Airline stocks like Kingfisher Airlines, SpiceJet soar after GoM clears jet fuel import

MUMBAI: Aviation stocks soared on Tuesday, after a panel of ministers allowed domestic carriers to import aviation turbine fuel (ATF) directly. By allowing direct fuel import, the government intends to reduce airline fuel costs. The panel's decision to allow FDI in the sector also contributed to the upbeat mood.

Shares of Jet Airways jumped 14%, Kingfisher Airlines spurted 13% and SpiceJet surged 11% on Tuesday. The Sensex fell almost 0.5%.

"Direct fuel import will help companies save about 4-5% of overall fuel costs. Though this will not be a significant game-changer for the industry, it will surely help generate some positive sentiment," said Bharat Shah, head of institutional sales at Ventura Securities.

Fuel costs are the biggest component of an airline's operating cost. Airlines pay sales tax in the range of 14-28% on ATF which accounts for over 40% of the operational cost of airlines. The Cabinet will meet later in the week to approve the panel's recommendations.

"Investors are expecting the government to announce some more industry sops. Aviation stocks will rally further in the event of any positive announcement with regards to raising FDI limits for the aviation sector," Shah said.

Currently, domestic airlines companies buy ATF from oil-marketing companies such as IOC, HPCL and BPCL. Analysts said though this step will benefit carriers, the industry requires more steps to recover from the current slump.

"Direct fuel import is not likely to help aviation companies in a big way. There'll not be much variance in fuel prices even if domestic carriers import oil from overseas sellers," said G Chokkalingam, ED & CIO, Centrum Wealth Management.

"The sector will do well if the government allows 49% foreign direct investment...

Only FDI will be able to save the industry from grounding its aircraft," Chokkalingam said.