Indian Airlines Warn Centre They Are On Verge Of Stopping Operations As ATF Prices Soar

India's aviation sector has raised a red flag over rising fuel costs triggered by the ongoing Middle East crisis, with major domestic carriers warning that they could be pushed towards suspending operations if urgent relief is not provided. The sharp jump in aviation turbine fuel (ATF) prices, especially for international operations, has led airlines to seek immediate government intervention.

At least three airlines, including Tata-owned Air India, have urged the Centre to revise ATF pricing, saying the fuel now accounts for nearly 40 per cent of an airline's operating cost. The concerns have been formally flagged by the Federation of Indian Airlines (FIA), which represents Air India, IndiGo and SpiceJet.

FIA Flags Risk Of Grounded Aircraft And Flight Cancellations

In a letter sent to the Civil Aviation Ministry on April 26, the Federation of Indian Airlines warned that the current pricing structure could severely damage airline finances.

"... Any ad hoc pricing (domestic vs international) and/or irrational increase in the price of ATF will result in insurmountable losses for airlines and will lead to grounding of aircraft, resulting in cancellation of flights," the FIA said in the letter to the ministry.

The federation made it clear that unless corrective measures are taken quickly, airlines may struggle to keep flights operational.

"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 said in the letter dated April 26.

Long-Haul International Flights Face The Biggest Pressure

According to the airlines' body, long-haul international services are facing the most severe pressure from the latest ATF price escalation. While the government capped the increase in ATF rates for domestic flights at Rs 15 per litre, the price for international operations reportedly rose by a much steeper Rs 73 per litre.

This widening gap between domestic and international fuel pricing has become a major concern for carriers operating overseas routes, where fuel expenses are already among the highest cost components.

To ease the burden, airlines have asked the ministry to bring back a more balanced fuel pricing mechanism that applies uniformly across domestic and international operations, similar to the earlier "crack band" system.

Airlines Seek Return Of "Crack Band" Pricing Formula

The FIA has specifically requested that the government reintroduce a pricing model based on the "crack band" approach, which was previously used to reduce sharp fluctuations between crude oil and refined ATF prices.

In simple terms, the "crack band" mechanism is designed to prevent extreme differences between the cost of crude oil and the final price of aviation fuel. Airlines believe restoring such a system would offer more predictable and stable fuel pricing at a time of global energy volatility.

The request comes as carriers try to manage a situation where operating economics have been disrupted by an uneven rise in ATF costs across route categories.

Excise Duty Relief Also Sought As Rupee Weakness Adds To Pain

Apart from changes to the pricing formula, airlines have also sought a temporary deferment of the 11 per cent excise duty imposed on ATF. The federation argued that the tax burden has become even heavier because the rise in fuel prices is being compounded by rupee depreciation.

"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," the federation said.

Airlines say that without relief on excise duty, the combined effect of expensive fuel and a weaker rupee could further erode already thin operating margins.

US-Iran War And Hormuz Blockade Behind Global Fuel Shock

The current crisis in aviation fuel pricing has been linked directly to geopolitical tensions in the Middle East, particularly the US-Iran war and Iran's blockade of the Strait of Hormuz, one of the world's most critical energy shipping routes.

Roughly one-fifth of global oil supply passes through the Strait of Hormuz. The narrow waterway is a key route for tankers carrying oil and gas from Saudi Arabia, Kuwait, Iraq, Qatar, Bahrain, the UAE and Iran, with much of that supply heading to Asian markets.

Any disruption in traffic through the strait has an immediate impact on the global oil trade, pushing up crude prices and, in turn, the cost of refined products such as aviation turbine fuel. For Indian airlines, that global disruption is now translating into mounting cost pressure and an urgent call for policy support.