The Federation of Indian Airlines (FIA), which represents Air India, IndiGo and SpiceJet, has warned the government against canceling flights and said the aviation industry is on the verge of “stopping operations” due to the rise in aviation turbine fuel (ATF) prices, in a letter dated April 26 seeking urgent government intervention ahead of the next review of aviation turbine fuel on May 1. The FIA said the current ad hoc pricing structure – with domestic and international ATF fares treated differently – was creating a “severe imbalance” in operations and making aviation networks “unviable and unsustainable”.
“Any customized pricing (domestic vs international) and/or irrational increase in ATF price will result in insurmountable losses to the airline and will result in grounding of aircraft resulting in flight cancellations,” the letter read.
On April 1, state-run oil marketing companies initially raised ATF prices for domestic airlines by 114.55%, from $96.638 per kiloliter $2,07,341 per Kuala Lumpur to Delhi, and for 107% foreign carriers, from $816.91 per Kuala Lumpur to $1,690.81 per Kuala Lumpur. Later in the day, the government stepped in to ease the domestic increase to 8.6%, bringing the rate of scheduled airlines such as IndiGo, SpiceJet and Air India down to 8.6%. $1,04,927 per Kuala Lumpur. However, international operations bore the full increase.
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The airlines said April prices had already made international operations unviable and led to significant losses.
The conflict in West Asia pushed Brent crude from $72 a barrel to $118 a barrel, with ATF prices – measured by the MOPAG index plus a premium – rising from $87.24 a barrel to a high of $260.24 a barrel, an increase of 295%, before falling to $235.63 a barrel, the financial intelligence agency said. The spread between Brent and MOPAG, which was previously between $11 and $18 per barrel, widened to $132.59 per barrel.
Since ATF accounts for 30-40% of airline costs, the FIA said, rising prices have pushed the share of fuel in operating costs to 55-60%, making operations unviable. The devaluation of the rupee has exacerbated the burden, as have higher costs from local suppliers of polymers, petrochemicals and by-products linked to oil prices. Airlines were also experiencing longer flight routes and increased fuel consumption due to airspace restrictions imposed by the conflict in West Asia.
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“Airlines are somehow managing operations so far despite higher costs and additional expenses due to airspace closures and intermittent geopolitical disturbances. Now, with the unprecedented rise in ATF prices and huge difference between crude oil and ATF, airline operations are facing a complete challenge.”
The association made three specific requests. First, the government sought to return to the crackband mechanism – a transparent pricing framework with a range of $12-22 per barrel – which was implemented in October 2022 after the Covid-19 period, when the government supported airlines through a similar adjustment. Second, it requested a temporary deferral of the ATF excise duty, which is currently imposed at 11% on domestic operations. Third, it sought to reduce VAT on ATF in key states – Delhi has the second highest VAT on jet fuel at 25%, Tamil Nadu the highest at 29%.
Mark D. Martin, CEO of Martin Consulting, an aviation consulting firm, dismissed the letter as a pressure tactic. “Airlines need to find a better excuse to try to pressure the government. India is the only country in the world that is easing jet fuel costs to protect airlines from a potential rise in prices.”
