Indian aviation caught in crossfire of rising crude prices, falling traffic

Air India recorded the highest cancellation rate at 3.4 percent, followed by SpiceJet and Indigo at 2.62 percent and 2.03 percent, respectively. Meanwhile, Akasa recorded the lowest cancellations, at 0.34 percent.

Aviation stocks have been in the news of late due to factors that have dampened investor sentiment in the segment. A latest report by Emkay Global highlights that volatile crude prices could add to the sector's woes, which is already seeing a drop in international traffic due to geopolitical turmoil.

“Passenger load factors (PLFs) witnessed significant MoM (month-on-month) decline across key airlines in May '25, with the Air India group reporting the highest downtick of 310 bps (basis points), which resulted in a PLF of 80.2 percent. SpiceJet and Indigo followed, with declines of 200 and 180 bps, their PLFs down 84 and 85.1 percent, respectively,” stated the report.

Further, cancellations increased during the month, largely owing to the partial closure of airports, the report added. Air India recorded the highest cancellation rate of 3.4 percent, followed by SpiceJet and Indigo at 2.62 and 2.03 percent, respectively. Akasa saw the lowest cancellations, 0.34 percent.

This assumes significance as the recent past has seen the segment grabbing headlines due to negative factors like geopolitical issues – closure of airspace due to the Israel-Iran war – and the Air India crash. Volatile and rising crude prices have further impacted aviation.

“Crude oil prices have remained volatile amid ongoing geopolitical tensions, with Brent currently hovering at ~$68 / bbl (per billion barrels) levels – indicating an imminent ATF (aviation turbine fuel) price hike. We foresee a ~6 percent MoM uptick in ATF price for Jul '25, largely driven by a ~6 percent increase in crude oil prices and a 15 percent uptick in jet fuel cracks,” stated the report.

Incidentally, PSU oil marketing companies (OMCs) have cut domestic ATF prices by three percent to Rs 83.1 per litre in June.

On the positive side, India’s domestic air traffic rose two percent YoY (year-on-year) to 14.1 million passengers in May, though growth was tempered by partial airport closures in north India due to Indo-Pak tensions. However, daily trends in June (till date) shows that traffic has grown around 6 percent.

“Indigo’s market share grew 50 bps MoM to 64.6 percent in May '25, and the company thus maintained its dominant position in the domestic space. Akasa’s market share also rose, by 30 bps MoM to 5.3 percent, while the Air India group shed 70 bps MoM to 26.5 percent. SpiceJet saw continued decline in market share, falling 20 bps MoM to 2.4 percent. Together, Indigo and the Air India group still account for ~91 percent of the domestic passenger traffic,” stated the report.

In terms of stock performance, while Interglobe Aviation (Indigo) has gained nearly 26 percent in the current calendar year till date, Spicejet has lost around 29 percent.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.