Air India, IndiGo, SpiceJet Seek Govt Relief As West Asia Conflict Pushes ATF Costs Higher

The Federation of Indian Airlines, representing key carriers Air India, IndiGo and SpiceJet, has urgently requested government assistance amid soaring aviation fuel costs triggered by the conflict in West Asia. In a letter to the Civil Aviation Ministry, the group warned that mounting financial strain could force airlines to scale back operations, particularly as the approaching festive travel season.

Fuel expenses, which once made up roughly 30%-40% of operating costs, have surged to a range of 55%-60% due to rising fuel prices. Airspace restrictions have compelled airlines to adopt longer routes, escalating fuel consumption and crew costs while diminishing aircraft utilization. The Indian rupee's depreciation has exacerbated the airlines' financial burden, impacting fuel, aircraft leases, maintenance, and insurance, many of which are tied to the US dollar.

In response, IndiGo has increased its fuel charges as of October 6, with domestic flyers facing additional costs up to ₹1,300 per sector. The Federation of Indian Airlines has urged the government to transition from a pricing model based on international benchmarks to a cost-plus approach for domestic aviation turbine fuel. The association pointed out that the price of Brent crude oil rose from $72 per barrel to $118 following the conflict's onset.

The Mean of Platts Arab Gulf (MOPAG) plus premium for ATF climbed from $87.24 to a peak of $260.24, currently hovering around $175.33 per barrel. Airlines have limited capacity to recoup these additional expenses, as tickets are frequently pre-booked and fare increases cannot be retroactively applied. The Federation of Indian Airlines has also advocated for a fixed-rate excise duty on domestic ATF, rather than the current ad valorem levy, arguing that escalating fuel prices heighten the excise burden, which subsequently incurs additional VAT.

Furthermore, the association is seeking to extend the 7% VAT rate on ATF in Delhi and Maharashtra beyond mid-November and to reduce VAT rates in certain states to alleviate financial pressure on airlines.