A

PROJECT REPORT ON

EFFECT OF HIKE IN FUEL PRICE ON AIR -

BOOKING

SUBMITTED BY

AMIT RANJAN
Roll No.L 405 SY.BBA

TO
THE UNIVERSITY OF PUNE
In Partial Fulfillment of the Bachelor of Business
Administration Degree Course

PROJECT GUIDE
Ms. Archana Dimble

SMT. KASHIBAI NAVALE COLLEGE OF

COMMERCE
KARVE ROAD, PUNE 411 004

1
 ACADEMIC YEAR 2008-09

Acknowledgement

“Project work is never an individual effort”

I thank the Almighty God, for having showered His Grace and

Blessings on me in the successful completion of my research

programme.

I express my special thanks to Beena Inamdar, the Principal,

Smt. Kashibai Navale College of Commerce, Pune for

permitting me to carry out the research work successfully.

I deem it a great pleasure and privilege to have had an

opportunity to take up this research work under the guidance

of Prof. Archana Dimble., lecturer, Smt. Kashibai Navale

College of Commerce, Pune. I express my deep sense of

gratitude and thanks to my research guide for his constant

support, dynamic guidance, valuable suggestion, advice and

encouragement extended to me in making this thesis work

2
complete. He with all his patience and endurance has moulded

me for which I would remain indebted all my life time.

I would also like to thank all those people who are directly or

in directly related to this project.

Amit
Ranjan
Place: Pune S.Y.BBA

Table of Contents
Particulars Page
No.

1) Introduction

2) Review of Literature

3) Hypothesis

4) Objective of Study

5) Research Methodology

6) Questionnaire

7) Analysis & Interpretation

8) Suggestion

9) Conclusion

10) Bibliography

3
 Chapter 1

Introduction

Inflation:

Inflation usually refers to a general rise in the level of

prices of goods and services over a period of time. This is also
referred to as price inflation. This is also referred to as price
inflation. Inflation can also be described as a decline in the real
value of money. When the general level of prices rises, each
monetary unit buys fewer goods and services. Inflation is
usually measured by calculating the inflation rate, which is the
percentage change in a price index, such as the consumer
price index. Most central banks are tasked with keeping
inflation at a low level. There are a number of methods that
have been suggested to control it. Inflation can be affected to
a significant extent through setting interest rates and through
other central bank actions. Others advocate fighting inflation
by fixing the exchange rate between the currency and some
other reference currency, such as the Euro, US dollar or gold.

4
Some economists emphasize reducing demand in general,
often through fiscal policy, by increasing taxation or reducing
government spending. Another method attempted in the past
has been wage and price controls

Fuel/propellant consumption

A closely related (but different)

concept to energy efficiency is the rate
of consumption of propellant mass.
Propellant consumption in jet engines
is measured by Specific Fuel
M1 4.5 127 800 7877
Consumption, Specific impulse or
Effective exhaust velocity. They all
measure the same thing, specific
impulse and effective exhaust velocity
are strictly proportional, Ramjet

SR-71 at
J-58 turbojet M3.2 1.9 53.8 1900 18,587
(wet)

Concorde
Rolls-Royce/Snecma Olympus 593 1.195 33.8 3012 29,553
M2 cruise

5
 Boeing
CF6-80C2B1F turbofan 747-400 0.605 17.1 5950 58,400
cruise

8.69 11,70 115,00

General Electric CF6 turbofan Sea level 0.307
6 0 0

How to bring down inflation:

Cosmic inflation

In physical cosmology, cosmic inflation is the idea that the

nascent universe passed through a phase of exponential
expansion that was driven by a negative-pressure vacuum
energy density.

As a direct consequence of this expansion, all of the

observable universe originated in a small causally-connected
region. Inflation answers the classic conundrum of the big
bang cosmology: why does the universe appear flat,
homogeneous and isotropic in accordance with the
cosmological principle when one would expect, on the basis of
the physics of the big bang, a highly curved, inhomogeneous
universe? Inflation also explains the origin of the large-scale
structure of the cosmos. Quantum fluctuations in the

6
microscopic inflationary region, magnified to cosmic size,
become the seeds for the growth of structure in the universe
(see galaxy formation and evolution and structure formation).

Inflation was proposed in January, 1980 by Alan Guth and was

given its modern form independently by Andrei Linde, and by
Andreas Albrecht and Paul Steinhardt.

While the detailed particle physics mechanism responsible for

inflation is not known, the basic picture makes a number of
predictions that have been confirmed by observational tests.
Inflation is thus now considered part of the standard hot big
bang cosmology. The hypothetical particle or field thought to
be responsible for inflation is called the inflaton.

Overview:

Inflation suggests that there was a period of exponential

expansion in the very early universe. Because in a fast
expanding universe, the distance to the cosmological horizon is
constant, it is not clear whether such a universe should be
called "small" or "large". If the philosophical definition of the
universe is restricted to be the observable universe, an
inflating universe is small, and only becomes large once
inflation has ended and the cosmological horizon is free to
expand. If the philosophical position is that the universe is

7
mostly unobservable, then the unobservable portion is
expanding exponentially.

Space expands:

To say that space expands exponentially means that two

inertial observers are drawn further apart with time. Expressed
in comoving Cartesian coordinates the proper distance is:

where H is the Hubble scale factor induced by the inflation.

Inflation corresponds to the appearance of the e2Ht term in the
above expression. It is traditional to use natural units, so that
the speed of light c is 1.

In stationary coordinates for one observer, a patch of an

inflating universe has the following polar metric:

This is just like an inside-out black hole metric — it has a zero

in the dt component on a fixed radius sphere called the
cosmological horizon. Objects are drawn away from the
observer at r=0 towards the cosmological horizon, leading
them to fall in after a finite proper time. This means that any
inhomogeneities are smoothed out, just as any bumps or

8
matter on the surface of a black hole horizon are swallowed
and disappear.

Since the space time metric has no explicit time dependence,

once an observer has fallen onto the cosmological horizon,
observers closer in take its place. This process of falling
outward and replacement points closer in are always steadily
replacing points further out — an exponential expansion of
space-time.

This steady-state exponentially expanding spacetime is called

a de Sitter space, and to sustain it there must be a
cosmological constant, a vacuum energy proportional to Λ
everywhere. The physical conditions from one moment to the
next are stable: the rate of expansion, called the Hubble
parameter, is nearly constant. Inflation is often called a period
of accelerated expansion because the distance between two
fixed observers is increasing at an accelerating rate as they
move apart. (But Λ can stay approximately constant see
deceleration parameter).

Few inhomogeneities remain

Cosmic inflation has the important effect of smoothing out

9
inhomogeneities, anisotropies and the curvature of space. This
pushes the universe into a very simple state, in which it is
completely dominated by the inflation field, the source of the
cosmological constant, and the only significant
inhomogeneities are the tiny quantum fluctuations in the
inflaton.

Inflation also dilutes exotic heavy particles, such as the

magnetic monopoles predicted by many extensions to the
Standard Model of particle physics. If the universe was only
hot enough to form such particles before a period of inflation,
they would not be observed in nature, as they would be so
rare that it is quite likely that there are none in the Observable
universe. Together, these effects are called the inflationary
"no-hair theorem" by analogy with the no hair theorem for
black holes.

The "no-hair" theorem works essentially because the

cosmological horizon is no different from a black-hole horizon
except for philosophical disagreements about what is on the
other side. In terms of the unobservable universe, the
interpretation of the no-hair theorem is that the unobservable
universe expands by an enormous factor during inflation.

10
In an expanding universe, energy densities generally fall as
the volume of the universe increases. For example, the density
of ordinary "cold" matter (dust) goes as the inverse of the
volume: when linear dimensions double, the energy density
goes down by a factor of eight.

The energy density in radiation goes down even more rapidly

as the universe expands. When linear dimensions are doubled,
the energy density in radiation falls by a factor of sixteen.
During inflation, the energy density in the inflaton field is
roughly constant. However, the energy density in
inhomogeneities, curvature, anisotropies and exotic particles is
falling, and through sufficient inflation these become
negligible. This leaves an empty, flat, and symmetric universe,
which is filled with radiation when inflation ends.

Effects of Inflation:

An increase in the general level of prices implies a decrease in

the real value of money. That is, when the general level of
prices rises, each monetary unit buys fewer goods and
services.

In general, high or unpredictable inflation rates are regarded

as bad for following reasons:

11
1Uncertainty about future inflation may discourage
investment and saving.

2 Redistribution - Inflation redistributes income from those

on fixed incomes, such as pensioners, and shifts it to those
who draw a variable income, for example from wages and
current profits which may keep pace with inflation. However,
debtors may be helped by inflation due to reduction of the real
value of debt burden.

3 Implicit taxation - A particular form of inflation as a tax is

Bracket Creep (also called fiscal drag). By allowing inflation to
move upwards, certain sticky aspects of the tax code are met
by more and more people. For example, income tax brackets,
where the next dollar of income is taxed at a higher rate than
previous dollars, tend to become distorted. Governments that
allow inflation to "bump" people over these thresholds are, in
effect, allowing a tax increase because the same real
purchasing power is being taxed at a higher rate.

4 International trade: Where fixed exchange rates are

12
imposed, higher inflation than in trading partners' economies
will make exports more expensive and tend toward a
weakening balance of trade. A sustained higher level of
inflation than in the trading partners' economies will also, over
the long run, put upward pressure on the implicit exchange
rate (what the exchange rate would be if left to be decided in
the market) making the fix unsustainable and potentially
inviting a an exchange rate crisis.

5 Cost-push inflation is a type of inflation caused by

substantial increases in the cost of important goods or services
where no suitable alternative is available. A situation that has
been often cited of this was the oil crisis of the 1970s, which
some economists see as a major cause of the inflation
experienced in the Western world in that decade.

6. It is argued that this inflation resulted from increases in the

cost of petroleum imposed by the member states of OPEC.
Since petroleum is so important to industrialized economies, a
large increase in its price can lead to the increase in the price
of most products, raising the inflation rate.

13
This can raise the normal or built-in inflation rate, reflecting
adaptive expectations and the price/wage spiral, so that a
supply shock can have persistent effects.

Austrian school economists such as Murray N. Rothbard and

monetary economists such as Milton Friedman argue against
the concept of cost-push inflation because increases in the cost
of goods and services do not lead to inflation without the
government and its central bank cooperating in increasing the
money supply. The argument is that if the money supply is
constant, increases in the cost of a good or service will
decrease the money available for other goods and services,
and therefore the price of some those goods will fall and offset
the rise in price of those goods whose prices have increased.
One consequence of this is that monetarist economists do not
believe that the rise in the cost of oil was a direct cause of the
inflation of the 1970s. They argue that although the price of oil
went back down in the 1980s, there was no corresponding
deflation.

Keynesians argue that in a modern industrial economy, many

prices are sticky downward or downward inflexible, so that
instead of prices falling in this story, a supply shock would
cause a recession, i.e., rising unemployment and falling gross
domestic product. It is the costs of such a recession that likely
cause governments and central banks to allow a supply shock
to result in inflation. They also note that though there was no

14
deflation in the 1980s, there was a definite fall in the inflation
rate during this period.

Actual deflation was prevented because supply shocks are not

the only cause of inflation; in terms of the modern triangle
model of inflation, supply-driven deflation was counteracted by
demand pull inflation and built-in inflation resulting from
adaptive expectations and the price/wage spiral.Cost Push
Inflation and the Global economic slowdown. The world
economy is now slowing down, particularly in the OECD
countries.

This is blamed on mainly the credit crisis, and the prices of raw
materials. Oil has increased by 40% in just a year, and other
raw materials such as wheat and steel have seen similar
increases. This means that costs increase to manufacturers
who use these raw materials in production.

Transportation and energy for industry and the service sector

will also cost more as oil and gas increase in price. The result
is a huge increase in business costs, and this cost is often
passed on to the consumer, and so we have cost push
inflation. There has been evidence of businesses shedding jobs
in order to cut costs, and a number of airlines such as silverjet
have gone out of business as a result of high fuel prices.

Cost-push inflation: Rising inflation can prompt trade unions

to demand higher wages, to keep up with consumer prices.

15
Rising wages in turn can help fuel inflation. In the case of
collective bargaining, wages will be set as a factor of price
expectations, which will be higher when inflation has an
upward trend. This can cause a wage spira In a sense, inflation
begets further inflationary expectations.

Hoarding: people buy consumer durables as stores of wealth

in the absence of viable alternatives as a means of getting rid
of excess cash before it is devalued, creating shortages of the
hoarded objects.

Hyperinflation: if inflation gets totally out of control (in the

upward direction), it can grossly interfere with the normal
workings of the economy, hurting its ability to supply.

Shoe leather cost: High inflation increases the opportunity

cost of holding cash balances and can induce people to hold a
greater portion of their assets in interest paying accounts.
However, since cash is still needed in order to carry out
transactions this means that more "trips to the bank" are
necessary in order to make withdrawals, proverbially wearing
out the "shoe leather" with each trip.

Menu costs: With high inflation, firms must change their

16
prices often in order to keep up with economy wide changes.
But often changing prices is itself a costly activity whether
explicitly, as with the need to print new menus, or implicitly.

17
Positive effects of inflation include:

1Labor Market Adjustments: Keynesians believe that

nominal wages are slow to adjust downwards. This can
lead to prolonged disequilibrium and high unemployment
in the labor market. Since inflation would lower the real
wage if nominal wages are kept constant, Keynesian
argue that some inflation is good for the economy, as it
would allow labor markets to reach equilibrium faster.

2 Room to maneuver: The primary tools for controlling the

money supply are the ability to set the discount rate, the
rate at which banks can borrow from the central bank, and
open market operations which are the central bank's
interventions into the bonds market with the aim of
affecting the nominal interest rate. If an economy finds
itself in a recession with already low, or even zero,
nominal interest rates, then the bank cannot cut these
rates further (since negative nominal interest rates are
impossible) in order to stimulate the economy - this
situation is known as a liquidity trap.

18
3 A moderate level of inflation tends to ensure that nominal
interest rates stay sufficiently above zero so that if the
need arises the bank can cut the nominal interest rate.

4 Tobin effect: The Nobel prize winning economist James

Tobin at one point had argued that a moderate level of
inflation can increase investment in an economy leading to
faster growth or at least higher steady state level of
income. This is due to the fact that inflation lowers the
return on monetary assets relative to real assets, such as
physical capital. To avoid inflation, investors would switch
from holding their assets as money (or a similar,
susceptible to inflation, form) to investing in real capital
projects. See Tobin monetary model (Econometrica, V 33,
1965 "Money and Economic Growth”).

19
Reasons for Inflation:

In the long run inflation is generally believed to be a

monetary phenomenon while in the short and medium term it
is influenced by the relative elasticity of wages, prices and
interest rates. The question of whether the short-term effects
last long enough to be important is the central topic of debate
between monetarist and Keynesian schools. In monetarism
prices and wages adjust quickly enough to make other factors
merely marginal behavior on a general trendline. In the
Keynesian view, prices and wages adjust at different rates,
and these differences have enough effects on real output to be
"long term" in the view of people in an economy.
A great deal of economic literature concerns the question of
what causes inflation and what effect it has. There are
different schools of thought as to what causes inflation. Most
can be divided into two broad areas: quality theories of

20
inflation, and quantity theories of inflation. Many theories of
inflation combine the two. The quality theory of inflation rests
on the expectation of a seller accepting currency to be able to
exchange that currency at a later time for goods that are
desirable as a buyer.

The quantity theory of inflation rests on the equation of the

money supply, its velocity, and exchanges. Adam Smith and
David Hume proposed a quantity theory of inflation for money,
and a quality theory of inflation for production.

What is Fuel?

Fuel is any material that is burned or altered in order to

obtain energy.Fuel releases its energy either
through a chemical reaction means, such as combustion, or
nuclear means, such as nuclear fission or nuclear fusion. An
important property of a useful fuel is that its energy can be
stored to be released only when needed, and that the release
is controlled in such a way that the energy can be harnessed
to produce work.

Types of Fuels

21
Fossil fuels

Fossil fuels are hydrocarbons, primarily coal and

petroleum (liquid petroleum or natural gas), formed from the
fossilized remains of dead plants and animals by exposure to
heat and pressure in the Earth's crust over hundreds of
millions of years. In common parlance, the term fossil fuel also
includes hydrocarbon-containing natural resources that are not
derived entirely from biological sources, such as tar sands.
These latter sources are properly known as mineral fuels.

All carbon-based life forms—from microorganisms to

animals and humans—depend on and use fuels as their source
of energy. Their cells engage in an enzyme-mediated chemical
process called metabolism that converts energy from food or
light into a form that can be used to sustain life. Additionally,
humans employ a variety of techniques to convert one form of
energy into another, producing usable energy for purposes
that go far beyond the energy needs of a human body. The
application of energy released from fuels ranges from heat to
cooking and from powering weapons to combustion and
generation of electricity.

22
Energy sources

A large majority of currently-known fuels ultimately

derive their energy from a small number of sources. Much of
the chemical energy produced by life forms, such as fossil
fuels, is derived from the utilization of solar energy through
photosynthesis. Solar energy in turn is generated by the
thermonuclear fusion process at the core of the Sun. The
radioactive isotopes used as fuel to power nuclear plants were
formed in supernova explosions.

Chemical

Chemical fuels are substances that generate energy by

reacting with substances around them, most notably by the
process of oxidization. These substances were the first fuels to

23
be known and used by humans and are still the primary type
of fuel used today.

Biofuels

Biofuel can be broadly defined as solid, liquid, or gas fuel

consisting of, or derived from biomass. Biomass can also be
used directly for heating or power—known as biomass fuel.
Biofuel can be produced from any carbon source that can be
replenished rapidly e.g. plants. Many different plants and
plant-derived materials are used for biofuel manufacture.

Perhaps the earliest fuel that was employed by humans

is wood. Evidence shows controlled fire was used up to 1.5
million years ago at Swartkrans, South Africa. It is unknown
which hominid species first used fire, as both Australopithecus
and an early species of Homo were present at the sites.

As a fuel, wood has remained in use up until the present day,

although it has been superseded for many purposes by other
sources. Wood has an energy density of 10–20 MJ/kg.

Recently biofuels have been developed for use in automotive

transport (for example E10 fuel), but there is widespread
public debate about how carbon efficient these fuels are.

24
 Modern large-scale industrial development is based on
fossil fuel use, which has largely supplanted water-driven mills,
as well as the combustion of wood or peat for heat. With global
modernization in the 20th and 21st centuries, the growth in
energy production from fossil fuels, especially gasoline derived
from oil, is one of the causes of major regional and global
conflicts and environmental issues. A global movement toward
the generation of renewable energy is therefore under way to
help meet the increased global energy needs.

The burning of fossil fuels by humans is the largest

source of emissions of carbon dioxide, which is one of the
greenhouse gases that enhances radiative forcing and
contributes to global warming. The atmospheric concentration
of CO2, a greenhouse gas, is increasing, raising concerns that

solar heat will be trapped and the average surface temperature

of the Earth will rise in response.

Nuclear

Nuclear fuel is any material that is consumed to derive

nuclear energy. Technically speaking this definition includes all
matter because any element will under the right conditions
release nuclear energy, the only materials that are commonly
referred to as nuclear fuels though are those that will produce

25
energy without being placed under extreme duress.

Nuclear fuel pellets are used to create nuclear

energy.

The most common type of nuclear fuel used by humans

is heavy fissile elements that can be made to undergo nuclear
fission chain reactions in a nuclear fission reactor; nuclear fuel
can refer to the material or to physical objects (for example
fuel bundles composed of fuel rods) composed of the fuel
material, perhaps mixed with structural, neutron moderating,
or neutron reflecting materials. The most common fissile
nuclear fuels are U and
235
Pu, and the actions of mining,
239

refining, purifying, using, and ultimately disposing of these

elements together make up the nuclear fuel cycle, which is
important for its relevance to nuclear power generation and
nuclear weapons.

Fusion

Fuels that produce energy by the process of nuclear

fusion are currently not utilized by man but are the main
source of fuel for stars, the most powerful energy sources in
nature. Fusion fuels tend to be light elements such as
hydrogen which will combine easily.

26
 In stars that undergo nuclear fusion, fuel consists of
atomic nuclei that can release energy by the absorption of a
proton or neutron. In most stars the fuel is provided by
hydrogen, which can combine together to form helium through
the proton-proton chain reaction or by the CNO cycle. When
the hydrogen fuel is exhausted, nuclear fusion can continue
with progressively heavier elements, although the net energy
released is lower because of the smaller difference in nuclear
binding energy. Once iron-56 or nickel-56 nuclei are produced,
no further energy can be obtained by nuclear fusion as these
have the highest nuclear binding energies.

Aviation fuel

Aviation fuel is often dispensed from a tanker or bowser

which is driven up to parked aeroplanes and helicopters. Some
airports have pumps similar to filling stations that aircraft must
taxi up to. Some airports also have permanent piping to
parking areas for large aircraft.

Regardless of the method, aviation fuel is transferred to

an aircraft via one of two methods: overwing and underwing.
Overwing fuelling is used on smaller planes, helicopters, and
all piston-engine aircraft. Overwing fuelling is similar to car
fuelling — one or more fuel ports are opened and fuel is
pumped in with a conventional pump. Underwing fuelling, also

27
called single-point, is used on larger aircraft and for jet fuel
exclusively. For single-point fuelling, a high-pressure hose is
attached and fuel is pumped in at up to 50 PSI. Since there is
only one attachment point, fuel distribution between tanks is
either automated or it is controlled from a control panel at the
fuelling point or in the cockpit. As well, a dead man's switch is
used to control fuel flow.

Because of the danger of confusing the fuel types, a number of

precautions are taken to distinguish between AvGas and Jet
Fuel beyond clearly marking all containers, vehicles, and
piping. AvGas is treated with either a red, green, or blue dye,
and is dispensed from nozzles with a diameter of 40
millimetres (49 millimetres in the USA).

The aperture on fuel tanks of piston-engined aircraft

cannot be greater than 60 millimetres in diameter. Jet Fuel is
clear to straw in colour, and is dispensed from a special nozzle
called a "J spout" that has a rectangular opening larger than
60 millimetres in diameter so as not to fit into AvGas ports.
However, some jet and turbine aircraft, such as some models
of the Astar helicopter, have a fuelling port too small for the J
spout and thus require a smaller nozzle to be installed in order
to be refuelled efficiently.

28
 Chapter 2

Review of Literature

World crude oil demand grew an average of 1.76% per year

from 1994 to 2006, with a high of 3.4% in 2003-2004. World
demand for oil is projected to increase 37% over 2006 levels
by 2030, according to the 2007 U.S. Energy Information

29
Administration's (EIA) annual report.

Demand is projected to reach 118 million barrels per day

(18.8×106 m3/d) from 2006's 86 million barrels (13.7×106 m3),
driven in large part by the transportation sector

A 2008 report from the International Energy Agency (IEA)

predicted that although drops in petroleum demand due to
high prices have been observed in developed countries and are
expected to continue, a 3.7 percent rise in demand by 2013 is
predicted in developing countries. This is projected to cause a
net rise in global petroleum demand during that period.

The transportation sector is the largest energy sector, and the

one that has seen the largest growth in demand in recent
decades. This growth has largely come from new demand for
personal-use vehicles powered by internal combustion engines

This sector also has the highest consumption rates,

accounting for approximately 68.9% of the oil used in the
United States in 2006,

and 55% of oil use worldwide as documented in the Hirsch

report. Cars and trucks are predicted to cause almost 75% of

30
the increase in oil consumption by India and China between
2001 and 2025.

In 2008, auto sales in China have been expected to grow by

as much as 15-20 percent, resulting in part from economic
growth rates of over 10 percent for 5 years in a row.

Demand growth is highest in the developing world

but the United States is the world's largest consumer of

petroleum. Between 1995 and 2005, US consumption grew
from 17.7 million barrels a day to 20.7 million barrels a day, a
3 million barrel a day increase. China, by comparison,
increased consumption from 3.4 million barrels a day to 7
million barrels a day, an increase of 3.6 million barrels a day,
in the same time frame.

Per capita, annual consumption by people in the US is 24.85

barrels

barrels in China and .79 barrels in India.

As countries develop, industry, rapid urbanization and higher

living standards drive up energy use, most often of oil.
Thriving economies such as China and India are quickly
becoming large oil consumers.

China has seen oil consumption grow by 8% yearly since

2002, doubling from 1996-2006

31
 In 2008, auto sales in China were expected to grow by as
much as 15-20 percent, resulting in part from economic
growth rates of over 10 percent for 5 years in a row.

Although swift continued growth in China is often predicted,

others predict that China's export dominated economy will not
continue such growth trends due to wage and price inflation
and reduced demand from the US.

India's oil imports are expected to more than triple from 2005
levels by 2020, rising to 5 million barrels per day
(790×103 m3/d).

Another large factor on petroleum demand has been human

population growth. Because world population grew faster than
oil production, production per capita peaked in 1979
(preceded by a plateau during the period of 1973-1979).

The world’s population in 2030 is expected to be double that

of 1980.

The Economist reported: "Half of the world's population enjoys

fuel subsidies. This estimate, from Morgan Stanley, implies
that almost a quarter of the world's petrol is sold at less than
the market price."

U.S. Secretary of Energy Samuel Bodman stated that around

30 million barrels per day (4,800,000 m³/d) of oil
consumption (over a third of the global total) is subsidized

32
 But energy analyst Jeff Vail warned that cutting subsidies
would do little to reduce global prices.

An important contributor to price increases has been the slow

down in oil supply growth, which has continued since oil
production surpassed new discoveries in 1980. The fact that
global oil production will decline at some point, leading to
lower supply is the main long-term fundamental cause of
rising prices

This is because there is a limited amount of fossil fuel, and

the remaining accessible supply is consumed more rapidly
each year. Increasingly, remaining reserves become more
technically difficult to extract and therefore more expensive.
Eventually, reserves will only be economically feasible to
extract at extremely high prices. It is thought by many,
including energy economists such as Matthew Simmons, that
prices could continue to rise indefinitely until a new market
equilibrium is reached at which point supply satisfies
worldwide demand.

Although there is contention about the exact timing and form

of peak oil, there are now very few parties who do not
acknowledge that the concept of a production peak is valid –
though before oil prices increased in 2008 to energy crisis
levels, some commentators argued that global warming

33
awareness and new energy sources means that demand may
fall before supply, making reserve depletion a non-issue.

In addition, turbulence in the Middle East (the world's largest

oil-producing region) has led to decreased exports, especially
civil unrest in Iraq after the 2003 U.S. invasion. Outside the
Middle East, Venezuela has experienced strikes and political
turbulence, and there is growing instability in West Africa.

Alternatively, lower production rates may be due to the fact

that oil's historically high ratio of Energy Returned on Energy
Invested continues a significant decline. The increased price of
oil also makes other, non-conventional sources of oil attractive
to businesses. The most prominent example of this are the
massive reserves of the Canadian tar sands. They are a far
less cost-efficient source of heavy, low-grade oil than
conventional crude, but with oil trading above $60/bbl, the tar
sands have become very attractive to exploration and
production companies. Recent months have seen billions of
dollars invested in the tar (bitumen) sands.

In view of tighter supplies worldwide, terrorist and insurgent

groups have increasingly targeted oil and gas installations to
maximize both mayhem and political gains Sometimes, such
attacks are perpetrated by militias in regions where oil wealth

34
has produced few tangible benefits for the local citizenry, as is
the case in the Niger Delta. The terror factor adds an
additional premium, including insurance costs, to the price of
oil.

Even if total oil supply does not decline, increasing numbers of

experts believe the easily accessible sources of light sweet
crude are almost exhausted and in the future the world will
depend on more expensive sources of heavy oil and renewable
energy sources. Until the rises of 2008, CERA (a consulting
company wholly owned by energy consultants IHS Energy)

Did not believe this would be such an immediate problem.

However, in an interview with The Wall Street Journal, Daniel
Yergin, best known for his quotes that the price of oil would
soon return down to "normal", publicly amended the
company's position on May 7, 2008, and now expects oil to
reach $150 during 2008, due to tightness of supply

This reversal of opinion is significant, as CERA, among other

consultancies, provide price projections that are used by many
official bodies to plan long term strategy in respect of energy
mix and price, so the impact of a misprediction is far wider
than might otherwise be expected. In contrast, some other
organisations, such as the International Energy Agency (IEA),

35
had already been much less optimistic in their assessments for
some time.

While efforts are underway to increase supply, for example

through a number of new mines in Canada's tar sands region
which is estimated to contain as much "heavy" oil as all the
world's reserves of "conventional" oil,[ such efforts lag behind
the increasing demand of recent years.

Regulation and environmental efforts have also increased the

shortage and price of oil.

Effects:

There is debate over the effect the current long term elevation
of oil prices will have. Some speculate that an oil-price spike
could create a recession comparable to those that followed the
1973 and 1979 energy crises or a potentially worse situation
such as a global oil crash.

In any case, costs are reflected in nearly everything one can

buy.

36
Political scientist George Friedman has postulated that if high
prices for oil and food persist, they will define the fourth
distinct geopolitical regime since the end of World War II, the
previous three being the Cold War, the 1989-2001 period in
which economic globalization was primary, and the post-9/11
war on terror.

On average, oil price has increased approximately 400% for

these areas. As a result of the dramatic price increase there
have been global protests.

Rising transport costs may start to reverse globalization, due

to the fact that distance will cost more and more money. As oil
prices keep rising, transport costs could cancel out lower wage
advantages, such as in East Asia.

Despite the rapid increase in the price of oil, neither the stock
markets nor the growth of the global economy were noticeably
affected until supply declined rapidly starting in November
2007. Arguably, inflation has increased; in the United States,
inflation averaged 3.3% in 2005–2006, as compared to an
average of 2.5% in the preceding 10-year period. As a result,

37
during this period the Federal Reserve has consistently
increased interest rates to curb inflation.

Exactly how much trade, soaring transport costs divert from

China (or for that matter anywhere else) depend ultimately on
how important those costs are in total costs. Goods that have
a high value to freight ratio carry implicitly small transport
costs, while goods with low value to freight ratios typically
carry significant moving costs. A high percentage of Chinese
exports to the U.S. fall in the latter category. Furniture,
apparel, footwear, metal manufacturing, and industrial
machinery—all typical Chinese exports, incur relatively high
transport costs. Soaring costs are squeezing gas station
owners too.

In 2008, a report by Cambridge Energy Research Associates

stated that 2007 had been the year of peak gasoline usage in
the United States, and that record energy levels would cause
an "enduring shift" in energy consumption practices.

According to the report, in April gas consumption had been

lower than a year before for the sixth straight month,
suggesting 2008 would be the first year U.S. gasoline usage
declined in 17 years. The total miles driven in the U.S. began
declining in 2006

38
 Chapter 3

Hypothesis

1)Price of air fares are directly proportional to increasing

fuel prices.

2) Change in no other elements help to reduce fuel prices.

39
 Chapter 4

Objective of Study

To take into account the various price hikes, and inflation

affecting the Indian Economy. And also to study about the
effect of hike in Fuel price on Air bookings. We are also doing
this research for the following reasons:

1) To know the Effect of hike in Fuel price on Air bookings.

2) To find out the level of awareness of the consumers with
respect to Airline industry
3) To find out that the percentage of passengers before and
after the price hike of air fares (due hike in fuel prices)
has remained the same, increased or decreased.
4) To find out that inspite of inflationary increase do the
airlines offer any concession to the passengers.
5) To find that inspite of increasing competition the airlines
which offer lower airfare still try to attract the
customers.

40
 Chapter 5

Research Methodology

RE\EARCH DESIGN

The design adopted to carry out this research in the

descriptive design.

UNIVERSE AND SAMPLING DESIGN

Primary Data:

Through Sampling

Research Instrument: Questionnaire

Sample Size: 50
Sampling Method: Random Sampling

41
Market: Pune

Methods of Data Collection:

Primary data were collected with the help of details self

structured Questionnaire compromising both open ended and

close ended questions. The researcher personally met the

respondents and

collected their data without interruptions from any one around.

SOURCES OF DATA

The main source of data for the present study was

primary data. The researcher collected first hand information
directly from the respondents by using an Questionnaire.
Secondary sources of data were accessed from the literature
and Internet available.

Data Analysis:

The data obtained is processed through the Statistical Models.

The results of their study were derived by applying statistical
tests such as frequency, percentage. The results were
presented in the form of simple tables, pie graphs and other in

42
tabular manner.

Chapter 6
Questionnaire

Name:- Age:-

Occupation:- sex:-

. Effect of hike in Fuel price on Air bookings

43
1) Who are the current customers for the airline industry?

A) Business Executives B) Middle Class People

2) What was the number of customers flying before 30th June

2008?

A) Above 500 B) 500-750

C) 750-1000 D) Above 1000.

3) What is the average number of customers flying per day

currently?

A) Below 200 B) 200 to 500

C) 500 to 1000 D) Above 1000

4) What is the impact of increased fuel prices on air bookings

as of today?

A) Increased B) Decreased

C) Just the same

44
5) What is percent increase \ reduction in this industry after
fuel hike w.e.f 3oth June 08?

A) Less than 10% B) 10 to 20%

C) 20 to 30% D) Above 30%

6) What is the percentage of fuel expenses to total journey

cost?

A) 10% B) 20%

C) 30% D) 40%

7) Is hike in fuel price directly proportional to rise in air fares?

A) Yes B) No

8) What are the elements that help in reducing the impact of

fuel price?

A) The Operating Expenses B) Just Government

45
taxes.

C) Both

9) Which is the most preferred low cost carrier? Rank as per

priority from 1 to 6

A) Air Deccan B) SpiceJet

C) GoAir D) IndiGo

E) Jet Lite F) Air India Express

10) What is the current airfare with respect to low cost

airlines?

A) Above 2500 B) 2500- 3750

C) 3750- 5000 D) Above 5000

46
11) What is the requirement of fuel by the airline?

A) Below 5,000 Litres B) 5001-10,000 Litres

C) 10,001 – 15, 000 litres D) 15, 001 above and Litres

12) Where do they purchase the fuel from?

A) Public Oil Companies B) Private Companies

13) Do they have any concession rate?

A) Yes B) No

14) Do you think people will prefer to travel by air in spite of

rising fuel prices?

A) Yes B) No

47
 Chapter 7

Analysis & Interpretation

Table No. 1

1. Who are the current customers for the airline industry?

Response No. of Respondents Percentage

Business Executives 39 78%
Middle Class People 11 22%
Total 50 100%

Current Customers

Middle
Class
People
Business
Executives
Middle Class
People
Business
Executives

48
INTERPRETATION:

• 78% of the respondents say that the current

customers for airline industry are the Business
Executives.

• 22% of the respondents say that the current

customers for airline industry are the Middle Class
People.

49
 Table No. 2

2. What was the number of customers flying before 30th

June 2008?

Response No. of Respondents Percentage

Above 500 5 10%
500-750 20 40%
750-1000 11 22%
Above 1000 14 28%
Total 50 100%

50
 Customers Flying Before 30th June 2008

Above 500
Above 1000
Above 500
500-750 500-750
750-1000
Above 1000

750-1000

INTERPRETATION:

• 10% of the respondents say that number of customers

flying before 30th June 2008 are Above 500
• 40% of the respondents say that numbers of customers
flying before 30th June 2008 are between 500 and 750.
• 22% of the respondents say that numbers of customers
flying before 30th June 2008 are between 750 and 1000.
• 28% of the respondents say that number of customers
flying before 30th June 2008 are Above 1000

51
 Table No. 3

3. What is the average number of customers flying per day

currently?

Response No. of Respondents Percentage

Below 200 9 18%
200-500 18 36%
500-1000 14 28%
Above 1000 9 18%
Total 50 100%

52
 Customers Per Day

Above 1000 Below 200

Below 200
200-500
500-1000
500-1000 Above 1000
200-500

INTERPRETATION:

• 18% of the respondents say that average number of

customers flying per day are below 200
• 36% of the respondents say that average number of
customers flying per day are between 200-500
• 28% of the respondents say that average number of
customers flying per day are between 500-100
• 18% of the respondents say that average numbers of
customers flying per day are above 1000.

53
 Table No. 4

4. What is the impact of increased fuel prices on air

bookings as of today?

Response No. of Respondents Percentage

Increased 25 50%
Decreased 18 36%
Just The Same 07 14%

54
Total 50 100%

Fuel Prices on Air Bookings

Just the Same

Increased
Increased Decreased
Just the Same
Decreased

INTERPRETATION:

• 50% of the respondents say that fuel prices of air

bookings have increased.
• 36% of the respondents say that fuel prices of air
bookings have decreased.
• 14% of the respondents say that fuel prices of air
bookings have remained the same.

55
 Table No. 5

5. What is the percent increase/reduction in this industry

after fuel hike w.e.f 30th June 2008?

Response No. of Respondents Percentage

Less than 10% 12 24%

56
10% to 20% 18 36%
20% to 30% 14 28%
Above 30% 06 12%
Total 50 100%

Increase/Reduction After Fuel Hike

Above 30%
Less than 10%
Less than 10%
10% to 20%
20% to 30% 20% to 30%
Above 30%

10% to 20%

INTERPRETATION:

• 24% of the respondents say that there is less than

10% increase/reduction in the industry after fuel hike.

57
 • 36% of the respondents say that there is 10% to 20%
increase/reduction in the industry after fuel hike.

• 28% of the respondents say that there is 20% to 30%

increase/reduction in the industry after fuel hike

• 12% of the respondents say that there is above 30%

increase/reduction in the industry after fuel hike.

Table No. 6

6. What is the percentage of fuel expenses to total journey

cost?

58
Response No. of Respondents Percentage
10% 6 12%
20% 5 10%
30% 23 46%
40% 16 32%
Total 50 100%

Fuel Expenses to Total Journey Cost

10%

40% 20% 1
2
3
4

30%

INTERPRETATION:

• 12% of the respondents say that 10% is fuel

59
 expenses to total journey cost
• 10% of the respondents say that 20% is fuel
expenses to total journey cost
• 46% of the respondents say that 30% is fuel
expenses to total journey cost.
• 32% of the respondents say that 40% is fuel
expenses to total journey cost.

Table NO.7

60
 7.Is hike in fuel prices directly proportional to rise in air
fares?

Response No. of Respondents Percentage

Yes 36 72%
No 14 28%
Total 50 100%

Proportionality

No

Yes
No

Yes

INTERPRETATION:

61
 • 72% of the respondents agree that hike in fuel prices
is directly proportional to rise in air fares.
• 28% of the respondents disagree that hike in fuel
prices is directly proportional to rise in air fares.

Table No.8

8.What are the elements that help in reducing the impact of

fuel prices?

Response No. of Respondents Percentage

The Operating 15 30%
Expenses
Government Taxes 06 12%
Both 29 58%
Total 50 100%

62
 Elements reducing Impact of fuel Prices

Operating
Expenses
Operating Expenses
Government Taxes
Both Both
Government
Taxes

INTERPRETATION:

• 30% of the respondents say that operating expenses is

one element which will help in reducing the impact of
fuel prices.
• 12% of the respondents say that Government taxes are
one element which will help in reducing the impact of
fuel prices.
• 58% of the respondents say that both the elements will
help in reducing the impact of fuel prices.

63
 Table No. 9

9.Which is the Most Preferred LCC? Rank as per priority

from 1 to 6.

Response No. of Respondents Percentage

Air Deccan 12 24%
SpiceJet 10 20%
Go Air 9 18%
IndiGo 8 16%
Jet Lite 6 12%
Air India Express 5 10%
Total 50 100%

64
 Most Preferred Low Cost Carrier

Air-India
Express
Air Deccan Air Deccan
Jet Lite SpiceJet
Go Air
IndiGo
IndiGo
SpiceJet Jet Lite
Air-India Express
Go Air

INTERPRETATION:

• 24% of the respondents say that Air Deccan is the

most preferred LCC.
• 20% of the respondents say that SpiceJet is the most
preferred LCC
• 18% of the respondents say that Go Air is the most
preferred LCC.
• 16% of the respondents say that IndiGo is the most
preferred LCC
• 12% of the respondents say that Jet Lite is the most
preferred LCC

65
 • 10% of the respondents say that Air-India Express is
the most preferred LCC.

Table No.10

10. What is the current airfare with respect to low cost

airlines.

Response No. of Respondents Percentage

Above 2500 18 36%
2500-3750 13 26%
3750-5000 11 22%
Above 5000 8 16%
Total 50 100%

66
 Current Airfare of Low Cost Airlines

Above 5000

Above 2500 Above 2500

2500-3750
3750-5000 3750-5000
Above 5000

2500-3750

INTERPRETATION:

• 36% of the respondents say that the current airfare is

above 2500 with respect to low cost airlines.
• 26% of the respondents say that the current airfare is
between 2500 and 3750 with respect to low cost
airlines.
• 22% of the respondents say that the current airfare is
between 3750 and 5000 with respect to low cost
airlines.
• 16% of the respondents say that the current airfares

67
 is above 5000 with respect to low cost airlines.

TableNO.11

10)What is the requirement of fuel by the airline?

Response No. of Respondents Percentage

Below 5000 litres 11 22%
5001 to 10000 litres 12 24%

68
10001 to 15000 17 34%
litres
Above 15000 10 20%
Total 50 100%

Fuel Requirement

Above 15000 Below 5000

Litres litres
Below 5000 litres
5001 - 10000 Litres
10001 - 15000 Litres
5001 - 10000 Above 15000 Litres
10001 - 15000 Litres
Litres

INTREPRETATION:

• 22% of the respondents say that the fuel requirement is

below 5000 litres.
• 24% of the respondents say that the fuel requirement is
between 5001 and 10000 litres
• 34% of the respondents say that the fuel requirement is
between 10001 and 15000 litres
• 20% of the respondents say that the fuel requirement is

69
 above 15000 litres.

Table No.12

Where do they purchase the fuel from?

Response No. of Respondents Percentage

Public Oil Companies 31 62%
Private Oil 19 38%
Companies

70
Total 50 100%

Purchase of Fuel

Private Oil
Companies
Public Oil Companies
Private Oil Companies
Public Oil
Companies

INTERPRETATION:

• 62% of the respondents say that he fuel is purchased

from public oil companies.

• 38% of the respondents say that the fuel is purchased

from private oil companies.
Table No.13

13. Do they have any concession rate?

Response No. of Respondents Percentage

Yes 29 58%
No 21 42%

71
 Total 50 100%

Concession Rate

No
Yes
No
Yes

INTERPREATION:

• 58% of the respondents say that they have a concession

rate.
• 42% of the respondents say that they don’t have a
concession rate.
Table No.14

14.Do you think people will prefer to travel by air in spite

of rising fuel prices?

72
Response No. of Percentage
Respondents
Yes 36 72%
No 14 28%
Total 50 100%

Preference of Air Travel

No

Yes
No

Yes

INTERPRETATION:

• 72% of the respondents say that people will continue

traveling by air in spite of rising fuel prices.
• 28% of the respondents say that people will not

73
prefer traveling by air due to rising fuel prices.

Chapter 8

74
 Findings

1) 78% of the respondents say that the current customers for

airline industry are the Business Executives.

2) 22% of the respondents say that the current customers for

airline industry are the Middle Class People.

3) 10% of the respondents say that number of customers

flying before 30th June 2008 are Above 500

4) 40% of the respondents say that numbers of customers

flying before 30th June 2008 are between 500 and 750.

5) 22% of the respondents say that numbers of customers

flying before 30th June 2008 are between 750 and 1000.

6) 28% of the respondents say that number of customers

flying before 30th June 2008 are Above 1000

7) 18% of the respondents say that average number of

customers flying per day are below 200

8) 36% of the respondents say that average number of

customers flying per day are between 200-500
9) 28% of the respondents say that average number of

75
customers flying per day are between 500-100

10) 18% of the respondents say that average numbers of

customers flying per day are above 1000.

11) 50% of the respondents say that fuel prices of air bookings
have increased.

12) 36% of the respondents say that fuel prices of air bookings
have decreased.

13) 14% of the respondents say that fuel prices of air bookings
have remained the same.

14) 24% of the respondents say that there is less than 10%
increase/reduction in the industry after fuel hike.

15) 36% of the respondents say that there is 10% to 20%

increase/reduction in the industry after fuel hike.

16) 28% of the respondents say that there is 20% to 30%

increase/reduction in the industry after fuel hike

17) 12% of the respondents say that there is above 30%

increase/reduction in the industry after fuel hike.

76
18) 12% of the respondents say that 10% is fuel expenses to
total journey cost

19) 10% of the respondents say that 20% is fuel expenses to

total journey cost

20) 46% of the respondents say that 30% is fuel expenses to

total journey cost.

21) 32% of the respondents say that 40% is fuel expenses to

total journey cost.

22) 72% of the respondents agree that hike in fuel prices is

directly proportional to rise in air fares.

23) 28% of the respondents disagree that hike in fuel prices is

directly proportional to rise in air fares.

24) 30% of the respondents say that operating expenses is

one element which will help in reducing the impact of fuel
prices.

25) 12% of the respondents say that Government taxes are

one element which will help in reducing the impact of fuel
prices.

77
26) 58% of the respondents say that both the elements will
help in reducing the impact of fuel prices.

27) 24% of the respondents say that Air Deccan is the most
preferred LCC.

28) 20% of the respondents say that SpiceJet is the most

preferred LCC

29) 18% of the respondents say that Go Air is the most

preferred LCC.

30) 16% of the respondents say that IndiGo is the most

preferred LCC

31) 12% of the respondents say that Jet Lite is the most
preferred LCC

32) 10% of the respondents say that Air-India Express is the

most preferred LCC.

33) 36% of the respondents say that the current airfare is

above 2500 with respect to low cost airlines.

34) 26% of the respondents say that the current airfare is

between 2500 and 3750 with respect to low cost airlines.

78
35) 22% of the respondents say that the current airfare is
between 3750 and 5000 with respect to low cost airlines.

36) 16% of the respondents say that the current airfares is

above 5000 with respect to low cost airlines.

37) 22% of the respondents say that the fuel requirement is

below 5000 litres.

38) 24% of the respondents say that the fuel requirement is

between 5001 and 10000 litres

39) 34% of the respondents say that the fuel requirement is

between 10001 and 15000 litres

40) 20% of the respondents say that the fuel requirement is

above 15000 litres.

41) 62% of the respondents say that he fuel is purchased from

public oil companies.

42) 38% of the respondents say that the fuel is purchased

from private oil companies.

43) 58% of the respondents say that they have a concession

79
rate.

44) 42% of the respondents say that they don’t have a

concession rate.

45) 72% of the respondents say that people will continue

traveling by air in spite of rising fuel prices.

46) 28% of the respondents say that people will not prefer
traveling by air due to rising fuel prices.

Chapter 10

Conclusion

Despite the recent fuel hikes and fluctuations in

budgeterial economy of India people would still prefer air
travel because of the comfort, reliability and the timely
commutation it offers.

From the survey we could find that rise in fuel prices is directly
proportional to rise in air fares.

The survey analysis yielded a set of results which proved

the second hypothesis which is, change in no other elements
help to reduce fuel prices.

80
 Chapter 11
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85