The Indian government has taken a significant step to stabilize aviation turbine fuel (ATF) prices, announcing a Rs 10,000 crore fund to cap fuel costs and prevent sharp surges that could burden airlines and passengers. The decision was made during a Union Cabinet meeting on Wednesday, aiming to ensure that airfares remain affordable for the common citizen while preventing airline collapses.
One-Time Budgetary Support
This one-time budgetary support will be provided as an interest-free advance to oil marketing companies (OMCs). The funds will compensate OMCs for not passing on price hikes to Indian carriers whenever jet fuel prices spike. When international ATF prices moderate, the differential amount will be recovered from OMCs and returned to the consolidated fund of India.
Duration and Extension
The ATF price stabilization support will be in effect for a period of 36 months. However, it may be extended beyond this period if the corpus is not fully trued up within the initial timeframe, according to a government statement.
Context of the Decision
The support was cleared amid exceptional fuel price volatility arising from the West Asia crisis. Prime Minister Narendra Modi stated on X: "Cabinet approval for a one-time support mechanism to ensure greater stability in ATF prices for Indian airlines will help maintain affordable air connectivity, support airline operations and reduce the burden on passengers. It will also strengthen connectivity to Tier-II and Tier-III cities, support tourism and employment."
Price Cap Details
Information and Broadcasting Minister Ashwini Vaishnaw announced that the government has capped ATF prices for domestic airlines at Rs 75.6 per litre, significantly below the current market price, which had soared 2.5 times. He noted that the scheme would help stabilize airline operating costs, reduce fare volatility for passengers, and preserve domestic and international air connectivity.
Impact on Airline Operations
ATF accounts for nearly 40% of airline operating costs and can constitute up to 60% of total operating expenditure during periods of extreme fuel volatility. While ATF prices have been capped for domestic operations, Indian carriers continue to purchase ATF for international operations at import parity prices, exposing them to elevated fuel costs.
Indian carriers, led by the Air India group and IndiGo, have been slashing both international and domestic flights due to prohibitive operational costs. One airline has reportedly been struggling to pay salaries. The government's intervention aims to alleviate these pressures and maintain connectivity.
