Aviation companies struggle after ATF price hike

Jet Airways, Interglobe Aviation slide as Aviation Turbine Fuel (ATF) price will be hiked by 9.2 per cent. The shares of airline companies Jet Airways and Interglobe Aviation were under pressure as government has decided to increase ATF steeply by 9.2 per cent to Rs 46729.48/kl.

The low fuel cost expense is helping aviation sector from quite a long time because of low crude oil prices. Out of the total expenditure, majorly 70 to 80 per cent cost is incurred from fuel itself. Jet Airways fuel expenses have reduced 25.11 per cent at Rs 999 crore in Q4FY16 on a yearly basis. The net profits of Rs 397 crore will definitely excite the investor when compared to a loss of Rs 1729 crore in the corresponding quarter last fiscal.

The crude oil price movement is quite surprising in these days as the hope for freezing of crude oil production from OPEC countries still persists. The crude oil prices increased more than 70 per cent from bottom out at USD 27 per barrel to USD 49.1 per barrel. The crude prices have been surging in last six months mainly owing to multiple factors such as constant drop in US crude inventories, and estimates that over-supply scenario will stabilise in coming months.

The ATF and crude oil prices are co-related. The government is trying to maintain fuel prices as the country majorly imports crude oil.

The share prices of Interglobe Aviation and Jet Airways have declined by 2.05 per cent and 2.22 per cent, respectively on bourses in early trades; and are trading at Rs 1042.2 and Rs 581.8 on an intraday basis. Meanwhile, share price of Spicejet has increased by 1.17 per cent and is trading at 69.05 on an intra day basis.