Domestic aviation sector may see recovery in Q3: Report

The struggling domestic aviation sector is likely to see a recovery in the third quarter on the back of a stronger domestic currency and temporary shutdown of Kingfisher Airlines , among others, according to a report.

"While we expect weak Q2 results on account of seasonality, we could see a sharper-than-expected recovery in the seasonally strong Q3. "In the near-term domestic airline companies will benefit from an appreciating rupee, temporary shutdown of Kingfisher, capacity discipline and improvement in utilisations and yields due to onset of busy season," a Bank of America Merrill Lynch
report said here today.

Noting that the rupee has appreciated close to 6 per cent to the dollar in the last five weeks, the report said the appreciating rupee will also have an indirect impact through the prices of domestic fuel. On the temporary shutdown of Kingfisher, it said, "Kingfisher has temporarily shutdown its operation to
negotiate with the workers. This is another marginal positive for the remaining carriers as this further consolidates the industry and eases supply prior to the busy season."

"Additionally, the show-cause notice by the regulator further puts a question mark on Kingfisher's return. We do not expect Kingfisher to normalise its operations in the near term," it added.

The report also said it does not expect any significant capacity addition in the near-term. "Despite Kingfisher's temporary shutdown none of the
carriers are rushing to add capacity. Domestic carriers are not renewing the expired leases and also sub-leasing aircrafts to keep the capacity under check.

"As per its channel checks, over the next three months, the agency expects an addition of five to six aircraft, most of which will be utilised in the underserved international routes," it said. It further said it expects Jet Airways and SpiceJet to post substantially lower losses in FY13 and strong profits in
FY14 due to strong yield recovery in the domestic segment and route rationalisation in the international segment.

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