Teji Mandi explains: COVID-19 second wave pushes aviation sector to a new low, Q4 recovery likely to be illusionary

Just when the situation was improving and airlines were gearing up for a new beginning, the second COVID-19 wave struck again. It has again made the forecast gloomy for the sector. However, the upcoming quarterly earnings may not reflect it fully.

The domestic travelling industry is poised to take a hit as rising COVID-19 cases are expected to snap the recovery momentum. While international travelling continues to be restricted, a slump in domestic demand has made the going tough for the industry.

Stalled Recovery

The rise of the second COVID-19 wave has stalled the momentum for the aviation sector. With fresh curbs being reimposed, the sector has been deprived of recovery that was visible on the ground during the Jan-Feb period.

While international travelling remained weak, domestic travel was recovering well. The signs were encouraging with the government policies also heading back to pre-COVID levels. Indian airlines were allowed to operate up to 80% of the pre-COVID capacity. And the government was mulling to ease them further.

However, the second COVID-19 wave from March 2021 has brought back the restrictions, impacting domestic travelling. As per an Economic Times report, future bookings have declined by up to 50%. The total number of domestic passengers has also declined to as low as 2.36 lakh a day, down from more than 3 lakh passengers.

With the second COVID-19 wave threatening to derail the overall economic recovery, it is likely to reflect on the aviation industry. Broad-based economic recovery is the key to maintaining its momentum. With rising COVID-19 cases, growth in business travel and leisure segments is likely to remain weak in times to come.

Q4 Preview: Recovery Can Be Misleading

The aviation industry is expecting the demand to recover as soon as the situation improves. However, it is witnessing a sharp decline in passenger traffic currently due to the several restrictions in place.

The upcoming quarterly result could see improvement in passenger load factors owing to the recovery in the months of January-February. Revenue Passenger Kilometers (RPK) could also improve with aviation turbine fuel (ATF) prices falling by 7.2% as compared to last year.

The recovery could be misleading given the lesser impact of the second COVID-19 wave during the most part of the quarter. However, as the cases started to rise from March onwards, its impact could be felt in the upcoming quarters.

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