Air India, IndiGo, SpiceJet seek ATF price revision, financial support from Centre; warn of possible shutdown

Major Indian airlines have told the Union government that the airline industry of the country is on the verge of shutting down due to the rising cost of aviation fuel, and have sought ATF price revision as well as financial support.

Airlines which sent the letter to the civil aviation ministry via the the Federation of Indian Airlines (FIA), sought steps to extend the same fuel pricing mechanism for both domestic as well as international operations.

The West Asia crisis, which has hindered energy supplies all around the world, has also driven up oil prices. Restrictions on airspaces have also shot up operating costs of airlines. Notably, among an airline’s operational expenses, Aviation Turbine Fuel (ATF) accounts for around 40%, thus taking the lion’s share of the pie.

“… any ad hoc pricing (domestic vs international) and/or irrational increase in the price of ATF will result in unsurmountable losses for airlines and will lead to grounding of aircraft, resulting in cancellation of flights,” the federation, which represents Air India, IndiGo and SpiceJet, said.

“In order to survive, sustain and continue operation, we request your urgent intervention for immediate and meaningful financial support to tide over the current situation,” it added in a letter dated 26 April.

The airlines have also asked the government to defer the excise duty on ATF, which is currently at 11%.

“With the abnormal increase in ATF prices from the pre-crisis period, adding rupee depreciation to the increased prices, the 11 per cent excise duty also increases manifold for the airlines and adds to the ATF price as a big impact on airlines,” they said.

In March, the central government limited the ATF price hike to ₹15 per litre for domestic ops while the hike for international ops was considerably steeper, at Rs73 per litre.

The letter revealed that for the airlines, continuing international operations as well as domestic operations has become unviable and is becoming unviable, and has already resulted in significant losses in April for the sector.

“The airline industry in India is under extreme stress and is on the verge of closing down or of stopping its operations,” the letter stressed.

The federation has called for a pricing framework to be based on the crack band mechanism (USD 12–22/BBL) that was implemented in October 2022, claiming that this leaves room for a reasonable and fair margin for Oil Marketing Companies (OMCs).

The FIA has stated that Delhi, which is India’s largest aviation hub, has the second highest VAT (value-added tax) on jet fuel (25 per cent), while the highest in the country is levied by Tamil Nadu (29 per cent).

“The other major aviation cities, viz. Mumbai, Bangalore, Hyderabad, and Kolkata range between 16 per cent and 20 per cent. These 6 cities cover more than 50 per cent of airlines’ operations within India,” the federation said.