SpiceJet shares crashed 10% to briefly hit the lower circuit at Rs 10.85 apiece on Monday, while IndiGo shares sank around 6% to Rs 3,895 apiece on the BSE. Earlier this month, IndiGo introduced fuel charges on both domestic and international flights starting March 14. The airline said ATF accounts for the largest portion of its operating expenses. “While offsetting the entire impact of this fuel price surge requires a very substantial adjustment to fares, IndiGo has introduced a relatively smaller amount as a fuel charge, keeping in mind the consequential burden on customers,” Indigo said in a statement.
This comes after share prices had already seen a sharp decline recently, falling up to 32% in just one month, as the escalating conflict in the oil-rich Middle East raised concerns over rising Aviation Turbine Fuel (ATF) prices and potential disruption to flight operations over the region.
After international ATF prices almost tripled from last month, Nomura expects a sharper increase in ATF prices in India, which are announced on the first of every month and remain valid for the entire month.
“ATF prices in Delhi for March are at Rs 96,638 per kilolitre. At current international prices and local taxes (excise and VAT), ATF prices may have to rise to breakeven levels of INR 160k per kilolitre. Discussions are ongoing between OMCs, the government and airlines, and we may see a partial pass-on of increased costs to protect end consumers,” it said.
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This follows a recent announcement by oil marketing companies of a 25% rise in industrial diesel prices. Earlier last week, Union Civil Aviation Minister Ram Mohan Naidu said the impact of the rise in ATF will likely be visible from April 1.
“The ATF prices are decided on the first of every month. The impact might be visible from April 1. We want to have safe operations, especially in the Middle East and for all others as well,” the minister said during a media interaction on Friday. He added that safe operations are a priority for the ministry and that it is actively engaging with airlines to gather feedback. “The impact should not hit operations or passengers. That will be the intention of the ministry, and we will engage positively,” he added.Goldman Sachs reduced its target price for the stock to Rs 5,200 apiece from Rs 6,000, while maintaining its ‘Buy’ rating. The brokerage has sharply cut its estimates primarily due to rising fuel costs and also flagged near-term headwinds from weakness in Middle East traffic.
The latest target price implies an upside potential of more than 25% from the stock’s previous closing price of Rs 4,147.90 apiece on the BSE.
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