The gap between rail and air fares will narrow further after the 14.2% rail tariff hike on June 25, an event that could encourage some railway passengers to shift to air travel.
The fare increase announced on Friday is being seen as part of the "bitter medicine" measures which prime minister Narendra Modi said will have to be administered to revive the economy, which fell to its slowest growth rate in a decade, earlier this year.
While airline tickets will still be at least INR 1,000 costlier than rail tickets, the hike comes at a time when air carriers have been indulging in massive fare wars as a shot in the arm to a stagnant air travel market.
After implementation of the hike, a Rajdhani Express Mumbai-Delhi 2-tier AC ticket for the month of August will be priced at INR 2,511. A SpiceJet flight ticket on August 19 costs INR 3,564.
Since January, the market has seen at least 10 instances of flash sales, usually started by SpiceJet and leading to a chain reaction across the industry. The entry of Malaysian carrier AirAsia into the local market, and its claim of selling tickets 30%-35% cheaper than its rivals, has also set off a fresh round of low-priced air tickets.
A senior executive at a budget airline said that "I would see the narrowing of gap between airfare and railway fares as normalisation in the market. Unlike overseas markets where train and rail fares sometimes the same, Indian airfares are always a multiple of train ticket prices."
"The increase may have marginal impact on air travel. Cost of flying is several multiples of the train fare. Airlines in India are themselves suffering from high taxes and high operating cost, likely to worsen with the Iraq civil war. So other than sporadic bursts of rock-bottom promotional fares that too limited to 5-10% of seats airfares in general are likely to be high," says Amber Dubey, partner and India head of aerospace and defence at global consultancy KPMG.