IndiGo, SpiceJet shares surge up to 6% as govt cuts ATF price

Shares of airline stocks InterGlobe Aviation and SpiceJet shares rallied up to 6% on Tuesday, in an otherwise muted broader market, after the government cut jet fuel or aviation turbine fuel (ATF) prices. The ATF price has been reduced by almost ₹6,000 per kilolitre by oil marketing companies (OMCs) for the second month in a row in October. With this, the cost of jet fuel dropped to the lowest level since April 2024.

Boosted by the slash in jet fuel prices, shares of SpiceJet surged as much as 5.97% to ₹67.50 apiece on the BSE, while the market capitalisation (m-cap) climbed to ₹8,649 crore. The counter witnessed strong volume as 3.5 crore shares changed hands over the counter as compared to two-week average volume of 2.31 crore stocks.

In a similar trend, shares of InterGlobe Aviation, parent of IndiGo, gained 2.2% to ₹4,896 apiece on the BSE. The m-cap of the country’s most valued aviation stock climbed to ₹1.88 lakh crore, with 1.85 lakh shares changing hands over the counter.

At the current price, SpiceJet shares trade 15.5% lower than its 52-week high of ₹79.90 touched on September 16. 2024. The stock touched its 52-week low of ₹34 on October 26, 2023. In the last one year, the smallcap aviation stock has delivered 89% returns to its shareholders, while it climbed 12% in the calendar year 2024. The counter added 10.5% in six months and 11% in a month.

Meanwhile, IndiGo shares touched its 52-week high of ₹5,033.20 on September 12, 2024, and a 52-week low of ₹2,363.85 on October 3, 2023. The index heavyweight has given consistent returns throughout the year. It has risen more than 100% in a year; 64% year-to-date; 38% in six months; and 2% in a month.

The aviation stocks got a lift today amid cut in ATF price as fuel prices, which account for a large portion of an airline's operational costs, can boost airlines' profitability.

The OMCs has reduced the price of jet fuel in Delhi by 6% to ₹87,597.22 per kg this morning from ₹93,480.22 per kg earlier. Last month, jet fuel prices in Delhi were slashed by 4.6% after two straight price hikes in August, following a larger 6.5% drop in June.

Currently, ATF is not under the Goods and Services Tax (GST) regime, so it varies from state to state, subject to local-level taxes, including excise duty and value-added tax (VAT). 

The ATF price in Mumbai has been reduced by ₹5,566.65 to ₹81,866.13 per kg from ₹87,432.78 per kg. The highest price drop of ₹6,099.89 was witnessed in Chennai as the jet fuel cost declined to ₹90,964.43 per kg from ₹97,064.32 per kg earlier.   

Rating agency ICRA in a recent report lowered Indian aviation companies’ cumulative loss estimate by up to 33% on improved pricing power and stable cost environment. It has projected that the major Indian airlines’ cumulative net loss for the current financial year (FY25) and the next fiscal (FY26) to drop by 25-33% to around ₹2,000-3,000 crore from ₹3,000-4,000 crore estimated earlier.

“ICRA expects the industry to report a net loss of ₹20-30 billion in FY2025 and FY2026, slightly higher than the estimated net loss of ₹10 billion in FY2024 due to anticipated pressure on yields as airlines strive to maintain adequate passenger load factor (PLF) amid a modest increase (4% YoY) in aviation turbine fuel (ATF) prices witnessed in 5M FY2025 (April-August 2024),” said Suprio Banerjee, Vice President & Sector Head – Corporate Ratinngs, ICRA.

The rating agency said that ATF prices and the rupee-dollar movement are two factors that have a major bearing on the airlines’ cost structure. The average ATF prices increased to ₹99,468/KL in 5M FY2025, from ₹65,309/KL during pre-Covid period (i.e. 5M FY2020) and ₹95,906 /KL in 5M FY2024.  Fuel costs account for 30-40% of the airlines’ expenses, while 35-50% of the airlines’ operating expenses – including aircraft lease payments, fuel expenses, and a significant portion of aircraft and engine maintenance expenses – are denominated in dollar terms. Further, some airlines also have foreign currency debt. While domestic airlines also have a partial natural hedge to the extent of earnings from their international operations, overall, they have net payables in foreign currency, the agency said in a note.

ICRA has also lowered its estimates for the domestic air passenger traffic growth in FY25 to 7-10% from 8-13%, citing the high base of FY24 and lower passenger traffic in Q1 FY25 following the impact of severe heat waves and other weather-related disruptions. It forecasts the domestic passenger traffic to reach 164-170 million in FY25. The international air passenger traffic for Indian carriers is expected to expand by a healthier 15-20% in the current fiscal.

The agency has maintained a stable outlook on the Indian aviation industry, amidst the continued growth in domestic and international air passenger traffic, and a relatively stable cost environment.