Airlines’ stocks soar as aviation fuel price is cut by 12.5%

Oil marketing companies slashed aviation turbine fuel (ATF) on Thursday by a steep 12.5 per cent, which sent aviation stocks northward.

Jet Airways rose nearly ₹35 - over nine per cent - to ₹419.10. Even cash-strapped SpiceJet, which had fallen out of favour with the stock market over the past month, attracted investor interest rising nearly 5 per cent to finish the session at ₹18.05.

Good for the sector According to information published on Indian Oil Corporation’s website, the ATF price in Delhi has now been set at ₹52,423 a kilolitre, down by ₹7,520 from the December 1 price of ₹59,943.

The cut in price of jet fuel tracks the slide in international crude prices. The fall in international crude prices augurs well for the domestic aviation sector, according to Shrikant Chouhan, Head - Technical Research, Kotak Securities.

“Jet Airways’ stock moved with huge volumes on Thursday (volumes spurted 3.52 times with over 15.87 lakh shares being traded). Favourable crude prices in the short term will further boost the stock in the next two to three months,” he said.

However, Chouhan adds that it is difficult to contemplate how much more crude prices will drop, which is already trading below fundamentals. A further drop, he says, will be in response to changing geopolitcal scenarios.

But the current price fall will help the industry turn around domestically. Fuel accounts for over 40 per cent of an airline’s operating costs and a fall in prices will go a long way in widening operating margins. “My outlook is positive for SpiceJet too,” Chouhan says.

The airline has been facing a host of issues related to cash management, with payments to aircraft lessors, airports and employees overdue. December was rife with talk about a change in the management of the airline, with a founder-partner (Ajay Singh) said to be cobbling together a rescue plan for the airline.