Aviation stocks spiked on Thursday, and those of state-owned oil marketing companies (OMCs) recouped intraday losses to end in the green after the government announced cuts in the price of aviation turbine fuel (ATF) and non-subsidised cooking gas to adjust for the persistent decline in global crude oil prices.
Shares of low cost carrier, SpiceJet jumped nearly 8%, before ending at R18.05, up 4.94% from the previous close. Its rival and full-service airline company, Jet Airways’ shares jumped more than 10%, before settling at R419.10, up 9.08% on the BSE.
Jet fuel constitutes over 40% of an airline’s operating costs and the price cut will ease the financial burden of cash-strapped carriers.
Effective immediately, state-owned OMCs cut jet fuel (ATF) price in Delhi by R7,520.52 per kilolitre or 12.5% to R52,422.92 per kilolitre as Brent crude prices fell to $57.33 per barrel, the lowest level since May 2009.
The cut in ATF price is the sixth reduction since August last year. The price was last cut by 4.1% or R2,594.93/kl, on December 1. Brent crude sank 48% in 2014.
“The reduction in ATF price is good but not great. It has reduced by about 26% since June 2014. Crude prices in the same period have crashed from $116 to $57, a fall of over 50%. In a low per-capita-income country like India, there’s no way aviation will reach the masses unless ATF prices are in line with global prices,” said Amber Dubey, Partner and India Head of Aerospace and Defence, KPMG.
Dubey explained that Delhi and Maharashtra account for over 40% of domestic traffic and are both ruled by NDA. Assuming the tax on ATF is reduced to below 4%, other states will be compelled to adopt similar measures. “The Union Cabinet should simply notify ATF as a ‘declared good’, limiting the sales tax on it to a maximum of 4%. Right now, only ATF sold to aircraft weighing 40 tonnes or less is a ‘declared good’,” Dubey said.
On Thursday, OMCs also cut the price of 14.2-kg non-subsidized LPG cylinder to R708.50 from R752 previously in Delhi, the fifth consecutive reduction in rates of non-subsidised or market-priced LPG, which the customers buy after exhausting their quota of 12 cylinders at subsidised rates.
IOC shares rose 1.5%, while Petronet LNG gained 1.37% and BPCL ended up 1.23%. HPCL advanced 0.54% taking the Oil & Gas index up to a positive close following a 0.5% fall.
In a separate announcement by the oil ministry, the under-recovery on subsidised LPG has reduced to R235.91 per cylinder from R279.91 in December. The gap, which is the difference between retail selling price and the actual cost, on kerosene has dropped to R19.46 a litre from R25.69 last month.