Aviation stocks rally after direct jet fuel import allowed

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Tue, 07 Feb 2012 16:03:26 GMT

Aviation stocks rally after direct jet fuel import allowed

Mumbai: Scrips of three listed domestic carriers — Jet Airways, Kingfisher Airlines and SpiceJet — rallied after the government Tuesday allowed airlines to import jet fuel directly.

Aviation stocks rally after direct jet fuel import allowed

The decision on direct jet fuel imports was taken by an empowered group of ministers (EGoM) headed by Finance Minister Pranab Mukherjee.

Analysts said the move, announced by Civil Aviation Minister Ajit Singh, would help airlines to cut 10-15 percent of their operating cost.

The move will enable airlines to directly import jet fuel as an end user, thereby saving sales tax, which ranges between 20-35 percent and is levied by state governments.

The Indian aviation sector been reeling under rising aviation turbine fuel (ATF) prices caused by high sales tax and other levies. Domestic airlines are estimated to have lost around Rs.3,000 crore in the first six months of this fiscal.

Mumbai: Scrips of three listed domestic carriers — Jet Airways, Kingfisher Airlines and SpiceJet — rallied after the government Tuesday allowed airlines to import jet fuel directly.
This is very positive news for the industry. The airlines can be able to save up to 10-15 percent of their operating cost as jet fuel accounts for nearly 50 percent of the cost,’ Sharan Lillaney, aviation analyst, Angel Broking told IANS.

‘The decision will help the airlines to break-even, pay back the oil marketing companies.

The scrip of Vijay Mallya-led Kingfisher Airlines hit an intra-day high of Rs.30.90, up 20 percent from Monday’s close of Rs.25.75 at the Bombay Stock Exchange. The stock was hovering around Rs.28.50 in afternoon trade.

The Jet Airways stock too gained 18.06 percent and touched a high of Rs.351.90 from the previous close of Rs.298.05. The stock was Rs.336.90 around 2.30 p.m.

Budget carrier SpiceJet also gained 19.51 percent at BSE and touched an intra-day high of Rs.29.40 from the previous close of Rs.24.60

Analysts, however, said more clarity was required as to how airlines would manage the logistics of storing and importing fuel.

‘We have to see how the airlines will import the fuel, do they have the cash to do so, where will they store the fuel, will they use the oil marketing companies’ infrastructure or not. So there needs to be clarity on these things first, besides this, the news is very positive,’ said Lillaney.

Airlines have not yet come out with any logistics plan for storing and importing the fuel. This was one of the arguments by the three oil marketing companies Hindustan Petroleum, Indian Oil and Bharat Petroleum, who were opposing the move.

ATF is currently sold at Rs.71,155.22 per kilolitre (kl) in Kolkata, at Rs.67,702.21 per kl in Chennai, at Rs.63,864.31 per kl in Mumbai and Rs.62,907.82 per kl in New Delhi.

The average fuel price in cities like Kuala Lumpur is around Rs.41,000 per kilo litre, followed by Singapore at Rs.42,000 and Dubai at Rs.43,000.

Source: IANS


The Indian Aviation Crisis

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Indian Aviation in Crisis

It’s the irony of Indian aviation that despite a market growing at 18 per cent for last 11 months, five out of six Indian airlines are bleeding. If Air India was in the news for the last few months over the CAG report, aircraft purchases, and merger issues, Kingfisher Airlines has been in the focus in the last few days for flight cancellations, cash shortages, and survival fears.

Kingfisher hoped that the press interaction on November 15th would clear much of the negative air. The airline listed out a few options in its kitty to tide over the turbulent times. But the statement that the airline was “in discussions with a strategic Indian investor,” was perhaps, the most attractive of all solutions provided by the airline. After all, such an investor will certainly help the airline tide over its additional working capital need of Rs 800 crore and also address the issue of its nearly Rs 7,500 crore worth of debts.

Kingfisher’s chairman Vijay Mallya told Business Today that the strategic investor could put in upwards of Rs 1,000 crore in the airline. He also said that the airline has applied for working capital loans from banks worth Rs 600 crore. This will certainly provide the airline the much needed fresh lease of life. At least till the aircraft reconfiguration and route rationalisation measures start showing results.

But Kingfisher’s pains are mirrored -in a lesser extent- in the operations of its peers as well. All the three listed airline companies have shown a loss for the June to September period. High aviation fuel prices and depreciating rupee is where the blame has been assigned. Then there are policy issues, like high sales tax on aviation fuel and airlines having to fly unviable routes to develop connectivity in the country, that are adding to the hardship. Lastly, it’s the inability of Indian airlines to hike ticket prices that is hitting them the hardest.

Vijay Mallya, in his interaction with the press on November 15th, did admit that one way to fly Kingfisher out of the mess was to raise prices. But he also conceded that the airline had “got stuck” while trying to raise prices. Dinesh Keskar, India head for aircraft manufacturer Boeing, estimates that Indian carriers are under-cutting themselves by as much as Rs 1,000 on prime routes like Mumbai-Delhi.

It’s the way the market is structured that prevents any airline in India from raising prices. No airline owns a significant chunk of the market, which means that if one airline does try to hike fares and others don’t follow suit, its fliers will be easy business to its competitors. This means that no airline raises prices until it knows that others are likely to do the same.

So until one of them decided to turn bold, bank on its product and hike fares, airlines can merely hope for another consolidation -like how Jet Airways bought Air Sahara and Kingfisher Air Deccan and got some control over the market. Or they can hope for some relief in terms of economic conditions or policy changes.