Air India shelves lowcost carrier plans; peers rally

Air India has shelved plans for a domestic low-cost carrier, sources told CNBC-TV18. This low-cost carrier was a part of Air India's turnaround plan. The Directorate General of Civil Aviation (DGCA) was reluctant to approve this launch, called AI Express Domestic Services. Also, the Air India board was no longer considering this. The board may re-look this after a year.

Peers cheer:
After being in doldrums for a long time, things seem to be looking up for the sector. This development is positive for existing airlines as the entry of Air India into low cost services would have meant further competition and reduced fares. Already, airlines like SpiceJet, JetLite, and GoAir are suffering from lower passenger load.

A drop in crude prices from its 2009 highs, coupled with a weakening dollar, could bring Aviation Turbine Fuel (ATF) costs down. Airlines have been seeking a declared goods status for ATF but this has been repeatedly rejected by the government.

Airlines hope with the onset of the festive and marriage season from October to December will usher in higher passenger loads as compared to previous quarters. This period also sees a huge influx of tourist from abroad who prefer the relatively cooler climates in India to the harsh winters of the North. Last year, the terror attacks in Mumbai also dampened sentiment. Anticipating a revival in the global economy, which has come off the worst recession seen since the Great depression, airlines have raised fares.

Stocks rally:
SpiceJet was locked in a 5% upper circuit today. Jet Airways ended the day with close to 6% gains. However, Kingfisher Airlines closed with modest gains of 0.2%.