Airline stocks take off, climbs up to 20% in trade; here's why

Stocks of SpiceJet and Jet Airways surged up to 20 per cent on the Bombay Stock Exchange (BSE) in an otherwise subdued market on hopes these aviation companies may clock healthy September quarter numbers amid the recent fall in crude prices.

SpiceJet ended at its day high of Rs 37.30, up 9.93 per cent, while Jet Airways gained 13.67 per cent intraday to Rs 374.40 and closed at Rs 369.70.

In a major network and fleet expansion, the budget carrier last week said it will induct six new aircraft and operate 291 flights during the winter schedule, which would come into effect from the end of October.

The induction of the new planes, which will be added in the existing fleet in the next one month period, is part of SpiceJet's comprehensive plan of operating an enhanced flight schedule to meet the winter demand, the airline said in a release.

Brent crude prices have been on a falling spree. Even as the commodity has made some attempt to bounce back, the upside has largely been capped due to supply glut amid subdued global economic environment. Declining global oil prices have made oil imports cheaper, resulting in price cut for the airlines. Air Turbine Fuel (ATF) constitutes more than 30 per cent of airlines' expenditure. The price reduction will ease the financial burden of cash-strapped carriers.

On Monday, Brent crude retreated 5.3 per cent, clocking its single-day drop since September 1. The black gold had hit a low of $43 per barrel level in late August. This has raised hopes that the troubled sector can report profits in the quarter gone by.

A global oil supply glut will persist through 2016 as demand growth slows from a five-year high and key OPEC producers maintain near-record output, the International Energy Agency said on Tuesday, even as low prices curb supply outside OPEC.