Airfares may rise as domestic jet fuel prices increase 10%

Domestic air travel could become more expensive after state-owned oil marketing companies increased Aviation Turbine Fuel (ATF) prices for domestic airlines by nearly 10%, raising one of the aviation sector’s largest operating costs.

The price hike comes alongside the introduction of a government-backed price stabilisation mechanism that allows airlines to lock in ATF prices for up to three years, helping shield carriers from global fuel price volatility.

Under the voluntary scheme, participating airlines will pay a fixed ATF rate of ₹115 per litre, compared to the earlier price of ₹104.93 per litre. Airlines opting out of the scheme will continue purchasing fuel at market-linked rates, which are currently around ₹142 per litre, similar to the rates paid by international carriers.

Industry sources said the scheme gives airlines the flexibility to choose between price stability and market-based pricing. Carriers joining the programme will be protected from sudden fluctuations in international fuel prices during the lock-in period, while those staying outside the framework may benefit when prices fall but will also face the risk of future increases.

New ATF Pricing Formula

The fixed pricing mechanism is based on a free-on-board (FOB) benchmark of ₹86.32 per litre, combined with airport charges, oil company margins and applicable taxes.

Under the revised structure, ATF prices have been set at approximately ₹115 per litre in Delhi, ₹114.5 per litre in Mumbai and ₹139 per litre in Chennai.

The move follows a sharp increase in global fuel prices triggered by geopolitical tensions in West Asia. Despite rising international costs, domestic ATF prices had remained largely unchanged for more than two months, reportedly leading to financial losses for oil marketing companies.

₹10,000 Crore Price Stabilisation Framework

To address these concerns, the Union Cabinet has approved a ₹10,000-crore price stabilisation framework aimed at reducing volatility in aviation fuel costs.

Under the mechanism, if global fuel prices exceed the benchmark level, the government will provide interest-free advances to oil marketing companies to bridge the gap. When international prices decline, the excess amount will be recovered and returned to the Consolidated Fund of India.

Officials clarified that the framework is not a subsidy but a temporary stabilisation measure designed to manage extreme price fluctuations while ensuring accountability and full recovery of public funds.

Impact on Airlines and Passengers

ATF remains one of the largest expenses for airlines, accounting for nearly 40% of operating costs and rising to as much as 60% during periods of elevated fuel prices.

According to industry estimates, international jet fuel prices surged from around ₹60.50 per litre before the West Asia conflict to nearly ₹142 per litre in recent months, significantly increasing operational expenses for carriers.

While the government expects the new pricing mechanism to cushion airlines from sudden cost spikes and help moderate airfare increases, industry experts believe some upward pressure on ticket prices may still be felt if fuel costs remain elevated over an extended period.