- Indian airlines warn of possible shutdowns as fuel costs spiral
- Jet fuel now accounts for up to 60 per cent of operating costs
- Industry seeks return of capped pricing model to stabilise margins
India’s aviation sector is entering a critical phase, with airlines flagging a sharp rise in aviation turbine fuel (ATF) prices as a serious threat to their survival. In a letter dated April 26 to the Ministry of Civil Aviation, the Federation of Indian Airlines, which represents Air India, IndiGo and SpiceJet, warned that parts of the industry are “on the verge of shutting down”, as quoted in a news report.
With the West Asia conflict pushing up crude oil prices and refining margins, airlines say the current system is no longer workable. According to the industry body, ATF prices, a major driver of airline costs, have surged far beyond crude trends, putting both domestic and international operations under strain.
A pricing formula under pressure
The industry’s concern isn’t just about rising crude oil prices. It is also about how those prices are translated into jet fuel costs. ATF pricing in India is tied to the Mean of Platts Arab Gulf benchmark, but airlines argue that the refining margins, known as the “crack spread” have ballooned disproportionately.
Earlier, this margin hovered between £9 and £14 ($11–18) per barrel. It has now jumped to over £103 ($130) per barrel, even though refining costs have not significantly changed, the FIA reportedly said. Meanwhile, Brent crude has risen from around £57 ($72) per barrel to £94 ($118).
This imbalance has pushed ATF prices to as high as £205 ($260) per barrel at peak levels, before settling around £185 ($235). The result is a widening gap between crude costs and the final fuel price airlines pay.
To counter this, airlines are asking for a return to a “crack band” system, a pricing mechanism used during the pandemic, which sets a floor and ceiling on refining margins. The idea is to allow oil companies to recover costs while preventing extreme spikes.
Costs soar, networks strain
Fuel has always been a major expense for airlines, but the scale has shifted dramatically. ATF now accounts for 55–60 per cent of operating costs, up from about 40 per cent earlier. That alone is enough to destabilise airline finances, but other pressures are adding to the strain.
Airspace restrictions linked to the West Asia situation and the continued closure of Pakistani airspace for Indian carriers are increasing flight times and costs. A weakening rupee is also making dollar-denominated expenses more expensive.
The situation appears particularly difficult for international routes. While domestic ATF price increases were partially capped in April, limited to about ₹15 per litre, international fuel prices saw a much sharper jump of around ₹73 per litre. This has made overseas operations “completely unviable”, the FIA reportedly said.
Airlines have also called for temporary tax relief, including suspension of the 11 per cent excise duty on domestic ATF and a reduction in state-level VAT, which remains high in key aviation hubs.
With the next monthly ATF price revision scheduled for May 1, the industry is pushing for immediate intervention. The broader concern seems to be less about short-term relief and more about structural stability.
Airlines argue that without a predictable pricing framework, planning routes, managing capacity and maintaining profitability becomes increasingly difficult. At the same time, oil marketing companies are unlikely to favour strict caps that could limit their margins during periods of high global prices.
What happens next could shape the trajectory of India’s aviation sector in the coming months. For now, the warning from airlines is clear — unless the pricing imbalance is addressed, the pressure may not just dent profits but disrupt operations altogether.
