Tapering traffic likely to cut short rally in airline stocks

Mumbai: Ideally, receding oil prices should have spelt cheer for airline stocks, considering that jet fuel accounts for nearly 50% of the operational costs. And the stocks did rally over the past week, as many investors felt these firms had been beaten down below their intrinsic cost.
Yet, many market makers expect the rally to fizzle out shortly as declining passenger traffic is likely to neutralise most of the gains arising out of a cheaper fuel bill.
All the three listed aviation stocks — Jet Airways, SpiceJet and Kingfisher Airlines — fell sharply on Wednesday, in line with the overall weakness in the market. However, on a weekly basis, Jet is up 23% and SpiceJet up 19%. Kingfisher’s weekly gains were wiped out in Wednesday’s 17% fall after the company defaulted on lease rentals of four of its jets.
Brokers say further upsides in these stocks appear limited, unless there is greater clarity about passenger traffic.
“If ATF (aviation turbine fuel) prices continue to be around Rs 46,000 a kilolitre and there is no reduction in ticket prices, aviation companies should save around Rs 1800-2000 crore,” says Mahantesh Sarabad, aviation sector analyst at Centrum Broking.
However, this does not guarantee better financial performance as demand for air travel is bleak, which has a bearing on revenues,” he adds.
06/11/08 Priya Kansara Pandya/Economic Times

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Categories: Indian Aviation- In General Nov 2008