IndiGo and SpiceJet shares fell in early trade on Tuesday after Aviation Turbine Fuel (ATF) prices were increased by 5.46% for the second consecutive month. 

InterGlobe Aviation, the parent company of IndiGo, was trading at 5,087.50 on the NSE at 9:35 AM, down 2.80%, while SpiceJet shares fell 0.87% to Rs 10.23. The higher fuel prices raised concerns over increased operating costs and pressure on airline margins.

ATF prices were increased by Rs 6.28 per litre to Rs 121.28 per litre from Rs 115, effective September 1. This follows a 7.5% increase in August, marking two straight months of higher aviation fuel prices. ATF prices are revised monthly based on international fuel prices and foreign exchange movements.

The development is important for airlines because fuel accounts for nearly 40% of their operating costs. A sustained increase in ATF prices can therefore put pressure on profitability, especially if airlines are unable to pass the higher costs on to passengers through ticket prices.

The latest hikes have also reversed much of the benefit from earlier reductions. ATF prices had declined by a cumulative Rs 12,239.17 per kilolitre across three monthly reductions, while the subsequent increases of Rs 8,949.38 per kilolitre have wiped out almost three-fourths of that decline.

ATF prices differ across cities because of variations in local taxes, including VAT. In August, prices stood at Rs 86,077.14 per kilolitre in Mumbai, Rs 95,512.26 in Chennai and Rs 95,164.90 in Kolkata. State-owned oil marketing companies revise ATF prices on the first day of every month based on global benchmark fuel prices and foreign exchange rates.

The latest increase comes as airlines continue to navigate volatile fuel prices and geopolitical uncertainty. Higher crude oil prices can further increase fuel expenses and make it harder for carriers to protect margins.

Overall, the second consecutive ATF hike is a near-term negative trigger for airline stocks, with the impact likely to remain significant if fuel prices stay elevated in the coming months.

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