Airline stocks rise amid hopes of cut in ATF tax

Airline stocks rise amid hopes of cut in ATF tax

New Delhi: Domestic airline stocks surged in Thursday’s trade at the Bombay Stock Exchange amid speculation that relief by way of reduced taxation on jet fuel, their biggest expense, could be granted soon.

Jet Airways (India) Ltd, the nation’s largest airline by market value, shot up 18.05% to Rs315.60 a share. Kingfisher Airlines Ltd rose 12.41% to end at Rs53 while SpiceJet Ltd, a discount carrier backed by US-based billionaire Wilbur Ross, gained 7.18% to end at Rs33.60, its highest since 11 July 2008, when it ended at Rs32.40.

A senior full-service airline executive said that the stocks shot up on speculation that the government may include aviation turbine fuel (ATF) under the purview of goods and services tax or GST, which is to be imposed starting 1 April. That will bring the tax on it to a uniform 12%, which will subsequently go down to 8%, said the executive, who did not wish to be named.

Another executive with a Mumbai-based carrier, who also did not speak on record, said Jet and Kingfisher have embarked upon fund-raising initiatives including the sale of stock to qualified investors and rights issues and therefore the “stocks are getting active on the counters."

Another analyst attributed the increase to the improved economic environment and better market numbers. “It’s primarily because the situation has started to improve for the industry. The situation is very similar to what it used to be during 2007 and then the stocks were trading at a much higher price as compared to current stock prices," said a Mumbai-based analyst with a brokerage firm who asked not to be named. This analyst said the rush started in the past two days with SpiceJet’s shares rising as passenger traffic figures were released showing a 26% passenger year-on-year jump for the usually lean month of August. This was followed by an announcement by oil companies that they were reducing jet fuel prices for the coming fortnight.

Indian Oil Corp, the nation’s largest fuel retailer, cut jet fuel prices by 3.2% this week after they rose for the past three fortnights.

On Monday, Directorate General of Civil Aviation, or DGCA, data showed that airlines flew 3.63 million people in August, generally considered one of the leanest months for passenger traffic, compared with 2.89 million a year ago. This was the second consecutive double-digit increase. In July, passenger traffic rose 18% from a year earlier to 3.59 million.

Many airlines reported a sharp rise in occupancy. Low-fare airline GoAir’s flights were 80.1% full in August compared with 70% a year ago, IndiGo’s occupancy improved to 79.2% from 62%, SpiceJet’s to 73% from 56.8% and JetLite’s to 72.9% from 63%.

Full-service airlines also filled up more seats in the month. Jet Airways’ flight occupancy improved to 70% from 68.3%, Kingfisher Airlines’ to 68.7% from 49% and Air India’s to 59.8% from 56.2%.