Airlines Alert Centre About Potential Operational Halt Due to Rising Fuel Prices
Air India, IndiGo, and SpiceJet are sounding the alarm over the precarious state of the airline industry in India, urging the government to revise Aviation Turbine Fuel (ATF) pricing and provide urgent financial assistance. In a letter to the civil aviation ministry dated April 26, the Federation of Indian Airlines (FIA) warned that the sector is facing extreme stress, with operations nearing a halt due to soaring fuel prices and increased operational costs. The ongoing tensions in the Middle East have exacerbated the situation, pushing oil prices higher and leading to significant financial strain on airlines.
Financial Strain on Airlines
The FIA’s letter highlights the critical role that ATF plays in the operational costs of airlines, accounting for approximately 40 percent of their expenses. The federation pointed out that the unprecedented rise in jet fuel prices, coupled with a significant disparity between crude oil and ATF prices, poses a severe challenge to airline operations. The airlines are particularly concerned about the impact of rising costs on long-haul routes, where airspace restrictions have further inflated operating expenses. The FIA emphasized that any irrational increase in ATF prices or discrepancies in pricing between domestic and international operations could lead to substantial losses, potentially forcing airlines to ground their aircraft and cancel flights.
Government’s Response and Proposed Measures
In response to the industry’s distress, the Indian government is reportedly considering relief measures for airlines. Reports indicate that a Rs 5,000 crore emergency credit guarantee scheme may be approved soon to support struggling carriers. Additionally, the aviation ministry is seeking clearance for the Hotan route through China, which would allow Air India to bypass Pakistan airspace on westbound flights, resulting in significant fuel savings. The FIA has also requested an extension of the existing fuel pricing mechanism to cover both domestic and international operations, similar to the previous crack band system, to ensure fair pricing across the board.
Taxation and Pricing Concerns
The FIA has called for a temporary deferment of the 11 percent excise duty on ATF, citing the compounded effects of rising fuel prices and currency depreciation. The letter pointed out that the excise duty significantly increases the overall cost of ATF for airlines, further straining their financial viability. Last month, the government capped the increase in ATF prices for domestic flights at Rs 15 per litre, while international operations saw a hike of Rs 73 per litre. The federation warned that this pricing gap has rendered both domestic and international operations unviable, leading to substantial losses for the sector in April.
Regional Disparities in VAT
The FIA also highlighted the regional disparities in Value Added Tax (VAT) on jet fuel, noting that Delhi imposes the second-highest VAT rate at 25 percent, while Tamil Nadu has the highest at 29 percent. Other major aviation hubs, including Mumbai, Bengaluru, Hyderabad, and Kolkata, impose VAT rates ranging from 16 to 20 percent. The federation pointed out that these six cities account for more than half of airline operations in India. The FIA has called for a transparent pricing framework under the crack band mechanism, which was introduced in October 2022, to ensure fair margins for oil marketing companies and stabilize the airline industry.
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