Dynamic pricing is everywhere—from air tickets to train seats. Should it be?

This year, with credit rating agency Icra Ltd projecting domestic air travel to grow 4-6% in FY26, that record is likely to be broken once again. But with that surge comes a familiar problem for travellers—soaring airfares, as airlines cash in on the boom.

Every year, the media runs stories on record airfares. And every year, the government routinely assures passengers that it will keep a “close watch” on prices. This year is no different. A press release from the civil aviation regulator, the Directorate General of Civil Aviation (DGCA), assured the public that it had proactively taken up the issue with airlines. The airlines, in turn, informed DGCA that they were deploying additional capacity. Nothing, of course, was said about fares.

Fixed fares return

That’s why a counterintuitive move by the government-owned Alliance Air, which serves tier 2 and tier 3 destinations, has caused a stir in the market. The regional carrier is piloting a “fixed fare” system this peak season on select routes, where ticket prices stay the same regardless of booking date, doing away with last-minute surges.

This is how air travel used to be before computers and algorithms began running ticket pricing. The upside of dynamic pricing for passengers is that fares can fluctuate both ways, making ultra-low prices possible. The downside, of course, is that during high-demand periods, fares surge well above average.

Schemes like Alliance Air’s Fare se fursat plan remove uncertainty over pricing, allowing travellers to budget better and plan last-minute trips. The trade-off for airlines is that they lose out on surge pricing, which boosts yields and profitability.

While airlines love dynamic pricing, travellers don’t. Survey after survey has found that most budget travellers prize affordability above all, while business-class travellers value schedule integrity. Leisure travellers are divided: those who plan early love dynamic pricing, while those who plan late despise it.

When trains turn pricey

There is another service provider whose love affair with dynamic surge pricing is growing—the Indian Railways. Over the past decade or so, the Railways, often the only option (apart from buses) for the poor and a large section of the middle class, have increasingly embraced dynamic pricing on high-demand routes.

This has meant that fares in air-conditioned classes—still treated by policymakers as a luxury, viksit (developed) ambitions notwithstanding—often match or exceed airfares on the same routes, especially on premium trains such as Rajdhanis, Durontos, and superfast expresses. Yet, with the Railways still losing money on passenger traffic, even the Parliamentary Standing Committee on Railways has recommended adopting dynamic pricing across all air-conditioned classes and gradually raising fares in others to reduce losses.

Perhaps the Railways could take a cue from Alliance Air and revisit fixed-price tariffs, which they followed until 2016. They already have a form of demand-based surge pricing through the Tatkal system, which lets last-minute travellers secure seats at higher rates. A fixed-price model would restore predictability for budget travellers and the poor, while still allowing for gradual fare hikes.

Politicians who have been rubber-stamping fare hikes and dynamic surges would also do well to read a paper by Alejandro Quiroz Flores and Katharina Pfaff — Private provision of public goods and political survival: Rail transport in four European democracies in the 20th century; Research in Transportation Economics. Examining data over half a century, the study found that full or partial privatization, inevitably followed by cost increases, hurt the political survival of leaders who backed it, as it reduced the social welfare of their supporters.