Deflation/Inflation Dynamics: Analysis based on micro prices
Effect of Inflation & Deflation on Aviation Sector
Transcript of Effect of Inflation & Deflation on Aviation Sector
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IMPACT OF INFLATION AND DEFLATION ON
AVIATION INDUSTRY
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Inflation & Deflation
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Causes of Inflation
Demand Pull Inflation
Cost Plus Inflation
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Causes Of Deflation
DECREASING MONEY SUPPLY
INCREASING SUPPLY OF GOODS
DECREASING DEMAND FOR GOODS
INCREASING DEMAND
FOR MONEY
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OverviewOverview
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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
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Trends In the Aviation Industry
Past trends
Present trends
Future trends ?
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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.
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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.
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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
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Short haul Short haul
flights traffic flights traffic
drop drop
Cost cutting Cost cutting
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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.
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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
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No expansion projectsNo expansion projects
1. Leading to more unemployment , less money, less demand and more deflation.
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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
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Private investment encouraged –both in Airlines as well as Airports
Foreign Direct Investment
Air Cargo Market
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ConclusionConclusion
High growth
Infrastructure - Current and future demand
Huge opportunity for private players
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Thank You.