Eco Presentation Final

8/8/2019 Eco Presentation Final

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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Private-players multiplied restrictions alleviated Air Corporation Act repealed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!

Eco Presentation Final

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