The aviation sector has warned of a deepening financial crisis, with airlines flagging that surging aviation turbine fuel (ATF) prices have pushed operations to the edge of viability and could soon impact flight connectivity if urgent government intervention is not announced.
In a letter dated April 26 to the Ministry of Civil Aviation, the Federation of Indian Airlines (FIA), representing Air India, IndiGo and SpiceJet, said the industry was under “extreme stress” and “on the verge of closing down or of stopping its operations” amid mounting losses.
The airlines’ body highlighted a sharp and uneven rise in fuel prices, noting that while the government capped the increase in ATF for domestic operations at Rs 15 per litre, international ATF prices were raised by Rs 73 per litre. “This has made international operations along with domestic operations completely unviable and resulting in significant losses,” the FIA said, adding that the current pricing structure did not ensure parity between domestic and international operations.
The crisis has been triggered by global geopolitical tensions, particularly the West Asia conflict, which has pushed Brent crude prices from about $72 per barrel to $118 per barrel. ATF prices have surged disproportionately, rising from $87.24 per barrel to as high as $260.24 per barrel, a nearly 295 per cent increase, before easing slightly. The crack spread between crude and ATF has also widened sharply to over $130 per barrel, which airlines described as “exorbitant” and not reflective of actual refining costs.
Fuel costs, which earlier accounted for 30 to 40 per cent of airline expenditure, have now risen to nearly 55 to 60 per cent, creating what the FIA termed “completely non-operatable conditions for airlines”. The letter underlined that while ATF constitutes only about 4 per cent of refinery output, it makes up over 40 per cent of airline costs, placing carriers at a structural disadvantage. It also pointed out that nearly 50 per cent of ATF produced in India is exported, while only about 30 per cent is consumed by domestic airlines.
“Today airlines are in a very difficult, precarious and challenging situation,” the FIA said, adding that operators have been managing services despite rising costs, airspace closures and geopolitical disruptions. The burden has been further aggravated by the depreciation of the rupee to its lowest levels, increasing the cost of fuel imports, along with suppliers seeking price revisions due to rising petrochemical costs.
Seeking immediate relief, the airlines’ body has urged the government to reinstate the ‘crack band’ pricing mechanism introduced in 2022 through a joint working group of airlines and oil marketing companies to regulate refinery margins. The mechanism, which ensured a defined margin range, was discontinued in December 2024 after prices stabilised. However, the FIA said the current spike in margins “represents pure additional margin/profit for oil companies” and warrants urgent correction.
The FIA has also called for temporary suspension of the 11 per cent excise duty on ATF, noting that the tax, being levied as a percentage of fuel prices, rises sharply with every increase in ATF. “Every time there has been an increase in ATF prices, the impact on airlines increase significantly,” it said, reiterating its long-pending demand to convert the duty into a fixed levy instead of a percentage-based charge.
The letter also flagged high state-level VAT as a major concern, with Delhi levying around 25 per cent, among the highest in the country, while other major hubs such as Mumbai, Bengaluru, Hyderabad and Kolkata impose between 16 and 20 per cent. These six cities together account for over half of airline operations in India.
Warning of wider consequences, the FIA said airlines may be forced to “rationalise capacity, reduce network deployment and curtail connectivity” if the situation persists. It cautioned that any “irrational increase in the price of ATF will result in unsurmountable losses… leading to grounding of aircraft resulting in cancellation of flights”, urging the government to step in urgently to stabilise the sector and ensure continuity of operations.
