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Competition Between Private Rail Companies Heats Up (Market Benefits)

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Posted by on Friday, March 2, 2012, 12:01
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It has only been a few weeks and already Pakistan Railways’ experiment to allow private sector companies to operate some of its train routes is beginning to yield better service quality and even the start of a price war between the two companies that have so far been given licences.

Pakistan Railway

Four Brothers, the company that operates the Business Express, and Air Rail Services, the firm that is now operating the Shalimar Express, claim that they are not in competition with each other. This is at least partially true since both trains operate on different routes. While both trains run from Lahore to Karachi, the Shalimar Express stops in Faisalabad and Multan on the way, while the Business Express travels through a different track and skips those cities. Both trains go through the same track from Bahawalpur onwards to Karachi.

Yet for all their protests of not being in competition, both companies are copying each other’s strategy and effectively treating the other as a rival.

Shalimar Express, for instance, recently lowered its fares by an average of 10% in order to attract more passengers and installed LCD screens on nearly all of its seats, a facility that is offered on the Business Express. Meanwhile, the Business Express – which was originally meant to be a single-class train for more affluent passengers – has now introduced a budget and economy class to attract more passengers across the income spectrum.

Executives at both companies seemed to have a wary respect for the other, though insisted on not calling the other their rival.

“We are hopeful to take on the maximum number of passengers since we offer more classes and more facilities than the Business Express,” said Rafaqat Ali, the managing partner at the Shalimar Express. “Our timings and routes are different from Business Express, so one cannot exactly declare us with competition with them.”

“The Shalimar Express was re-launched to target economy class commuters,” said Ijaz Ahmad, chief operating officer of the Business Express. “Business Express is meant to serve the business community and their families. Our target passengers are different from the Shalimar Express and we are not worries about any of our customers shifting their preferences.”

Commuters, meanwhile, seem to be comparing the trains on the basis of one standard that has traditionally been difficult for public sector trains to meet: the ability to leave and arrive on time.

“Timing is a key preference for travellers so whoever manages to depart and arrive on time will get more passengers,” said Rafaqat Ali.

Both trains currently take approximately 18 hours to get from Lahore to Karachi and hence have been unable to effectively compete on timing. The Business Express in particular has been trying to shorten its commute time down to about 14 hours. In the meantime, consumers seem to be differentiating between the two trains based on their brand identities.

“It’s a matter of perception,” said Ahmer Ali, a commuter on the Business Express. “The Shalimar Express has traditionally been seen as catering to middle and lower income families. The Business Express is perceived to be for higher income groups. The fare difference between the two trains strengthens that perception. I thought very few people would opt to travel by the Shalimar once they had travelled by the Business Express, although the Shalimar Express does look more luxurious.”

The presence of private sector trains, meanwhile, seems to have spurred even the sleepy state-owned Pakistan Railways into action.

“With the introduction of these ventures, the pressure on us has increased,” said Saeed Akhtar, the general manager for operations at Pakistan Railways. “We are also working hard to operate some express trains with better quality services. We are improving our locomotive fleet and soon our passengers will be able to feel the improvements in our operations.”

Pakistan Railways has been bleeding money for decades now. In 2010, the latest year for which financial data is available, the state-owned company racked up Rs25 billion in net losses, higher than the Rs22 billion it collected in revenues. The private sector trains, which make fixed payments to the railways in exchange for the right to operate the trains and set ticket prices, were meant to help the public sector company generate more revenues.

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