PEST Analysis Political Factors In India, political factors have great impact on the Indian aviation industry because

of high influence of Government and regulating authority on aviation industry. The introduction of Open sky policy, which calls for liberalization of rules and regulations on international commercial aviation, brought huge change in the aviation scene as many new private players like jet Airways, Sahara Airlines, etc came in. It provided connectivity across the country and competitive pricing. Government intervention can acts as hindrance for new players as in 1997 Government refused to allow the entry of the Tata-Singapore Airlines joint venture in the domestic airline business. In 2006 government erected a host of checks and balances on new comers to get entry in airline business and a thorough check of financial and business plans was conducted before issuing fresh licenses. Foreign airlines are not permitted to pick up equity directly or indirectly in domestic air companies. Foreign equity upto 40% and NRI/OCB investment upto 100% is permissible in the domestic air transport services. Political stability also plays important role in aviation industry as it has a great bearing on the travel habits of its customers. An unstable political environment causes uncertainty in the minds of the air travelers, regarding travelling to a particular country. The incident of 9/11 has seen huge drop in air traffic due to safety & security concerns of the people. International airlines are greatly affected by trade relations that their country has with others. Unless governments of the two countries trade with each other, there could be restrictions of flying into particular area leading to a loss of potential air traffic (e.g. Pakistan & India) The state owned airlines also suffers from archaic laws applying only to them such as the retirement age of the pursers & hostesses, the labour regulations which make the management less flexible in taking decision due to the presence of a strong union, & the heavy control &interference of the government.

Economic Factors The aviation industry is particularly susceptible to external economic factors because it affects and depends on a substantial number of industries. Also, because the industry involves operating between borders, then economic factors from other parts of the world other than the domestic market also affect it. Business cycles have a wide reaching impact on the airline industry. During recession, airline is considered a luxury & therefore spending on air travel is cut which leads to reduce prices. During prosperity phase people indulge themselves in travel & prices increase. The aviation industry has numerous effects on the GDP of a country. For instance, a carrier provides employment to a substantial percentage of its country's unemployed which helps in reducing unemployment. Also, it boosts the tourism sector and the hospitality industry in general. It also helps in increasing trade improvement, business efficiencies and boost investments. Another aspect that is instrumental to the aviation industry is the issue of terrorism as we have seen in the case of September 11 attacks. The airline industry is particularly vulnerable to this issue owing to the fact that an aircraft transports a large number of passengers. Taxes within any country have a direct bearing on the performance of domestic or foreign carriers. This is because whenever the government chooses to impose higher taxes on the industry, then these additional costs are carried forward to the consumer in terms of ticket prices. On the other hand, airline operators may choose to minimize their labor costs by reducing the number of employees that operate under their wing. The airline industry is also particularly vulnerable to economic variables like inflation rate, exchange rate and interest rate. High inflation rate reduces the purchasing power of the customer while high interest rate lowers the investment which affects the aviation industry negatively. Economic factor like fuel price also has instrumental effect on the aviation industry as fuel price accounts for 29% of total costs. Rising crude prices can push up the overall expenditures which eventually hit the bottom-line of the firm.

Social Factors For many years in India air travel was perceived to be an elitist activity, the only people who could afford it were the rich and powerful. In recent years, however, this image of Civil Aviation has undergone a change and aviation is now viewed in a different light - as an essential link not only for international travel and trade but also for providing connectivity to different parts of the country. India witnessed record 9.4% GDP growth in FY07, and has continued to grow over 7% in last few years, characterized mainly by strong performance in industry and service sectors. Explosive growth in wages during this period has led to significantly higher disposable income, bringing about a distinct change in

the life style of the middle and upper class population, which essentially is the target market of aviation sector. There has been rapid emergence of middle class in India since last few decades due to increase in disposable income and better health care facilities. Indian middle class is expected to be 600 million by 2025 with 4 fold increase in spending power. This is expected to ensure continued growth. Indian tourism industry has registered a growth of over 100% over a period of 10 years from 1997 to 2007 in terms of foreign tourist arrivals. The high growth of tourism has affected aviation positively since airlines and tourism are inter-dependent as a popular destination attracts more flight operations. Globally aviation industry is under the scanner because it is the fastest growing cause for global warning; and EU aircraft emissions alone have risen by 87% since 1990. The amount of carbon dioxide emitted by air travel doubled between 1990 and 2004; and with huge expansion in air traffic forecasted in both Asia and Europe, predominantly driven by low cost leisure travel, the trend is expected to continue. Changing structures of consumers with high percentage of people of age group 20-25, shift towards nuclear family and emphasis on education, these altogether has led to positive impact on the Indian aviation industry.

Technological Factors With IT industry providing commendable backbone, airlines are now emerging from the inefficiency they have been restrained with. With induction of modern technology new airplanes are safer and economical to run than in the past making possible cheap air travel. With increase in the internet usage there has been steep growth in electronic ticketing while reducing exposures to brokers travel agents. With the growth of online portals, buyers have easy access to pricing and availability information. Highly complex and sophisticated technologies are being used in the security, airport infrastructure, air traffic management and satellite navigation programs. The government is planning to invest US $9 billion by 2012 for the modernization of existing airports.

References:
Doganis, R. (2002); Flying off Course- Economics of International Airlines, New York, Routledge

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