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

OverviewOverview

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 InflationType of Inflation

SECTORAL 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) Oil prices - Aviation Turbine Fuel (ATF) 1. India imports 70% of its oil

2. Increase in expenditure

o Distortionary taxesDistortionary taxes1. 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 & Domestic traffic slow down &

Airlines pile up lossesAirlines pile up losses

Higher operational and overhead Higher operational and overhead

costs for the airlines.costs for the airlines.

Restriction towards expansion Restriction towards expansion

Short haul Short haul

flights traffic flights traffic

drop drop

Cost cutting Cost cutting

Due to the hike in the oil prices the whole airline Due to the hike in the oil prices the whole airline

industry is facing an additional burden of Rs 2220 industry is facing an additional burden of Rs 2220

crore and the rest because of a rise in sales tax crore and the rest because of a rise in sales tax

imposed by states, route navigation and landing imposed by states, route navigation and landing

charges and the fluctuation of the Indian rupee. This charges and the fluctuation of the Indian rupee. This

has lead to a proposed 18-20 per cent increase in fares has lead to a proposed 18-20 per cent increase in fares

of major airlines. of major airlines.

Deflation in aviation industryDeflation in aviation industry

Main effect of deflation is that it gives people a huge incentive huge incentive not

to buy goods.

Layoffs and closures Layoffs and closures - deflationary spiral (vicious cycle of

unemployment)

Decrease in the salary Decrease in the salary (the pay packets are slashed, incentives

reduced, extra benefits reduced) leading to decrease in level of

motivation.

Decreased standard of livingDecreased standard of living

No job generationsNo job generations

No expansion projectsNo 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

ConclusionConclusion

High growth

Infrastructure - Current and future demand

Huge opportunity for private players

Thank You.