ATF Price Cut Boosts IndiGo & SpiceJet Shares: Should You Invest?
The Indian aviation industry received a positive boost on October 1st as the government announced a reduction in aviation turbine fuel (ATF) prices. This favorable development immediately impacted the shares of leading airline operators IndiGo and SpiceJet, causing them to surge by over 5% in early trading. The ATF price cut provided a much-needed relief to the sector, which had been grappling with rising fuel costs.
Significant ATF Price Drop: Rs 5,883 Per Kilolitre
The Indian government recently announced a significant reduction in jet fuel prices, offering much-needed relief to domestic airlines. The price of aviation turbine fuel (ATF) in Delhi was decreased by 6%, dropping to Rs 87,597 per kiloliter from Rs 93,480 per kiloliter. This marked the lowest ATF price since April 2024, providing a potential boost to the profitability of airlines operating in India.
The reduction in jet fuel prices is like a breath of fresh air for the aviation industry, easing the financial burden that has weighed heavily on domestic airlines. This positive development is akin to a fuel tank being refilled, providing airlines with the resources to potentially offer more affordable fares. Investors have responded enthusiastically to the news, with the shares of IndiGo and SpiceJet taking flight on the stock market
The fluctuating prices of Aviation Turbine Fuel (ATF) are influenced by several factors, including global oil price movements and domestic taxation policies. The aviation industry, heavily dependent on ATF, has been advocating for greater stability and predictability in pricing to effectively manage its expenses. Currently, ATF is not subject to the Goods and Services Tax (GST), leading to varying state-level taxation through excise duty and Value Added Tax (VAT). In certain states, VAT on ATF can reach as high as 30%, significantly increasing operational costs for airlines.
Ahead of the 2024 Budget, Indian domestic airlines advocated for the inclusion of Aviation Turbine Fuel (ATF) under the Goods and Services Tax (GST) regime. This move would have enabled airlines to claim input tax credits, thereby reducing their operational costs and improving profitability. Additionally, a uniform GST rate for ATF would have created a more equitable environment for airlines operating in various states across India.
The decline in aviation turbine fuel (ATF) prices offers a double benefit. Not only does it alleviate the financial burden on airlines, but it also has the potential to lower airfares for passengers. Since fuel costs are a substantial component of airline operations, a reduction in ATF prices can translate into more affordable travel options, especially for domestic flights.