Aviation scrip up on steep fare hike

Shares of SpiceJet and Jet Airways up 21-35% in last fortnight

Shares of India's aviation companies, which were grounded to their 52-week lows till a fortnight ago, have witnessed a sharp rise on the back of a steep hike in ticket prices in September.

At a time when benchmark indices gained less than 10 per cent, aviation counters are flying as high as 35 per cent. The two listed firms - SpiceJet and Jet Airways saw their stocks gain 21 per cent and 35 per cent, respectively, so far this month.

On Friday, stocks of SpiceJet closed at Rs 21.85, up 1.16 per cent while those of Jet Airways traded last at Rs 375.85, up 0.29 per cent after touching an intra-day high of Rs 382 on the BSE. Interestingly, SpiceJet had slipped all the way down to Rs 18.05 and Jet Airways bounced back from the level of Rs 280 in the fag-end of August.

However, market participants continue to remain cautious on the sector. According to them, aviation cannot be a sector where investors should pump in money when the industry (worldwide) is not making money.

Daljeet Kohli, head of research at a Mumbai-based brokerage firm India Nivesh, says, "Fundamentally, the sector is not making money. There are only news-based actions on the stocks. The rally seen over last few days will not sustain."

At a time when demand is subdued and on top of it, excess capacity that the industry is sitting on remains under-utilised, do not paint a rosy picture for the sector. Even sector officials admit this difficulty and pinpoint that fuel prices have hit a record high when demand for air travel is poor.

 
Had this been during the December or June quarter, airline companies may not have thought much to bite the bullet of raising fares. Generally, aviation sector makes money in December and June in India. However, a quarter like this (July-September), normally witness low occupancy ratios and low fares.

According to Rikesh Parikh, Vice President (Markets Strategy and Equities) at Motilal Oswal Securities, "Aviation stocks were beaten down severely and that could have attracted some allocation from investors which made counters bounce back."

Chennai-based SpiceJet pioneered the air fare hike with 30%. The measure was replicated by its peers too, listed as well as non-listed. Continuous rise in aviation turbine fuel (ATF) for the fourth consecutive month in September triggered the rise in ticket prices. On top of it weakening rupee against dollar which was making crude touching highs of $ 117 a barrel was another worrisome factor for the bleeding aviation companies to go ahead with the price hike.

Jet fuel prices were hiked steeply by 7%. With this cost of fuel went over Rs 75,000 a KL. Since June, ATF prices have moved up by 20%. In Delhi ATF prices were hiked by Rs 4,827.94 per KL, or 6.87%, to Rs 75,031.09 per KL, according to Indian Oil Corporation.