Airline stocks extend gain; IndiGo, Jet Airways, SpiceJet up 10% in 3 days

InterGlobe Aviation that runs IndiGo, Jet Airways (India) and SpiceJet were up in the range of 4% to 5% on the BSE. On comparison, the S&P BSE Sensex was up 1.8% at 34,625 points at 10:38 am.

Shares of all three listed airline companies were trading higher for the third straight session on the BSE after the government on Wednesday cut excise duty on jet fuel to 11% to give relief to the aviation industry and fall in the Brent crude oil prices by 5.6% in past two days.

On Friday, InterGlobe Aviation that runs IndiGo, Jet Airways (India) and SpiceJet were up in the range of 4% to 5% on the BSE. In comparison, the S&P BSE Sensex was up 1.8% at 34,625 points at 10:38 am. In the past three trading days, these stocks have rallied between 11% and 16%, against 1% rise in the benchmark index.

Excise duty on aviation turbine fuel (ATF) has been reduced to 11% from 14% with effect from October 11, a notification issued by the revenue department in the finance ministry said. Jet fuel prices this month hit their highest level since January 2014 as rising international oil prices and plummeting rupee value pushed rates.

Oil prices slumped to more than two-week lows on Thursday as global stock markets fell, with investor sentiment made more bearish by U.S. government data that showed domestic crude inventories rose more than expected last week, the Reuters report suggested.

Meanwhile, the rupee opened stronger on Friday helped by a drop in global crude oil prices overnight and a recovery in the domestic share market.

Despite the run-up in the past three trading days, the airline stocks are underperforming the market by falling between 45% and 68%, against 1.6% rise in the S&P BSE Sensex.

Analysts at Elara Capital expects aviation firms under our coverage (IndiGo, SpiceJet and Jet Airways) to report cumulative net loss of Rs 18 billion (where all airlines would report loss) versus Rs 7 billion net profit in Q2FY18, due to anticipated yield decline of Jet Airways (by 8% YoY), IndiGo (by 8% YoY) and SpiceJet (by 3% YoY) owing to aggressive pricing and fuel cost increase (in INR/ASKM) by 37-48% YoY.

SpiceJet continues to better manage its yields versus other but not sufficient to pass-on the higher crude price and weaker rupee impact. We observed LCCs (IndiGo, SpiceJet and GoAir) along-with Jet Airways have tried to play aggressive pricing game during Q2FY19, aggravated by Air India, which appears to have further played the spoilsport, it added.