Why are airline stocks IndiGo, SpiceJet trading higher

Shares of airline companies IndiGo and SpiceJet rose up to 2% in the opening trade on Wednesday after state-owned oil retailer cut the price of jet fuel or Aviation Turbine Fuel (ATF). Indian Oil Corporation (IOCL) on Wednesday lowered jet fuel prices by 1.3% to ₹1.21 lakh per kilolitre (kl). This is the first price cut this year after ten consecutive hikes in every fortnight since the start of the calendar year 2022.

The decline in jet fuel prices, which makes up for almost 40% of the running cost of an airline, is likely to help improve the margins of airlines and also make air travel less expensive.

Boosted by a cut in jet fuel prices, shares of SpiceJet rose as much as 2.1% to hit a high of ₹48.50 in early trade on Wednesday. The stock opened at ₹48.05 against the previous closing price of ₹47.50 on the BSE.

Similarly, InterGlobe Aviation, the parent company of low-cost carrier IndiGo, gained 2.2% to ₹1,880 in early deals against the previous closing price of ₹1,838.20 on the BSE.

Bucking the trend, shares of Jet Airways were locked in a lower circuit of 5% at ₹101.5 on the BSE as investors turned cautious ahead of the implementation of the Jalan-Kalrock consortium resolution plan for the airline. While hearing a petition filed by Jet Airways Staff Association challenging the Jalan-Kalrock consortium resolution plan for the airline, insolvency appellate tribunal NCLAT on Monday said they would have to abide by the results of the appeals filed before it. The tribunal has fixed these appeals on July 5, 2022.

At the time of reporting, the BSE Sensex was trading 25 points lower at 55,540 levels, tracking mixed cues from global peers.

Indian Oil Corporation (IOCL) today notified that ATF prices were lowered by 1.3% to ₹1.21 in the national capital. Among metros, ATF prices were the costliest in Kolkata at ₹1.26 lakh per kl, while it was lowest in Mumbai at ₹1.20 lakh per kl. Aircraft fuel was retailing at ₹1.25 lakh per kl in Chennai. Jet fuel prices are changed twice every month based on the average price of the international benchmark in the preceding fortnight.

Jet fuel prices, which constitute a major cost of an airline, have witnessed a sharp rise this year as Russia’s invasion of Ukraine pushed crude prices to record high in the international market. ATF prices have been raised ten times this year, while the steepest hike of 18.3% was announced on March 16. Earlier on May 16, the price was raised by 5% to ₹123,039 per kilolitre.

The global benchmark Brent crude was currently trading above $115 a barrel after the European Union imposed a phased ban of Russian oil imports. EU leaders have proposed to cut 90% of oil imports from Russia in the aftermath of Moscow’s invasion of Ukraine three months ago. Adding to the woes, some OPEC members have also reportedly proposed to suspend Russia in an oil production deal, citing the nation’s low oil production due to flurry of sanctions on oil imports.