Airline Stocks: Will IndiGo, SpiceJet rally after govt's Rs 10,000 crore ATF fund announcement? Brokerages weigh in

Airline stocks are expected to remain in focus after the Union Cabinet approved a one-time budgetary support of up to Rs 10,000 crore for Oil Marketing Companies (OMCs) to provide Aviation Turbine Fuel (ATF) price stabilisation support to scheduled Indian airlines.

After the announcement, IndiGo shares were trading 0.8 per cent lower at Rs 4,477.65, while SpiceJet gained 2.5 per cent to Rs 12.73 in early trade on June 4.

The support will be provided as an interest-free advance to OMCs through the Ministry of Petroleum and Natural Gas. The mechanism aims to reduce the impact of sharp fluctuations in global ATF prices on airline operations during the ongoing West Asia crisis.

How the ATF price stabilisation mechanism will work

The government said the arrangement will help provide greater stability and predictability in fuel costs, allowing airlines to plan their operations and finances more efficiently.

ATF accounts for nearly 40 per cent of an airline's operating costs and, during periods of extreme volatility, can rise to as much as 60 per cent of total operating expenditure. According to the government, international ATF prices have increased from around Rs 60.50 per litre in March 2026 to about Rs 142 per litre in May 2026.

The approved mechanism will be available for both domestic and international operations of all willing scheduled Indian carriers. Under the arrangement, participating airlines will procure ATF only from OMCs for up to three years or until the advance amount is fully recovered, whichever is earlier.

Morgan Stanley sees nearly 30% upside for IndiGo

Brokerages believe the move is positive for airline companies, especially for cash flows and operating margins.

Morgan Stanley has maintained its 'Overweight' rating on IndiGo with a target price of Rs 5,844 per share. Based on the current market price of Rs 4,512, the target implies a potential upside of around 29.5 per cent.

The brokerage said the government's Rs 10,000 crore ATF Price Stabilisation Fund provides interest-free advances to OMCs, helping airlines avoid the impact of extreme global fuel price volatility. It added that the mechanism is temporary and self-sustaining as the advances will be recovered once international fuel prices moderate.

However, Morgan Stanley also noted that the aviation sector could face near-term margin pressure due to rising crude oil prices, moderation in demand and currency depreciation. It expects the first half of FY27 to remain weak before a gradual recovery in the second half.

Goldman Sachs positive; SpiceJet welcomes move

Goldman Sachs has maintained its 'Buy' rating on IndiGo with a target price of Rs 5,200 per share. From the current market price of Rs 4,512, this indicates a potential upside of around 15.2 per cent.

According to the brokerage, the government's decision to create a price stabilisation fund for ATF is positive for the airline sector as it helps stabilise one of the largest cost components for carriers. The brokerage highlighted that the support will remain in force for 36 months, subject to annual review or until the advance amount is fully recovered.

SpiceJet also welcomed the government's decision and said the measure would provide greater predictability and stability at a time when the aviation industry continues to face geopolitical uncertainties and elevated fuel costs.

The airline said the move follows a series of timely interventions by the government that have helped the sector navigate one of the most challenging global operating environments in recent years.

Government sees wider benefits for aviation ecosystem

The government said the initiative will also help protect domestic and international air connectivity, reduce the pass-through of fuel price shocks to passengers and support services to remote, regional, Tier-II and Tier-III cities.

Apart from airlines, the measure is also expected to benefit sectors linked to aviation, including airports, ground handling agencies, maintenance and repair operations (MROs), travel agencies, hospitality and logistics.

Brokerage firm Morgan Stanley also remains positive on OMCs, saying India's fuel retailers could benefit as policymakers continue to prioritise energy security. It said HPCL remains its top pick among fuel retailers.