Effect Of Inflation & Deflation On Aviation Sector

IMPACT OF INFLATION AND DEFLATION ON AVIATION INDUSTRY

Inflation & Deflation

Causes of Inflation  Demand Pull Inflation  Cost Plus Inflation

Causes Of Deflation

DECREASING MONEY SUPPLY INCREASING SUPPLY OF GOODS DECREASING DEMAND FOR GOODS INCREASING DEMAND FOR MONEY

Overview

Reasons For Boom  Foreign equity allowed  Low entry barriers  Attraction to foreign shores  Rising income levels and demographic

profile  Untapped potential of India's tourism  Glamour of the airlines

Trends In the Aviation Industry

 Past trends

 Present trends

 Future trends ?

Type of Inflation

 SECTORAL INFLATION - The sectoral

inflation takes place when there is an increase in the price of the goods and services produced by a certain sector of industries.

Inflation in the Aviation 

Industry

Oil prices - Aviation Turbine Fuel (ATF)

1. India imports 70% of its oil 2. Increase in expenditure

o

Distortionary taxes

1.

Excise duty of 8 per cent

2.

Local sales taxes ranging from 4 per cent to 39 per cent

3.

Price of ATF in India is 60-70 per cent higher than international benchmarks.



Domestic traffic slow down & Airlines pile up losses

 Higher operational and overhead

costs for the airlines.

 Restriction towards expansion

 Short haul

flights traffic drop

 Cost cutting

Due to the hike in the oil prices the whole airline industry is facing an additional burden of Rs 2220 crore and the rest because of a rise in sales tax imposed by states, route navigation and landing charges and the fluctuation of the Indian rupee. This has lead to a proposed 18-20 per cent increase in fares of major airlines.

Deflation in aviation industry  Main effect of deflation is that it gives people a huge incentive not

to buy goods.  Layoffs and closures - deflationary spiral (vicious cycle of

unemployment)  Decrease in the salary (the pay packets are slashed, incentives

reduced, extra benefits reduced) leading to decrease in level of motivation.  Decreased standard of living  No job generations



No expansion projects

1. Leading to more unemployment , less money, less demand and more deflation.

Suggestion  Expansion of capacity at existing airports  Up gradation / modernization of Metro and Non-metro airports  Development of new Greenfield Airports  Up gradation of CNS/ATM facilities

 Private investment encouraged –both

in Airlines as well as Airports  Foreign Direct Investment  Air Cargo Market

Conclusion  High growth  Infrastructure - Current and future

demand  Huge opportunity for private players

Thank You.