Train vs. Plane: What's a Fair Price?

Comparing train and airfares is a recurring debate, as everyone has their own experience—which can vary widely because the methods used to set prices (the yield management^[1]) are now highly developed and complex in the long-distance transportation sector. Carbone 4 examined three representative examples to provide rigorous insights.

Prices that are uncorrelated with costs and depend on the supply-and-demand balance

Trains are cheaper than planes for direct domestic trips, but the opposite is true for international travel

Trains are often said to be more expensive than planes for passenger travel; however, when comparing the average prices of train and plane tickets^[2] Across three routes, we observe that On average, trains are cheaper than planes on the domestic routes in question, which are direct (Paris-Nice and Paris-Toulouse).

However, the trend is reversing, and On average, flying is cheaper than taking the train on the international route in question (Paris–Barcelona). It should be noted that on this international route, the flight is also, on average, cheaper than the two domestic flights examined, despite the longer distance traveled—which shows that the average price is not determined solely by cost considerations. In reality, the key factors in air travel are demand and competition, and prices are set accordingly. Costs are taken into account not to determine prices but to decide whether to increase or decrease the number of flights or available seats based on the flight’s profitability.^[3].

It is also worth noting that low-cost airlines (such as EasyJet or Ryanair) offer very low-priced tickets but rely heavily on ancillary revenue (in-flight sales, additional services, etc.), known as ancillary which can account for more than 40% of their revenue^[4], without which they would not be profitable.

Similar pricing strategies with a narrower price range on the train

Whether by train or by plane, Ticket prices are based on a pricing strategywhich involves maximizing fill rate by adjusting the price paid by the consumer, called yield management. In other words, offering several price tiers for the same route based on demand. When demand is low during certain times or on certain days, prices can be set very low to encourage customers to choose those tickets, thereby improving load factors and freeing up capacity on similar routes with high demand for customers willing to pay a premium for a specific time or route.

This a common strategy for air and rail passenger transport (at a minimum, for high-speed rail) This results in significant fluctuations in the price curve based on occupancy, leading to low prices for trips booked several months in advance and increasingly higher prices as the travel date approaches. However, the notable difference between air and rail travel regarding this pricing policy is The range of possible prices for airline tickets is much wider than for train tickets. For example, a trip from Paris to Nice on the TGV Inoui costs between 25 and 156€.^[5] whereas on that same route, airline tickets through a traditional carrier can start at around 60€ and go up to over 450€ as the departure date approaches^[6].

What are the costs behind these prices?

Significant infrastructure costs for both modes of transportation, but these costs rise rapidly with the distance traveled for trains

While infrastructure (and consequently its carbon footprint, impact on biodiversity, and financial burden) increases proportionally for rail travel, this is not the case for air travel.

For air travel, infrastructure is needed only at departure and arrival points: airports. They generate revenue through fees charged to airlines; some of these fees are calculated per passenger, while others are based on the aircraft’s weight or the duration and type of parking. These fees represent 13% to 27% of the average ticket price on the routes studied.

For rail transport, the rail network is the largest cost item^[7], a value that increases with the distance traveled. In fact, the French rail network operator finances the investments needed for the network’s renewal, maintenance, and expansion by collecting fees^[8] from rail companies for the use of tracks, based on a toll system. These charges are higher for high-speed lines (LGV) than for conventional lines (LC) and vary depending on the type of train, the number of train sets (multiple unit or single unit), and the train’s occupancy rate.

On average, they account for about 30% of the ticket price on the routes studied.

They are higher for the Paris-Barcelona route not only because of the greater distance traveled, but also because the assumption used to calculate the “tolls ” for this route is that the train consists of only one car, unlike the Paris–Nice and Paris–Toulouse routes, where trains have two cars on the high-speed section, which significantly lowers the fee per passenger.^[9]

Energy is the largest cost item for the airline industry and also represents a significant cost item for the rail industry

Conversely, trains are much more energy-efficient than airplanes, because it doesn't have to fight gravity, and wheel-to-rail friction is much lower than on the road. And in the same proportion, the energy (and carbon) savings of the train increase with the distance traveled.

Kerosene is therefore, unsurprisingly, the largest cost item for the aircraft (~25%). Fuel costs vary in proportion to the distance traveled and increase for longer distances; however, even though this variation is not reflected in prices—since costs are not factored into the yield management. Furthermore, unlike other energy sources (electricity, transportation fuel, natural gas), Kerosene is not taxed.

Traction energy (electricity) accounts for an average of 6 to 8% of the price of a train ticket. It is subject to the TICFE (domestic final consumption tax on electricity) which accounts for 14% of the price of purchased electricity^[11].

A tax on kerosene equivalent to the tax applied to electricity would cause air travel costs to rise slightly.

Different taxes for the two modes of transportation, both domestically and internationally

Nevertheless, it is important to note that the aviation industry is subject to other taxes specific to the sector, notably the passenger air transport tax (TTAP) which is broken down into several subcategories targeting airport operators, the Directorate General of Civil Aviation (DGAC), the French Transport Infrastructure Financing Agency, and the government. Rail transport does not have such taxes.

Regarding the value-added tax (VAT), theBoth modes of transportation are subject to these rules up to 10% of the ticket price excluding tax on domestic flights. However, air travel is exempt from VAT on international flights whereas The train pays VAT on the international portion of the trip, specifically 10% VAT on 14% of the price corresponding to the Spanish portion, and is exempt from VAT on a pro rata basis based on the kilometers traveled on French territory. On a Paris-Berlin route, the international portion accounts for approximately 60% of the kilometers, which creates a significant tax disparity between the two competing modes of transportation.

What would the new balance look like with a harmonized tax system?

Since 2012, air travel has been part of the “carbon market,” the European Emissions Trading System (EU ETS) partially covers aviation emissions. However, the scope is limited to flights within the European Economic Area and does not cover non-CO₂ emissions₂ (accounting for at least half of the climate impact of air travel) and 45% of the funds will be allocated free of charge in 2024, which significantly limits its scope. That is why theThe European Union plans to phase out free allowances in this sector by 2026 and a potential expansion (of the geographic scope of the flights considered or the possible inclusion of non-CO₂ emissions₂) starting in 2030.

However, the additional cost currently imposed by the European carbon market does not allow for a significant accounting of aviation’s higher carbon footprint compared to rail transport for an equivalent trip.

Another approach could be to consider the issue from the perspective of fairness, by applying the same level of energy excise taxes to kerosene as to road diesel, or 59.4 ct€/L (excluding VAT).As can be seen in the comparison below, Internalizing the carbon costs of jet fuel helps level the playing field in terms of total costs between traditional airlines and rail travel on the international Paris-Barcelona route.

Finally, Decarbonizing the aviation industry will also significantly increase the cost of air travel. In fact, the use of lower-carbon aviation fuels (Sustainable Aviation Fuels, or SAF) allows you to reduce the climate impact by about half^[12], but with an additional cost that doubles the price of the plane ticket, at present. This additional cost will encourage a shift in modal choice toward rail, which is desirable, because, on the one hand, even a flight using 100% sustainable aviation fuel (SAF) still emits 10 times more than a train on the Paris-Barcelona route^[13], and second, SAF resources are limited. This therefore encourages a more moderate use of airplanes, to use SAF resources only for truly essential trips.

Learn about Carbone 4's Transportation Division

Learn about Carbone 4's Energy Division