Blitz Bureau
NEW DELHI: Even as global crude prices flicker with occasional dips, relief remains frustratingly out of reach for India’s aviation sector. The promise of cheaper fuel has turned into a mirage — jet fuel costs stay punishingly high, squeezing airlines, while passengers confront airfares that refuse to descend.
The strain is now reaching a breaking point. The Federation of Indian Airlines (FIA) has sounded a stark warning: without swift policy intervention, sections of the industry risk being grounded altogether, with operations potentially forced to shut down.
In recent weeks, Brent crude has retreated from peaks of $120-125 per barrel to about $110-115, but remains 30-35 per cent higher than a year ago. This does not mark a return to comfort; rather, it reflects a volatile, supply-driven market.
Concerns over disruptions on key shipping routes such as the Strait of Hormuz continue to keep energy markets on edge. What appears as ‘easing’ is, in reality, only a pullback from extreme spikes.
For airlines, this distinction is critical. Aviation turbine fuel (ATF), which accounts for 30-40 per cent of operating costs for Indian carriers — compared to about 20-25 per cent globally — does not move in step with crude.
ATF prices in India are still up 20-25 per cent year-on-year despite recent moderation in crude. The price airlines pay depends heavily on refining margins, which have remained elevated due to tight global refining capacity and strong demand for middle distillates.
The severity of the situation is reflected in FIA’s blunt assessment. Representing major carriers such as IndiGo, Air India, and SpiceJet, the industry body has warned the sector is under “extreme stress” and “on the verge of stopping operations” if fuel costs remain unchecked. It has sought urgent Government intervention, particularly in rationalising ATF pricing and taxes.
India’s cost disadvantage is stark. ATF prices in major metros are estimated at 40-60 per cent higher than in global hubs such as Dubai or Singapore, largely due to taxation. Unlike petrol and diesel, ATF remains outside GST and is subject to state-level VAT ranging from 5 per cent to 25 per cent, preventing airlines from claiming input tax credits.
“Fuel taxation in India acts as a structural handicap,” says Kapil Kaul, CEO of CAPA India. “Even if global prices soften, airlines will not see the full benefit unless ATF is brought under GST.”
Currency movements have compounded the challenge. The rupee’s 3-4 per cent depreciation over the past year has offset part of the benefit from softer crude prices. For airlines operating on margins often below 5 per cent, this further squeezes profitability.
Against this backdrop, airline executives and industry representatives met on May 1 to review pricing strategies and assess the impact of rising fuel costs. According to industry sources, the meeting did not result in any immediate fare cuts despite the marginal softening in crude. Instead, carriers agreed to maintain pricing discipline, reflecting a cautious approach amid continued cost pressures.
“There is no room for aggressive fare cuts at this stage,” said an airline executive familiar with the discussions. “Fuel remains volatile, and any premature reduction in fares could worsen financial stress.”
The meeting effectively reinforced a broader industry stance: airlines will prioritise yield protection and financial stability over market share gains. Discussions also centred on tighter capacity management, route rationalisation and increased reliance on ancillary revenues such as baggage and seat selection fees.
At the same time, there was a renewed push for policy intervention. Airlines reiterated the need to bring ATF under GST and rationalise state taxes, arguing that such steps could lower fuel costs by 8-10 per cent and improve competitiveness. However, there was no coordinated move to raise fares either, with pricing decisions left to market dynamics and demand conditions.
For passengers, the outcome is clear: airfares are unlikely to fall in the near future. Domestic passenger traffic continues to grow at 8-10 per cent annually, providing airlines with sufficient pricing power even as costs remain elevated.
“Airfares are increasingly driven by demand and yield management,” said aviation expert Mark Martin. “As long as planes are full, airlines will prioritise balance sheet repair.”
The result is what industry observers describe as ‘sticky fares’ — prices that remain elevated even when input costs show signs of easing. Any savings on fuel are more likely to strengthen airline finances than to translate into lower ticket prices.
Unless these structural issues are addressed, even a sustained decline in crude may not translate into cheaper flying. For now, the industry remains caught between volatile global energy markets and domestic cost rigidities, with FIA’s warning underscoring the risks of inaction.