homeaviation NewsInterglobe Aviation shares fall amidst widening crude spreads and potential ATF price increase
Interglobe Aviation shares fall amidst widening crude spreads and potential ATF price increase
Interglobe Aviation, faced a downturn in today's trading, witnessing a nearly 2 percent decline. This decline was attributed to a notable development as IIFL, a prominent financial institution, released an intriguing note. Despite maintaining a "buy" recommendation for Interglobe for Aviation's stock, IIFL sounded an alert regarding a potential challenge that could impact the company's operational performance in the near future.
The primary reason behind IIFL's cautious note is the escalating disparity between crude oil prices and jet kerosene prices. This divergence in prices, referred to as the "crude-jet kerosene spread," has been widening recently, prompting concerns within the industry.
The implication of this widening spread is a possible double-digit percentage surge in aviation turbine fuel (ATF) prices, set to take effect on the first of September.
The significance of this potential increase in ATF prices cannot be understated. It has direct repercussions on the operational performance of Interglobe Aviation, potentially placing it under substantial pressure.
IIFL's analysis indicates that the ATF price could reach a crude-equivalent value of around $95, a significant jump from the June low of $75. This substantial price increase is anticipated to have a tangible impact on the company's financials, leading IIFL to predict a minor loss in Q2 for Interglobe Aviation.
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However, even in the face of these concerns, the underlying strength of Interglobe Aviation's business remains evident. IIFL's note highlights the robust nature of domestic passenger traffic, which continues to paint a positive picture for the company.
As of August 2023, passenger volumes are projected to surge by an impressive 24 percent year-on-year within the domestic travel sector. Furthermore, data for the fiscal year 2024 year-to-date reflects a notable 21 percent increase in passenger volumes, indicating healthy growth within the aviation industry.
While these growth figures instill confidence, the escalating crude spreads cast a shadow of uncertainty over the industry's outlook. The widening disparity between crude and jet kerosene prices is a factor that could potentially restrain the industry's upward trajectory.
The looming increase in ATF prices threatens to offset the positive growth momentum, pressuring the financial performance of companies like Interglobe Aviation.
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