Airline stocks spurt as OMCs cut jet fuel price by 12%

State-run oil marketing companies on Monday announced a 12 per cent reduction in the prices of aviation turbine fuel (jet fuel) by 11.9 per cent, causing a 12-per cent spurt in stock prices of to domestic airline companies.

Following the revision, jet fuel will now cost Rs 4,765.5 less at Rs35,126 per kilolitre in Delhi - down 24 per cent year-on-year and the lowest since October 2009. Rates vary at different airports because of differential local sales tax or value-added tax (VAT).

This is the third straight monthly reduction. Prices were last cut by 10 per cent on 1 January.

Aviation stock reacted positively to the cut in jet fuel price gaining eight per cent in intra-day trade on Monday, but pared some of the initial gains to end 2-4.5 per cent over previous close.

Already, fuel expenses have reduced from levels around 45 per cent for most airlines following the previous price cuts.

The country's top airlines IndiGo and SpiceJet the share of jet fuel in operating expenses has reduced from 46 per cent to 33.8 per cent and from 36 to 30 per cent, respectively.

Both the airlines also saw record profits for the fiscal third quarter, with IndiGo reporting a 24 per cent increase in net profit at Rs657 crore and SpiceJet posting a net profit of Rs238 crore, its fourth consecutive profitable quarter.

The International Air Transport Association (IATA) expects improved profitability for airlines in 2015 and 2016 on the back of decline in fuel price and high demand.

OMCs also reduced the price of subsidised LPG for domestic consumption, which now costs Rs82.5 lower at Rs419.33 per 14.2-kg cylinder in Delhi.

Simultaneously, the oil firms also cut prices of non-subsidised LPG, which consumers buy after exhausting their quota of 12, by Rs82.5 per 14.2-kg bottle.

Non-subsidised cooking gas (LPG) now costs Rs575 in Delhi as against Rs 657.50 previously.

The reduction comes on the back of three consecutive price hikes in as many months. Rates were last hiked by Rs49.5 on 1 January.

Prior to that, non-subsidised LPG price was raised by Rs61.50 on December 1 and by Rs 27.5 per cylinder on 1 November.