The government on Wednesday stepped in for the second time in recent weeks to shield households and consumers from a spike in fuel-linked costs, capping the rise in aviation turbine fuel (ATF) for domestic airlines at about 8.5%, after earlier cutting excise duties on petrol and diesel to contain retail prices.
Calibrated Intervention
The calibrated move ensured that ATF prices rose to around Rs 1,04,927 per kilolitre in Delhi, instead of more than doubling in line with global benchmarks amid the ongoing West Asia conflict. The decision is expected to protect air travellers from an immediate surge in fares driven by fuel surcharges, even as it shifts part of the burden onto state-run oil marketing companies.
The government’s broader approach has been to absorb part of the global crude price shock through tax adjustments. Cuts in excise duty on petrol and diesel, coupled with nudges to states to reduce VAT, have helped keep pump prices of normal fuels unchanged despite rising input costs. However, prices of select premium or branded fuels were increased, with Extra Green diesel rising by Rs 1.50 a litre to Rs 92.99 and 100-octane petrol (XP100) up by Rs 11 to Rs 160 per litre.
In aviation, the limited increase in ATF comes as a relief to both airlines and passengers, given that fuel accounts for nearly 40% of operating costs. Airlines had, in recent weeks, pre-emptively imposed fuel surcharges of up to 30% in anticipation of a sharp rise in jet fuel prices.
Pressure on Airlines
Industry experts said the modest 8.5% increase now puts pressure on carriers to revisit those surcharges. Mark Martin, CEO of Martin Consulting, said the hike does not justify the high fuel surcharge and airlines should align pricing with the actual increase.
While scheduled domestic airlines benefit from the capped increase, non-scheduled, charter and certain international operations continue to face market-linked prices, where ATF rates have surged sharply. This creates a divergence in cost structures between domestic passenger travel and other aviation services, including charters and international routes, where fares may still reflect higher fuel costs.
Government officials said that the staggered and partial increase was designed to avoid a sharp pass-through to consumers while maintaining viability for airlines. They also signalled that government has fare monitoring mechanisms to check any abnormal increases.
Airlines welcomed the move, stating that it provides near-term stability in a volatile pricing environment. At the same time, oil marketing companies are expected to absorb the impact of selling fuel below import-parity levels for domestic carriers, highlighting the trade-off embedded in the government’s consumer-focused intervention.