Libya turmoil hits airline, oil stocks

The shares of domestic airline and oil marketing companies (OMCs) were today hit by rising crude oil prices in the backdrop of political unrest in Libya.

UK Brent Crude was today trading at $106.40 a barrel, 0.9 per cent lower, while NYMEX Crude was up $6.85 at $93.05 a barrel. Market experts said with crude oil above $90 a barrel, it would be tough for OMCs to manage under-recoveries. Airlines will also face higher fuel costs. Fuel accounts for a big part of their costs.

They added that concerns arising out of the Libyan crisis might be aggravated if the turmoil engulfed other countries in the oil producing region.

The stocks of OMCs — Bharat Petroleum, Hindustan Petroleum and Indian Oil Corporation — fell between three and five per cent today. Vinay Nair, a research analyst at Angel Broking, said, “Rise in crude oil prices will lead to mounting under-recoveries for downstream oil companies. The December quarter saw a total under-recovery of Rs 17,000 crore. It could go beyond Rs 20,000 crore in the March quarter.”

This, he said, would take the total under-recovery for the current financial year to Rs 70,000 crore. “It may be troublesome for the oil companies, which have not been adequately compensated by the government so far this year,” said Nair. SpiceJet was the worst hit in the aviation space. It fell 9.1 per cent, or Rs 4.25, to settle at Rs 42.40. Jet Airways plunged 7.7 per cent, or Rs 36.20, and closed at Rs 436.30, while Kingfisher Airlines was down 1.8 per cent at Rs 39.45 a share.

Libya turmoil hits airline, oil stocks
Ambareesh Baliga, vice-president, Karvy Stock Broking, said, “Higher crude oil prices will mean higher ATF (aviation turbine fuel) prices. In such a scenario, it will not be easy for airlines to increase fares to the fullest extent, taking into account its impact on the passenger load factor.”

He added that in spite of a reasonably good load factor of close to 85 per cent in the December quarter, airlines’ profitability was poor. On Tuesday, the Bombay Stock Exchange Sensitive Index (Sensex) closed 0.8 per cent, or 142.15 points, down at 18,296.16.