Why aviation stocks surged in trade today?

Aviation stocks were in focus on March 16 after jet fuel prices saw their steepest increase ever as international crude surged to a multi-year high.

Jet Airways was quoting at ₹89.90, up ₹0.20, or 0.22 percent, SpiceJet was quoting at ₹60.20, up ₹0.95, or 1.60 percent.

Shares of InterGlobe Aviation Ltd. gained 3.22 per cent to ₹1895.7 in Wednesday's trade as of 14:00 PM (IST). It hit a high of ₹1923.45 and a low of ₹1868.25 during the session.

Increase in the fuel prices

Aircraft fuel prices were hiked for the sixth time this year on Wednesday, posing a serious threat to the nascent recovery seen by Indian airlines recently.

Aviation turbine fuel (ATF) prices witnessed an 18% jump, taking it to an all-time high of ₹110,666.29 per kilolitre in Delhi, according to a notification by government-owned oil retailers on Tuesday.

Jet fuel price in Mumbai jumped to ₹109,119.83 per kl from ₹91,998.08 per kl. In Kolkata, it soared to ₹114,979.70 per kl. ATF is priced at ₹114,133.73 per kl in Chennai.

This comes at a time when Brent crude – the international benchmark - continued to soar above $100 a barrel amid the ongoing Russia-Ukraine war.

On March 1, aviation fuel prices were increased by 3.3%. Last month, ATF prices were raised by 8.5% on the day of the Union Budget 2022-23 and then again on February 17 by 5.2%.

Fuel prices are changed twice every month based on the average price of the international benchmark in the preceding fortnight.

Government lifts ban on overseas flights

The Civil Aviation Ministry on March 8 said that regular international flight operations will resume from March 27, taking into account the increased vaccination coverage across the world.

The resumption of regular international flights comes two years after the Directorate General of Civil Aviation (DGCA) suspended such operations with effect from March 23, 2022 due to the onset of the Covid-19 pandemic.

India currently has air transport bubbles with 40 countries including Canada, France, Germany, United Arab Emirates, the United Kingdom, and the US.

India’s domestic passenger traffic jumped around 19% sequentially to an estimated 76 lakh in February compared with 64 lakh in January 2022, according to ICRA.

The rating agency continues to maintain a “negative” outlook on the Indian aviation industry. “The outlook reflects ICRA’s view that the financial performance of Indian airlines is likely to remain weak as recovery in domestic passenger traffic to pre-Covid levels is likely by FY2024, also the sharp rise in ATF prices, will continue to pose a major threat to the profitability of the airlines in the near term.”

The rating agency cautioned that low-capacity utilisation of the aircraft fleet, combined with a sharp increase in ATF prices will continue to weigh on the financial performance of Indian carriers in FY2022. The credit profile of most Indian carriers continues to be characterised by the weak liquidity position, it said.

SpiceJet

SpiceJet on Monday said it will launch 60 new domestic flights this summer. The summer schedule starts from March 27 and ends on October 29.

In a statement, the airline said it will launch eight industry-first flights, which will operate on the Gorakhpur-Kanpur, Gorakhpur Varanasi, Jaipur-Dharamshala and Tirupati-Shirdi sectors, in the summer schedule.

"The airline has added 60 new domestic flights to its schedule, including seven UDAN flights, eight industry-first flights, new connections and additional frequencies," it said.

Under the UDAN scheme, financial incentives from the Centre, state governments and airport operators are extended to selected airlines to encourage operations from unserved and underserved airports, and keep airfares affordable.

Indian carriers have increased their domestic services by 10.1 per cent to 25,309 weekly flights in the upcoming summer schedule as compared to 22,980 last season, aviation regulator DGCA had said last Friday.