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Vol. XXVII No. 19, January 16-31, 2018

Market the Metro with attractive pricing

by A Cost Analyst

There is disturbing news casting a cloud of delay and uncertainty over the sanction of Phase 2 of Chennai Metro. The Ministry of Housing and Urban Affairs has questioned the viability of Phase 2, expressing concern over a poor patronage of Phase 1 of only 30,000 per day. The Ministry cannot be blamed for raising this issue, as the low usage is a fact and a matter of concern. This journal has raised this concern in an earlier issue (MM, September 16th) pleading for imaginative pricing and promotional strategies.

The Ministry’s calculation of pro rata ridership threshold for financial viability based on completed mileage of track is, however, questionable and is unrealistic. The forecast usage of 7.76 lakh per day in the project report for a 45 km line has been proportionately reduced to an expectation of 4.5 lakh per day for the 28 km of line, completed so far. The expectation that each section or portion thereof, on completion, should result in a proportionate footfall would be right only if typical travel habits were highly localised. In travelling, people do move from one zone to another. Therefore, without a full connectivity network it is difficult to test the adoption rate. The typical example is of the reluctance of passengers to take the Metro to Central station even though a feeder service is provided connecting Nehru Park station to Central. The inconvenience of changing from one mode to another, although the Metro price includes connectivity, is a dampener. The assumption in evaluating the whole project by the experience of one partial segment is faulty.

Habituating to Metro use calls for a cultural change governing travel habits. It also takes time for people to realise the values of timeliness to work, time saving, travel comfort protected from heat and pollution, joy of a dependable time of return to the family at day’s end and, above all, to be willing to pay a little extra for it all.
In project cost estimation, it was not safe to have assumed that when all those values are offered, and that too in sectional instalments, people would rush in. Unless the cost was affordable, compared to current cost, people were not going to take it. Times are hard and every rupee had to be saved. And, more so, considering that it is not the car travellers who are the target users but auto and motorised two-wheeler users.

The State government cannot escape responsibility for its unimaginative pricing and marketing strategies in launching this new Rs. 20,000-crore facility. Had they launched the line more aggressively the footfall by now might have been much larger, avoiding delay in securing sanction.

To promote cultural acceptance of this modern way of travel, the Chennai Metro could have learnt from a similar block faced by the Metro in Kuala Lumpur. An old resident of KL says that when initial response was poor the KL Metro authorities experimented with a fortnight of free travel. It worked and ridership increased steadily when people realised the convenience and affordability of travelling by Metro. The cost of free travel becomes part of the capital cost of the project and is insignificant compared to total project cost. In India, we cannot also rule out common people hesitating to use a facility that, they apprehend, might be meant for the more affluent. This hesitation, if any, could also be overcome by offering the free sample.

Motorcycle users form the bulk of the traffic, causing most of the congestion and pollution. In 2013 the total vehicle population of Chennai was 39 lakh of which 31 lakh were two wheelers. The total has gone up rapidly to 48 lakh by 2016. It is a very large potential market that is there for the asking. It has been estimated that a monthly travel cost per motor cycle user is Rs. 1,474 which is his/her Metro affordability threshold. The present cost of Metro is Rs. 2,158 and needs to be brought down by Rs. 684. That reduction may appear large but even after reduction the rate is still nearly Rs. 2 per km higher than the then Delhi price.

Increasing traffic volume and filling the bogies results in large contribution to fixed cost and could lead to a surplus; at the worst, it would cut losses compared to the option of keeping prices high. The surge in total revenue, when fare is lowered, is bound to be high as people are likely to respond massively to lower affordable prices.
The initial phases of the project offer an excellent opportunity to experiment with bold pricing and promotional methods. At a later stage, enticing prices cannot be tried as raising them then would meet with stiff user resistance backed by citizen bodies and civil society organisations.

In considering the Detailed Project Report (DPR) for Phase 2, apart from citing the poor usage of the completed section, the Centre has pointed out the absence of a comprehensive mobility plan and proposals for private-public participation for project implementation as required under the new metro rail policy. These omissions smack of a lackadaisical approach to formulating and defending such an important project.

The State government should lose no time to explain to the Central Ministry the latter’s faulty yardstick used for evaluation of the existing truncated line, convince them of steps to be taken to promote ridership and seek early sanction. The eventual benefits are going to be huge and they can be realised only when the entire project 107 km is completed speedily.

The mass rapid transit system of transport is a basic need for a growing city. It can relieve traffic congestion, discourage urban crowding, substantially reduce pollution and widen work opportunities. These are social benefits that justify subsidised metro prices if necessary. For what is lost financially can be more than gained through larger social benefits and their multiplier effect on the economy.

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