Aviation shares in focus; SpiceJet hits new high

A SpiceJet passenger aircraft prepares to land at Sardar Vallabhbhai Patel international airport in Ahmedabad
Shares of aviation companies were trading higher by up to 9% on the BSE in an otherwise weak market as oil prices fell to its lowest level in over five months, erasing all of the gains since the Organisation of the Petroleum Exporting Countries (OPEC) agreed to cut production at the end of November.

Among the individual stocks, SpiceJet rallied 9% to Rs 122, also its new high on the BSE. Thus far in the current calendar year 2017, the stock zoomed 113% from Rs 57.20 on December 30, 2016.

Jet Airways (India) was up 5% at Rs 552, while InterGlobe Aviation was up 4% at Rs 1,152 in intra-day trade. In comparison, the S&P BSE Sensex was down 0.40% or 122 points at 30,004 at 10:11 am.

Lower crude oil prices benefit aviation firms as jet fuel prices, which typically constitute a majority of airlines' operating costs, are directly linked to international crude oil prices.

Indian aviation companies with around 65% of their costs linked to USD (Aviation Turbine Fuel and aircraft leasing/maintenance costs) could be the biggest beneficiaries of rupee appreciation.

“A stronger rupee coupled with the reversal in crude prices (post some uptick in H2FY17) bodes well for the aviation companies that had been impacted by cost and pricing pressures in FY17. If these early trends for Re and crude were to continue for a major portion of FY18, we expect earnings for aviation companies to see substantial upgrades, given that their profitability is highly sensitive to these variables,” analyst at SBICAP Securities said in recent report.

OPEC is scheduled to meet on May 25 to decide whether to extend the cuts.

COMPANY LATEST PREV CLOSE GAIN(%)
SPICEJET 119.80 112.45 6.5
JET AIRWAYS 548.55 523.05 4.9
INTERGLOBE AVIAT 1141.05 1108.05 3.0


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