Etihad's Indian Partner Jumps as Fuel Drops to Five-Year Low

  • India has the region's highest fuel prices and lowest fares
  • Jet fuel prices cut by 10 percent to lowest since June 2010

Jet Airways India Ltd., Etihad Airways PJSC’s partner, paced a rally in Indian airline stocks after the region’s costliest fuel prices were cut to the lowest in five years.

Jet Airways, majority owned by Naresh Goyal, climbed 8.2 percent to its highest since January 2011, making it the best performing share on the Bloomberg Intelligence Global Airlines Valuation Peers Index in the past month. InterGlobe Aviation Ltd., the owner of IndiGo, advanced 8.8 percent in Mumbai, while SpiceJet Ltd. rose 9.4 percent.

India’s carriers have lost $10 billion in the past seven years as they offered base fares as low as 1 rupee (2 cents) in a nation where provincial taxes make jet fuel prices the most expensive in Asia. The nation’s oil retailers cut fuel prices, which make up as much as 60 percent of an Indian airlines’ cost, by 10 percent in New Delhi on Friday as Brent, the benchmark for half of the world’s crude trading, plunged.

“A sharp reduction in fuel prices remains a key trigger for margin expansion going forward,” Rashesh Shah and Devang Bhatt, analysts at ICICI Securities Ltd. wrote in a note on Dec. 24. “Given improving macro factors like healthy industry passenger traffic growth coupled with lowest ATF prices, we expect” Jet to report healthy revenue growth along with better margins.

Jet Airways reported a second straight quarter of profit in the three months ended Sept. 30. Net income rose 25 percent to 875.9 million rupees.

Fastest Growing

India was the world’s fastest growing aviation market in 2015, expanding more than 20 percent, according to International Air Transport Association. In comparison, passenger traffic in China grew at about 10 percent, while growth in the Unites States was less than 5 percent, IATA said in a December presentation.

That’s lured Singapore Airlines Ltd. and AirAsia Bhd. to start Indian units in recent years. Indian airlines will need 1,740 new planes valued at $240 billion over the next 20 years, according to Boeing Co.

Almost 36 million Chinese traveled overseas in the third quarter, 12 percent more than a year earlier, according to the Chinese Outbound Tourism Research Institute, which forecasts 135 million outbound Chinese tourists for the full year.

IGATE Research, in a report cited on the Financial Express website, predicted India would have almost 30 million outbound tourists by 2018. India and China are among the fastest-growing markets for Airbus Group SE and Boeing Co., which forecast that Asia will overtake the U.S. as the world’s biggest plane market in two decades.

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