Shares of three air carriers fell 2.76% to 4.61% at 11:42 IST on BSE as a weak rupee heightened concerns about its impact on operating costs of airline companies.
Kingfisher Airlines (down 4.61%), SpiceJet (down 2.77%) and Jet Airways (down 2.76%), declined.
The BSE Sensex was down 280.42 points or 1.71% at 16,080.73.
Kingfisher Airlines had underperformed the market over the past one month until 22 September 2011, falling 6.73% compared with the Sensex's 0.12% gain. The scrip had also underperformed the market in past one quarter, sliding 31.55% as against 6.78% decline in the Sensex.
SpiceJet had underperformed the market over the past one month until 22 September 2011, falling 3.29% compared with the Sensex's 0.12% gain. The scrip had also underperformed the market in past one quarter, sliding 15.32% as against 6.78% decline in the Sensex.
Jet Airways had underperformed the market over the past one month until 22 September 2011, falling 12.15% compared with the Sensex's 0.12% gain. The scrip had also underperformed the market in past one quarter, falling 36.79% as against 6.78% decline in the Sensex.
The partially convertible rupee was at 49.82/83 per dollar, after hitting 50 in a one-off deal, its weakest since 14 May 2009. The rupee had closed at 49.57/58 on Thursday, 22 September 2011.
A weak rupee impacts aviation sector adversely as almost a third of operational expenses of aviation firms are denominated in dollars. Among the payments made in dollars, include rentals of leased aircraft, maintenance, spare parts and salary paid out to foreign crew.
On a positive note, crude oil prices have declined sharply this week. Crude for November delivery was down 49 cents a barrel, or 0.61% at $80.02 a barrel in electronic trading on Friday, 23 September 2011. On Thursday, crude oil for November delivery slumped $5.41 or 6.3% to $80.51 a barrel on the New York Mercantile Exchange.
Aviation turbine fuel (ATF), which is directly linked with crude oil prices, constitutes more than 50% of operating cost for airliners. State-run oil marketing companies (PSU OMCs)--Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation--revise aviation turbine fuel (ATF) prices on the 1st and 16th of every month based on the average international crude price in the preceding fortnight. PSU OMCs hiked aviation turbine fuel prices by 2.5% on 16 September 2011 in line with firm global oil prices.
Given the cash crunch at many domestic carriers, the Department of Industrial Policy and Promotion (DIPP) has reportedly sent several letters to the Civil Aviation Ministry on the issue of allowing foreign airlines to invest in domestic carriers. Besides cash infusion, foreign airlines can also help in operational efficiency and connectivity improvement, the DIPP noted.
Currently, India allows up to 49% foreign direct investment (FDI) in domestic airlines through the automatic route while NRIs can invest up to 100%. Foreign airlines are, however, barred from investing in domestic airlines.
In 2008, the civil aviation ministry had proposed to allow foreign carriers to hold up to 25% in local carriers within the overall FDI limit of 49%. It, however, later backed out arguing the time was not right for such a move given the nascent stage of Indian airline industry.
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