Aviation Turbine Fuel Prices on a Rise - Chart Of The Day 19 November 2016 - Equitymaster

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Aviation Turbine Fuel Prices on a Rise
Nov 19, 2016

Berkshire Hathaway has recently reported of buying a stake in some of the airline companies. This has surprised the markets since his abhorrence for airline stocks and the industry as a whole is well known. We had a look at the performance of our airlines industry. Lower Aviation Turbine Fuel (ATF) prices has resulted in the industry reporting positive operating profit margins since 2015. With 2016 reportedly being the best year of profitability in over a decade. The ATF prices stayed at multi year lows of Rs 30-40 per litre of fuel. Lower fuel prices have in turn reduced airfares which has led to increase in the load factor i.e. utilisation rates for the airlines. The utilisation rates are now at record highs.

However, the past few months has seen fuel prices recover from mid 30's over Rs 49 per litre. This will put pressure on the airlines to raise their fares. If the airlines are unable to pass this rate hike via air fares increases, this will then result in dented profitability for airlines. However, higher airfares will impact passenger traffic resulting in lower revenues for the airlines.

For now, the profitability of these airlines seem to have peaked.

Data Source: Yahoo Finance

This Chart Of The Day was published in The 5 Minute WrapUp - Multibaggers: A Gut-Wrenching Roller Coaster Ride

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