Aviation Stocks Fall As Crude Oil Surge, ATF Price Hike Impact Prospects
Shares of IndiGo and SpiceJet declined amid rising crude oil prices and a second consecutive hike in Aviation Turbine Fuel (ATF) rates. Brent crude climbed near $96 a barrel due to US-Iran tensions, while higher fuel costs raised concerns over airline margins as ATF accounts for a major share of operating expenses
Shares of domestic airlines IndiGo and SpiceJet extended their decline on Wednesday as rising global crude oil prices and higher Aviation Turbine Fuel (ATF) rates weighed on investor sentiment.
InterGlobe Aviation, the parent company of IndiGo, was trading lower on the NSE, while SpiceJet shares also declined on the BSE. The Indigo stock declined over 3 percent to Rs 5,055. The stock of Spicejet declined almost 4% to Rs 9.60.
The weakness came after Brent crude prices surged around 1% to $95.60 a barrel amid escalating tensions between the US and Iran.
Crude oil rally adds pressure on airline stocks
The increase in crude prices has raised concerns about further pressure on airline operating costs, as fuel expenses account for nearly 40% of total expenditure for carriers. Any prolonged rise in jet fuel prices could affect profitability, particularly if airlines are unable to pass on higher costs through ticket prices.
The latest pressure on airline stocks followed a 5.46% increase in domestic ATF prices announced on Tuesday. Fuel prices were raised by ₹6.28 per litre to ₹121.28 per litre from ₹115 per litre, marking the second consecutive monthly increase.
ATF price hikes threaten airline margins
Airline shares had already declined in the previous session after the fuel price revision. IndiGo shares fell nearly 3.5%, while SpiceJet dropped over 3%.
The latest ATF increase came after three consecutive monthly price cuts. In August, fuel prices were raised by 7.5%, reversing a significant portion of earlier reductions.
Industry participants closely track ATF movements as aviation fuel remains one of the largest cost components for airlines. Higher fuel prices can significantly impact profitability, especially in a competitive market where airlines often face challenges in increasing fares.
With crude oil markets facing uncertainty due to geopolitical tensions and concerns over supply disruptions, investors remain cautious about the near-term outlook for airline stocks.
Continued volatility in energy prices could remain a key factor influencing the performance of aviation companies.
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