Aviation Stocks: Why IndiGo and SpiceJet share prices zoom up to 10%? Key reasons explained

Aviation stocks surged sharply on Wednesday after regulatory authorities and the government announced multiple relief measures to support airlines amid rising fuel costs and operational challenges linked to geopolitical tensions in West Asia.

The Airport Economic Regulatory Authority (AERA) announced a 25 per cent reduction in landing and parking charges at all major airports for the next three months. The cut, effective immediately, is applicable only for domestic flights and is aimed at easing operational costs for carriers.

According to officials, the decision follows government instructions to mitigate the impact of rising Air Turbine Fuel (ATF) prices and operational disruptions resulting from the West Asia crisis.

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Following these developments, key aviation stocks witnessed significant gains in early trading. SpiceJet Ltd rose 5 per cent to Rs 11.14, while InterGlobe Aviation (IndiGo) jumped over 10 per cent to Rs 4,702.05.

Analysts said the rally was driven by the combined effect of reduced airport charges, partial relief in domestic fuel costs, and the removal of fare caps by the government.

Relief Measures for Airlines

The AERA relief will provide airlines with immediate cost savings on landing and parking fees at major airports. The reduction is expected to support carriers’ cash flows and improve operational efficiency, especially for domestic flights.

In addition, the Ministry of Petroleum & Natural Gas (MoPNG) and the Ministry of Civil Aviation (MoCA) have decided to cap domestic aviation fuel price increases at 25 per cent. This measure ensures that airlines do not fully bear the impact of a sudden and sharp rise in ATF prices.

IndiGo has revised its domestic fuel charges accordingly. For domestic sectors, the fuel surcharge now ranges from Rs 275 per passenger for flights up to 500 km to Rs 950 for flights above 2,000 km.

For international operations, given the absence of fuel price caps, charges vary widely depending on the region, ranging from Rs 900 for Indian subcontinent routes up to 500 km to Rs 10,000 for UK and Europe routes excluding Greece and Turkey.

Air India group also revised its fuel surcharge structure for both domestic and international flights. The airline transitioned from a flat domestic surcharge to a distance-based system, with charges ranging from Rs 299 for flights up to 500 km to Rs 899 for flights above 2,000 km.

International surcharges were raised substantially due to high global jet fuel prices. The airline said it continues to absorb a significant portion of the increase in fuel costs for international flights.

Brokerage Views on Airlines

Brokerages highlighted that the relief measures have eased immediate cost pressures for airlines. Jefferies noted, "Airlines are most exposed due to Middle East linked capacity cuts and higher fuel costs. Domestic support measures improve near-term operational stability."

The brokerage maintained a Buy rating on IndiGo, with a target of Rs 5,500, down from Rs 6,140, citing the impact of geopolitical disruptions and rising fuel costs on earnings.

HSBC also maintained a Buy rating on IndiGo with a revised target of Rs 5,210, down from Rs 5,860. Goldman Sachs retained a Buy rating at Rs 5,200, noting that supply constraints are likely to manifest over the next few quarters and emphasising the importance of cost control and balance sheet strength.

Goldman Sachs said, "IndiGo fits well into themes of capital preservation and industry consolidation, similar to its strategy during COVID-19."

The combined effect of government intervention, fuel price moderation, and airport fee relief is expected to improve airlines’ near-term margins and operational stability. Analysts said these measures will help carriers manage the increased cost environment without a sharp rise in passenger fares.

Impact on Aviation Sector and Airports

While airlines benefit directly from fuel and fee relief, airports are likely to see mixed outcomes. AERA’s reduction in landing and parking charges will lower aeronautical revenue in the short term.

However, analysts said improved domestic flight operations could offset some of the revenue loss through higher passenger volumes and ancillary spending. EY India noted that non-aeronautical revenues, including retail and services, contribute between 40 and 60 per cent of total income at large airports, making them sensitive to passenger mix and dwell time.

EY India’s analysis further highlighted that geopolitical disruptions have led to longer international flight routes, higher fuel consumption, and increased crew and operational costs.

Airspace restrictions in West Asia have forced airlines to reroute flights, adding up to 10-15 per cent extra distance on key corridors. Despite these challenges, government interventions and the fare capping relief provide short-term stability for the aviation sector.

Hotels and other travel-related services are likely to experience subdued demand due to softer international traffic and the ongoing geopolitical situation. However, domestic substitution is expected to partially cushion the impact on earnings.

Jefferies highlighted that the earnings cuts are sharpest for IndiGo, followed by hotels and airport operators, while the relative pecking order remains Airports>Airlines>Hotels.