Stock Fundamentals

Airline stocks – False start

Anand Kalyanaraman | Updated on January 13, 2018

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Airline stocks jumped for joy last Wednesday afternoon on news that the Delhi government had slashed value-added tax on aviation turbine fuel (ATF) from 25 per cent to 1 per cent.

SpiceJet was up almost 10 per cent in intra-day trade; Jet Airways per cent gained 8 per cent and IndiGo Airlines was up 4 per cent.

With good reason — ATF is the largest cost for Indian carriers, thanks primarily to high taxes, and Delhi is among the country’s busiest airports. A steep cut in tax on the fuel in Delhi could drive down costs for airlines.

But the celebration was a bit premature. It soon emerged that the tax cut was applicable only to flights headed from Delhi to regional airports.

This is to aid the Centre’s Regional Connectivity Scheme that seeks to connect under-utilised airports in Tier II and Tier III cities.

The airline stocks soon gave up much of the day’s gains but still ended higher. Any cost concession is welcome.

Published on March 12, 2017

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