Airfares May Get Costlier As Jet Fuel Price Rises 10% For Domestic Airlines

Airfares may get costlier after state-owned fuel retailers hiked aviation turbine fuel (ATF) prices for domestic airlines by nearly 10 per cent, raising one of the industry's biggest operating costs. The increase comes alongside a new government-backed price stabilisation scheme that allows carriers to lock in fuel rates for up to three years and reduce exposure to global oil price volatility.

Under the new regime, domestic airlines that opt into the voluntary scheme will pay a fixed ATF price of Rs 115 per litre, up from the earlier Rs 104.927 per litre. Domestic airlines can lock in aviation turbine fuel (ATF) prices for up to three years under the scheme.

Carriers that choose to stay out of the framework will continue to buy fuel at market-linked rates, which are currently around Rs 142 per litre, in line with prices paid by international airlines.

Sources said the scheme is entirely optional and airlines will decide individually whether to participate. Those that sign up will remain protected from fluctuations in international benchmark prices during the lock-in period, while non-participating carriers could benefit when prices fall but would also have to absorb any future increases.

What Is Fixed Pricing Formula?

The fixed pricing formula is based on a free-on-board (FOB) benchmark of Rs 86.32 per litre, along with airport charges, oil company margins and applicable taxes. This translates into an effective ATF price of Rs 115 per litre in Delhi, Rs 114.5 per litre in Mumbai and Rs 139 per litre in Chennai.

The move comes after domestic ATF prices remained at around Rs 105 per litre in Delhi for more than two months despite a surge in global fuel costs following the outbreak of the West Asia conflict earlier this year. The partial pass-through of higher international prices had reportedly resulted in losses for state-owned oil marketing companies.

To address those losses and shield the aviation sector from future volatility, the Union Cabinet has approved a Rs 10,000-crore price stabilisation framework. Under the mechanism, if global benchmark prices rise above the base rate of Rs 86.32 per litre, 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.

New Mechanism To Cushion Price Volatility

Officials said the arrangement is not a subsidy, but a temporary stabilisation mechanism intended to smooth extreme price fluctuations while ensuring full recovery and accountability of public funds.

ATF is one of the biggest cost components for airlines, accounting for around 40 per cent of operating expenses and rising to as much as 60 per cent during periods of heightened volatility. 

According to sources, international jet fuel prices had climbed to nearly Rs 142 per litre in May from about Rs 60.50 per litre before the conflict, fuelling concerns over higher operating costs and possible fare hikes.

The government expects the new framework to moderate sudden increases in airfares by reducing airlines' exposure to sharp fuel price fluctuations and limiting the need to pass on higher costs to passengers.