Aviation stocks cruising smooth

Spicejet is up over 2% at Rs.24.75 with an intra day high at Rs.25.20. The other listed airline stock, Jet Airways is also cruising smooth, up 3.5% at Rs.335.40  with an intra day high at Rs.336.50.

This take off in aviation stocks is thanks to the reduction in aviation fuel prices. Yesterday, jet fuel or Aviation Turbine Fuel  (ATF) was cut 11.75%. With this, the price of ATF in Delhi was cut by Rs.5,469.12 per kilolitre (kl) to Rs 40,938.24 per kl; one of the steepest cuts after the 12.5% slash on January 1st 2015.

Before this, there was a 9.4% cut on 1st August and by Rs.2086.56/kl on 1st July. After today’s cut, ATF costs 33% less than petrol that drives two-wheelers and cars – ATF works out to Rs.40.93/litre.

Jet fuel constitutes over 40% of an airline's operating costs and the price cut will reduce the financial burden on cash-strapped carriers. None of the airlines have announced any rate cut after this ATF cut which means the lower fuel price will help build their margins in coming quarters. Q1 was good for both Jet as well as Spice and now Q2 is expected to be even better.