Shares of major Indian aviation companies fell sharply on Tuesday after domestic aviation turbine fuel (ATF) prices were increased by Rs 6.28 per litre. The latest hike has raised concerns over domestic airline operations and its possible impact on profit margins.
As of 2:10 pm on September 1, InterGlobe Aviation, the parent company of IndiGo, was trading around ₹5,050–₹5,070, while SpiceJet was trading around ₹10.13–₹10.15, with both stocks remaining under pressure during the session.
The Centre on Tuesday increased domestic ATF prices by 5.46%, raising them from Rs 115 per litre to Rs 121.28 per litre. This is the second consecutive monthly increase in jet fuel prices. Earlier in August, ATF prices were already raised by Rs 5 per litre. Previously, airlines had received some relief in July when fuel prices were reduced by Rs 5 per litre.
ATF prices are reviewed every fortnight based on the average international prices of crude oil and petroleum products during the preceding period.
In the 15th revision, the special additional excise duty on ATF exports was fixed at Rs 19.50 per litre, while the levy on diesel exports was set at Rs 24 per litre. The levy on petrol exports was reduced to nil. The government said the changes apply to exports, while existing excise duties on petrol and diesel cleared for domestic consumption remain unchanged.
The fall in aviation stocks reflects investor concerns over the impact of higher fuel costs on airline margins. When fuel becomes more expensive, airlines have to spend more to operate the same fleet. However, they can try to recover some of these additional costs by increasing ticket prices.
Yet, passing the entire increase on to passengers may be difficult as the aviation market is highly competitive. The ATF increase also comes at a time when global crude oil prices remain volatile.
Brent crude futures were around $91.05 per barrel on Tuesday, while US West Texas Intermediate crude was around $86.59 per barrel. Renewed tensions in the Middle East have raised concerns about possible disruptions to oil supplies from West Asia.
Any further increase in crude oil prices could add to the surge in ATF prices, putting further pressure on airlines. Investors are likely to closely monitor fuel prices, airline margins and ticket fares in the coming months.
If ATF prices remain elevated, airlines could face continued pressure on profitability. The performance of IndiGo and SpiceJet shares will therefore remain closely linked to developments in crude oil prices, ATF costs, passenger demand and the ability of airlines to manage their operating expenses.