As ATF costs surge, Airlines warn of 'stopping operations’

Mumbai: Air India, IndiGo, and SpiceJet have warned the government that India's aviation sector is facing significant financial difficulties and may be forced to suspend operations, as they want quick respite from rising Aviation Turbine Fuel (ATF) prices and further financial assistance.

The unrest in West Asia has driven up oil prices, and airspace limitations have raised airline operating expenses, particularly on long-haul routes.

Aviation turbine fuel (ATF) accounts for around 40% of a carrier's operating expenses, The New Indian Express reported.

Against this backdrop, the Federation of Indian Airlines (FIA) has written to the civil aviation ministry, seeking steps to extend the same fuel pricing mechanism uniformly across both domestic and international operations as was done in the past with the establishment of the crack band.

With an unprecedented rise in jet fuel prices and exorbitant crack/differential between crude and ATF, the federation said the operation of airlines is being challenged in totality, PTI reported.

"... any ad hoc pricing (domestic vs international) and/or irrational increase in the price of ATF will result in insurmountable losses for airlines and will lead to grounding of aircraft, resulting in cancellation of flights," the federation, which represents Air India, IndiGo and SpiceJet, said.

"In order to survive, sustain and continue operation, we request your urgent intervention for immediate and meaningful financial support to tide over the current situation," it said in a letter on April 26.

Also, the airlines have sought temporary deferment of excise duty on ATF, which is at 11 per cent.

"With the abnormal increase in ATF prices from the pre-crisis period, adding rupee depreciation to the increased prices, the 11 per cent excise duty also increases manifold for the airlines and adds to the ATF price as a big impact on airlines," they said.

Last month, the government limited the hike in ATF price to Rs 15 per litre for domestic operations, but for international operations, the price rose by Rs 73 per litre.

The airlines said the situation has practically made international operations, along with domestic operations, completely unviable and resulted in significant losses for the aviation sector in April.

Seeking urgent intervention on the current ATF ad hoc pricing, FIA said the current situation is creating a severe imbalance in domestic and international operations and rendering airline networks unviable and unsustainable.

"The airline industry in India is under extreme stress and is on the verge of closing down or of stopping its operations." The federation has pitched for a transparent pricing framework under the crack band mechanism (USD 12–22/BBL) that was implemented in October 2022, saying there was a fair and reasonable margin for Oil Marketing Companies (OMCs).

According to FIA, the country's largest aviation hub Delhi has the second-highest value-added tax (VAT) of 25 per cent on jet fuel, while the highest rate is 29 per cent levied in Tamil Nadu.

"The other major aviation cities, viz. Mumbai, Bangalore, Hyderabad, and Kolkata range between 16 per cent and 20 per cent. These 6 cities cover more than 50 per cent of airlines' operations within India," the federation said.