Oil marketing cos raise aviation turbine fuel prices

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Oil marketing cos raise aviation turbine fuel prices

State-owned oil marketing companies today raised aviation turbine fuel prices by 1,053-1,249 rupees per 1 kL for July, reports NW 18 quoting a release from Indian Oil Corp. Aviation fuel prices are revised at the beginning of every month based on the average international price in the previous month.

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State-owned oil marketing companies today raised aviation turbine fuel prices by 1,053-1,249 rupees per 1 kL for July, reports NW 18 quoting a release from Indian Oil Corp. Aviation fuel prices are revised at the beginning of every month based on the average international price in the previous month.

In Delhi, aviation fuel for domestic airlines will now cost Rs 37,799.54 per 1 kL as against Rs 36,746.53 in June. Jet fuel prices in Delhi had hit a high of Rs 43,989.91 in September. Aviation fuel comprises 30-35% of airlines' total operational cost. This is a major concern and will have a negative impact on the aviation stocks. But on the positive side the aviation industry had been in news recently with consolidation happening all across the sector.

In terms of performance of scrips, Deccan Aviation , Jet Airways and Spice Jet respectively have beefed up gains by 38%, 32% and 21% in the last three months.

The consolidation phase that is being witnessed by the industry is likely to lead to rational pricing and will improve the operating performance of domestic carriers in India over the next few quarters. Also the domestic demand is expected to remain robust at 25% annually.

Experts say that the focus of the players would be more on high margin international routes. Competition is expected to get intense once the Kingfisher-Deccan group companies get international rights and Jet manages to put Air Sahara on track under the JetLite brand.

The industry capacity grew at 40%-50% between FY05-07. Nikhil Vora of SSKI in his research report says that this capacity is expected to come down to 20% going ahead which will act as appositive trigger for the players as there will better utilization of the existing capacities. The capacity growth for the industry was 48.0%, 40.8%, and 44.4% for Q1, Q2 and Q3 of FY 2007 respectively.

With the developments in the aviation sector, brokers have also upgraded their ratings on the sector.

Indian aviation sector is valued at USD 4.5bn has one of the lowest market cap to passenger ratios of 0.08 amongst comparable peers (China - 0.32, Hong Kong - 0.54) which offers substantial value creation potential say experts.

Jet Airways numbers:

After some quarters of weak performance Jet Airways recently declared strong operational Q4 and FY07 results. In Q4 it posted a 61% fall in net profit. The net profit stood at Rs 880.1 million against Rs 2.27 billion. The company's revenues rose 21.7% YoY to Rs 19.8bn, revenues, with domestic revenues rising 11.7%, and international revenues rising 100%.

Load factor in the domestic market, at 70.3% and international load factor, at 76.7%, was sharply higher due to increase in share, partly aided by strike by competition.

There was 431bps rise in margins to 23.2%, on the back of lower fuel, SG&A and aircraft maintenance expenses. As a result, EBITDAR increased 49.5% YoY to Rs 4.6bn.

In a significant change from the earlier quarters, Jet's international operations have turned profitable.

According to them, high margin international operations will contribute close to 50% of revenues in the next two years from the current 20%.