Shares of domestic airline companies took another hit on Monday, as continuous political turmoil in Libya pushed crude oil prices further up. With reports suggesting crude might go as high as $200 a barrel, airline stocks were struck in on Monday's trading session and inched closer to their 52-week low.
On Monday, UK Brent crude was trading at $117.46 a barrel against the previous close of $115.72, up 1.5 per cent. While the near-future contract of NYMEX Crude was up $2.4 at $106.82 against the previous close of $104.42 a barrel.
On the Bombay Stock Exchange, shares of SpiceJet dived 6.35 per cent to close at Rs36.85. Kingfisher Airlines and Jet Airways were down 3.1 per cent and 3.7 per cent, to settle at Rs38.80 and Rs426.45, respectively.
| STORMY WEATHER Share price on BSE (in Rs) | |||
| Company | Close price | Change (%) | 52-weeks low |
| Jet Airways | 426.45 | -3.66 | 392.10 |
| Kingfisher Airlines | 38.80 | -3.12 | 36.85 |
| SpiceJet | 36.85 | -6.35 | 36.15 |
| Change is on the previous close | |||
Market experts say it becomes hard for the aviation sector once crude goes above $90 a barrel. “With crude well above $ 100 a barrel, it would push ATF (aviation turbine fuel) prices further up, making business difficult for the airlines,” they said. According to Ambareesh Baliga, vice president, Karvy Stock Broking, higher crude prices would mean higher ATF prices.
“In that case, it would not be easy for the airline companies to increase fares to the fullest extent. Else, it would impact the passenger load factor,” he added.
Experts say with fierce competition in the aviation sector, companies would prefer to pass on a lesser portion of the extra burden to the passenger, in case they do. But they won’t be able to absorb the rises, putting pressure on their thin margins. Analysts add that in the domestic market, if the load factor goes below 70 per cent, airlines make losses. In such a scenario, companies are likely to give priority to keep the load factor higher.
In the last quarter, despite having a reasonably good load factor of close to 85 per cent, airline companies’ profitability was poor, said Baliga. In the December quarter, Kingfisher had reported a net loss of Rs253.7 crore, while Jet Airways could manage growth of 11.7 per cent in its net profit, at Rs118.2 crore compared with Rs105.8 crore in the same period a year before. Whereas SpiceJet’s net profit in the September quarter was a meagre Rs10.1 crore.