping Rs.72,655 crores]; a move that gave him flexibility to pass on a huge part of the surplus to the non-commercial travellers, a move that started the exodus – small at first, unstoppable recently – from LCCs and even other airlines to Indian Railways.
So, a family that could have gone from Delhi to Mumbai in Air Deccan or Jet Lite started giving LCCs a miss to enjoy a nice overnight journey on the Rajdhani. And why not! In January 2006 when air turbine fuel (ATF) rate per kilolitre was Rs.43,600, a SpiceJet ticket for Delhi-Mumbai flight used to cost Rs.2,955, but the same ticket in May 2008, after ATF rate per kilolitre rate reached Rs.61,150, was Rs.3,360. While an Air India ticket for the same Delhi-Mumbai flight, which used to cost Rs.6,068 in January 2006, cost Rs.7,708 in May 2008. And a Rajdhani three-tier AC ticket from Delhi to Mumbai was priced at only Rs.1,495 in June 2008. Even a two tier AC ticket costs around Rs.1,975. And what else, a 1st class AC ticket costs only Rs.3,305!
In fact, the condition in the short-haul routes is more terrible. Currently, air tickets in such route flights like Coimbatore-Chennai, Bangalore-Hyderabad, Mumbai-Pune and many others would cost nothing less than Rs.4000 (depending upon when you book them) while a 2nd class Railway ticket is available at around Rs.1,000 approximately.
For more articles, Click on IIPM Article.
Source : IIPM Editorial, 2008
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
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