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Presented By
Group 2 and 3
Section H4
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` Background
` Phases of Evolution
` Factors of Production
` Demand & Supply
` Price Elasticity
` Cross Elasticity
` Pricing Strategies
` Road Ahead
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Phases of Economic Evolution :Phases of Economic Evolution :
Pre-Nationalization
Tata Airlines Later taken over by Govt.
Post-Nationalizationand Pre-Liberalization Monopoly market Only 2Govt. owned players Air Corporation Act - 1953
Entry ofLow-cost Carriers Low-cost carrier fleets fuelled byAir Deccan Air travel feasible for new-class ofpassengers
High connectivity with tier-1
and 2 cities
Post Liberalization andPrivatization
Private-players multiplied restrictions alleviated Air Corporation Act repealed
Liberalization
Air taxi system : to boosttourism
de-regulated fare, restrictionon seating capacity, airports,
timings Open sky policy
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Major Domestic AirlinesMajor Domestic Airlines
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` Labour` Fuel
` Passenger Food
` Advertising and Promotion
` Landing Fees
` Infrastructure like aircraft lease rentals
` License fee
` Interest, Taxes, Passenger Traffic commission
Nature of Aviation MarketNature of Aviation Market
Monopoly Oligopoly Competitive
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` In the initial years i.e. during the 1990s theaviation market was monopolistic specificallybecause of the government restriction.
` The limited number of airlines was not able tocater to huge demand of India.
` The limited supply led to high air fares and thehigh air fares led to low demand.
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` When there were not too many players in themarket the supply curve was steep showing lesselastic supply (S1S1). However the demand curveis relatively elastic (D1D1).
P*
Q*
D1 S1
S1
D1
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` With the entry of more players specially the low costairlines the supply increased and became more elasticthan before (S2S2) and the demand has also grownover the years (D2D2) , as such the air fares are low
represented by P**
P**
Q**
S2D2
D2
S2
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` Supply and demand price elasticity of airlinecarriers may vary depending on the nature of theindustry.
` There exists a steep price elasticity of demandfor civil aviation services.
` There is a price elasticity of demand for low cost
as well as short destination flights` The elasticity of demand is based purely on
current market conditions, the customer'spurpose for travel, and available substitutes.
` Externalities continue to influence the elasticity
of demand.
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` Events such as inflation, terrorist attacks, and the price ofoil have greatly influenced the demand for airline ticketsthroughout the years.
` Competition/ Substitutes consistently affects the price ofairline tickets because it gives the customer other options.
`
The elasticity of demand is greatly affected by thecustomer's purpose for travel.` Lastly the aviation industry is affected by elasticity in
supply and demand depending on the size of the industryand how long it has been in operation.
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` Supply and demand of airline carriers may also vary dependingon the pricing of the related industries such as railways.
` For civil aviation services, there exists a cross price elasticity ofdemand on basis of price charged for same distance in railways.
` It has been noticed that if travelling cost reduces in railways,demand reduces for civil aviation carriers with corresponding
increase in demand for railways.` cross-price elasticity of demand :- Percentage change in the
quantity demanded of civil aviation carriers resulting from a 1-percent increase in the price of railways
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` Note that Civil Aviation And Railways acts as substitutes. Itmeans increase in price of one will lead to increase in quantitydemanded of another.
` Cross price elasticity of civil aviation carriers is negative, as civilaviation and railways act as substitutes
` The cross price elasticity of demand is greatly affected by thecustomer's income. Higher the income of consumers, less is thecross price elasticity of civil aviation carriers.
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P*
C*
Q*
MR
AR
AC
MC
Quantity
Pri
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P0
Q0
MR
MC1
MC2
Q
D
P,MR,MC
Kinked Demand Curve
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` Passenger traffic is projected to grow at a CAGR of over15 per cent inthe next 5 years.
` The Vision 2020 statement announced by the Ministry of Civil Aviation,envisages creating infrastructure to handle 280 million passengers by2020.
` Investment opportunities of US$ 110 billion envisaged up to 2020 withUS$ 80 billion in new aircraft and US$ 30 billion in development ofairport infrastructure.
` Associated areas such as maintenance repair and overhaul (MRO) and
training offer high investment potential. A report by Ernst & Young saysthe MRO category in the aviation sector can absorb up to US$ 120billion worth of investments by 2020.
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` Aerospace major Boeing forecasts that theIndian market will require 1,000 commercialjets in the next 20 years, which will representover 3 per cent of Boeing Commercial
Airplanes forecasted market worldwide.
` It is being forecasted that around 8 9 newairlines would be starting their services in the
next 2 years.
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`As such we see that number of players isincreasing and there would be cut throatcompetition. As such the market maymove towards monopolistic in the coming
years.
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HOPE YOU HAD A NICE 15 MIN TRIP!THANK YOU!