IndiGo,  SpiceJet’s  journey  gets tougher amid rising fuel costs

Aviation stocks are not flying in 2021. On a year-to-date basis, shares of InterGlobe Aviation Ltd and SpiceJet Ltd have declined by about 1.6% and 18%, respectively. In comparison, the broader Nifty 500 index has risen by about 7%. InterGlobe runs IndiGo, India’s largest airline.

One factor that’s weighing on sentiments for aviation stocks is the rising trend in crude oil prices. Average aviation turbine fuel prices across four metros have been recently increased by 7%. Of course, this doesn’t bode well considering that fuel costs form a big proportion of operating costs for airlines and, therefore, can weigh on profit margins. For perspective: in financial year 2020, fuel costs as a percentage of revenues stood at 34.8% and 37.4% for InterGlobe and SpiceJet, respectively.

Moreover, it’s not as if demand recovery is exciting with the month of March turning out to be rather slow. In a report on 15 March, ICICI Securities Ltd analysts said: “Weekly average daily fliers came in at 243,636 in the week ended 13 March versus 264,312 in the week ended 6 March.”