Airline stocks rally; SpiceJet gains 4% on fall in crude oil prices

Shares of low-cost carrier SpiceJet were up 4% at Rs 86.95 apiece on BSE in the intra-day trade in an otherwise weak market owing to fall in crude oil prices. In comparison, the S&P BSE Sensex was down 1% at 35,083 points at 10:50 am.

Oil has plunged more than 40% from a four-year high in October on the prospect of a supply glut. The airline companies benefit from the fall in the price of aviation turbine fuel (ATF), which constitutes their main expense.

In the past six trading days, SpiceJet has outperformed the market by gaining 15.5%, as compared to a 3% decline in the S&P BSE Sensex. The stock was trading at its highest level since November 15, 2018.

SpiceJet hit a 52-week low of Rs 60.60 on October 4, had fallen 61% from its 52-week high level of Rs 154 touched on February 14 this year, due to weak financial results. The company reported its second straight quarterly loss in September quarter on account of higher fuel oil prices and weak rupee.

With the crude prices taking a fall in this quarter, the profitable performance is expected to pick up during the next 2-3 quarters, SpiceJet said while announcing September quarter results (Q2FY19) on November 14, 2018.

The company is all set to take deliveries of 10 more Boeing 737 MAX aircraft in Q3 and up to eight MAX aircraft have been planned for inductions in Q4 of FY2019. Further, four Q400 aircraft shall be inducted during Q3FY 2019 and up to four Q400s are planned for inductions in Q4 of FY 2019.

Post Q2FY19 results, analysts at Elara Capital reiterates ‘BUY’ rating on the stock on improving fuel efficiency and stability in fuel cost with new fleet addition, and ability to serve lucrative short-haul international market with Boeing-737-8Max.

“Despite being a relatively smaller airline, SpiceJet is efficiently run (non-fuel CASK 16% lower than Jet) and has started focusing on growth as liquidity has stabilized. We remain bullish on SpiceJet’s long-term prospects given its focus on operating efficiency and growth revival,” analysts Edelweiss Securities said in a result update.

Meanwhile, Jet Airways also gained 4% to Rs 263 on BSE in the intra-day trade. Budget airline IndiGo's parent company, InterGlobe Aviation, was trading flat at Rs 1,163 after hitting a low of Rs 1,146 on BSE in the early morning deal.