No airline signs up for Rs 10,000-crore ATF price stabilisation scheme
The Union Cabinet's Rs 10,000-crore jet fuel price stabilisation programme has failed to attract any airline, as a decline in international oil prices has eroded the appeal of the capped pricing, according to sources familiar with the matter.
The scheme, approved last month, was designed to compensate state-owned fuel retailers for selling aviation turbine fuel (ATF) to airlines at capped prices for up to three years. It aimed to shield carriers from surging fuel costs triggered by the West Asia crisis. However, no airline has signed up so far, sources said.
Voluntary scheme offers capped ATF at Rs 115 per litre
Under the voluntary framework, airlines were required to sign agreements with oil marketing companies to avail of a capped ATF price of about Rs 115 per litre. Participants would pay a fixed free-on-board (FOB) benchmark price of Rs 86.32 per litre, plus airport charges, oil company margins and applicable taxes. This resulted in an effective selling price of Rs 115 per litre in Delhi, Rs 114.5 in Mumbai, and Rs 139 in Chennai.
Airlines that did not opt for the scheme would pay market-linked prices. At the time of the scheme's announcement on June 3, market-linked ATF prices were around Rs 142 per litre. However, prices have since softened following an interim peace deal between the US and Iran, easing concerns over potential supply disruptions through the Strait of Hormuz, a key global oil shipping route.
Falling global oil prices make capped rate unattractive
On July 1, ATF prices dropped to Rs 110 per litre from the Rs 115 rate announced on June 9. The decline in international oil prices around mid-June made the capped price less attractive, sources explained. When the government announced the capped price, the prevailing retail price in Delhi was about Rs 105 per litre, a level that had remained unchanged since April after only a partial pass-through of higher global fuel costs.
The price freeze had resulted in losses for state-owned oil marketing companies on ATF, adding to under-recoveries on petrol, diesel and LPG, sources said. To address these losses, the Cabinet approved the Rs 10,000-crore stabilisation scheme aimed at capping ATF prices and shielding airlines from volatility linked to geopolitical tensions, while also supporting the financial health of state-owned oil companies.
Scheme intended to stabilise fares and protect oil companies
Under the scheme, whenever global benchmark prices rose above the base rate of Rs 86.32, the government was to provide an interest-free advance to oil marketing companies to cover the difference. When prices fell, the differential was to be recovered from the companies and returned to the Consolidated Fund of India. Sources emphasised that the arrangement was not a subsidy but a temporary stabilisation framework intended to smooth volatility in fuel prices while ensuring accountability, monitoring and full recovery of funds.
ATF typically accounts for about 40% of airline operating expenses and can rise to as much as 60% during periods of sharp volatility. International jet fuel prices had climbed to as high as Rs 142 per litre in May from pre-war rates of Rs 60.50 per litre, raising concerns over airline operating costs and potential fare increases. The government aimed to moderate sudden increases in airfares by reducing airlines' exposure to extreme fuel price fluctuations.
No sign-ups mean scheme not operational
With no airlines signing up, the scheme has not technically been put into motion, sources said. The scheme was completely voluntary, and airlines had to decide whether to participate. While non-participating carriers benefit from price declines, they also face higher costs when international rates rise. The capped price of Rs 115 per litre for up to three years would have insulated participants from global benchmark fluctuations.
