Shares of Jet Airways, SpiceJet and InterGlobe Aviation (holding company of IndiGo) rose by up to 12% on the BSE on the first trading day of calendar year 2016 after oil marketing companies (OMCs) cut aviation turbine fuel (ATF) prices by about 10%.
Jet Airways was trading at Rs 770.80 (up 9.73%), SpiceJet at Rs 84.25 (up 11.96%) and InteGlobe Aviation (up 10.29%) at around 2.30 pm.
The shares rose in response to OMCs reducing ATF prices by about 10%, bringing ATF prices to their lowest since 2010.
Fuel accounts for about 32% of operating costs for aviation companies and a 10% cut is bound to improve their margins in the fourth quarter.
The cut is expected to lift Jet Airways’ operating profit margin from 6.7% currently to 11.3%, according to ICICI Direct, reported moneycontrol.com.
The sharp fall in global crude oil prices has enabled OMCs to cut ATF prices.
The aviation sector is doing well in India. In November 2015, domestic carriers flew 73.22 lakh passengers, up 24.65% from 58.74 lakh in November 2014 and 70.39 lakh passengers in October 2015.
During the January to November 2015 period, domestic carriers flew 733.82 lakh passengers, an increase of 20.41% when compared to 609.43 lakh passengers in the corresponding period last year.
In related news, two new carriers, Vistara and AirAsia India have asked the NDA government to dispense with the 5/20 formula for domestic carriers to fly abroad.
IndiGo, SpiceJet, Jet Airways and GoAir, have opposed any move to relax the rule.
As per existing norms, an airline with five years of domestic flying experience and 20 aircraft in its fleet is eligible to fly on international routes.
“We shared our feedback on the draft civil aviation policy in the meeting. The ministry heard our views on 5/20 rule,” said AirAsia’s CEO and Managing Director Mittu Chandilya, reported The Hindu.
India is the ninth-largest civil aviation market in the world, with a market size of around $16 billion.