In response to the rising costs of aviation turbine fuel (ATF) on the global market, the Union Cabinet approved a one-time financial assistance package worth Rs 10,000 crore on Wednesday. This funding is designated for public sector oil marketing companies (OMCs) to help stabilize fuel prices for Indian airlines operating both domestically and internationally. The government anticipates that this initiative, which will be effective for a duration of three years, will alleviate the financial burden on OMCs and Indian airlines amid the current turmoil of fluctuating fuel prices. It also aims to help control rising airfares, which have been significantly influenced by fuel costs.
The government is introducing a price stabilization fund mechanism that is expected to provide airlines with more consistent fuel pricing through a fixed-price system. This will minimize airlines’ vulnerability to abrupt fuel price increases. Notably, this support will be exclusive to Indian airlines and will not extend to foreign carriers. The arrangement will be formalized through an agreement between the airlines and OMCs, stipulating that the airlines will source ATF solely from these companies for a maximum of three years, subject to annual evaluations or until the advance amount is completely recovered, whichever comes first.
International jet fuel prices have surged significantly, driven by the conflict in West Asia and the closure of the Strait of Hormuz. OMCs have reported losses while selling ATF for domestic flights, which is negatively impacting their financial stability. Additionally, they are incurring losses on other fuel types, such as petrol and diesel. Concurrently, Indian airlines are facing challenges, particularly in their international operations, where they must pay market prices for fuel.
This financial strain has forced Air India to drastically reduce its international flight schedules for the June to August period. The airline has also scaled back domestic flights as a result of the increased costs associated with international fuel. Indian carriers have repeatedly urged the government to take measures to stabilize jet fuel prices and to establish parity between fuel costs for domestic and international flights.
Typically, ATF constitutes approximately 40% of operational costs for Indian airlines; however, recent price increases have escalated this figure to around 55-60%, according to an Indian airline association. The rise in jet fuel prices has compelled many airlines to implement fuel surcharges, particularly for international routes, although they assert that these surcharges only partially offset the increased costs. The government reported that international jet fuel prices soared from Rs 60.50 per litre in March to Rs 142 per litre in May, marking a staggering 135% rise.
The financial support will be provided as interest-free advances to OMCs through the Ministry of Petroleum and Natural Gas’s budget. The initiative aims to ensure stable fuel pricing for airlines during this time of significant price volatility caused by the West Asia crisis. The fund will compensate OMCs for losses incurred when the current Import Parity Price exceeds the established benchmark price. If international ATF prices decrease, the differential amount will be recovered from OMCs and returned to the Consolidated Fund of India. This arrangement remains in effect until the total support amount is completely recovered and settled.
Oversight of this implementation will be managed by a monitoring committee comprising representatives from the Ministry of Civil Aviation, the Ministry of Petroleum and Natural Gas, and the Department of Expenditure. This committee will be responsible for verifying claims, reconciling accounts, and overseeing settlements, all of which will be subject to audit.
In their recent monthly update, OMCs maintained the price of ATF for scheduled domestic flights for the second consecutive month. Additionally, Indian airlines received some relief with a 27% reduction in jet fuel prices for international flights, aligning these costs closer to those for domestic flights.
According to MoPNG Joint Secretary Sujata Sharma, OMCs were experiencing under-recoveries of nearly Rs 30 per litre on domestic jet fuel sales. However, it is important to note that the new price stabilization mechanism will not address the under-recoveries already incurred by OMCs on past jet fuel sales, as explained by Information and Broadcasting Minister Ashwini Vaishnaw during a press briefing.
The government emphasized that this new mechanism will enhance predictability and stability in ATF pricing for Indian airlines, facilitating better operational and financial planning. It is designed to protect OMCs from losses arising from volatile ATF prices during the ongoing crisis in West Asia, ensuring the continuity of both domestic and international air services. This initiative will also help mitigate the transmission of fuel price increases to passengers, thereby stabilizing fare fluctuations.
The rise in international jet fuel prices has put additional pressure on Indian airlines’ international operations, which were already compromised due to the closure of Pakistan’s airspace since late April of the previous year. The ongoing crisis in West Asia has further exacerbated these challenges.
While all major Indian airlines have felt the impact of this situation, Air India has been particularly affected, as it is the only Indian airline with substantial operations connecting Europe and North America. According to data from the airline and its filed flight schedules, Air India is set to operate approximately 27% fewer international flights during the June to August period.
