Govt Looks to Cushion Airlines from Jet Fuel Price Shock Amid West Asia Conflict

The Indian government is exploring mechanisms to shield domestic airlines from a sharp rise in aviation turbine fuel (ATF) prices amid escalating tensions in West Asia that have disrupted global energy markets.

Officials from the Ministry of Civil Aviation, led by secretary Samir Sinha, have been holding discussions with the petroleum ministry and oil marketing companies (OMCs) to examine ways to prevent a sudden spike in jet fuel prices during the next scheduled revision on April 1.

The move is aimed at preventing airlines from immediately passing on higher fuel costs to passengers, which could push up airfares and dampen domestic travel demand.

Fuel accounts for a significant portion of airline operating costs. According to the International Air Transport Association (IATA), jet fuel typically represents around 26% of an airline’s operating expenses, making it one of the most volatile cost components for carriers.

Possible Pricing Adjustments Under Consideration

Officials are evaluating a mechanism that could smooth out fuel price adjustments over time instead of implementing them in one sharp revision.

One proposal under discussion is to allow oil marketing companies to spread their carriage and refining costs across a longer time frame rather than charging them in a single pricing cycle.

India currently links domestic jet fuel pricing to the Mean of Platts Arab Gulf (MOPAG) benchmark, which tracks refined petroleum product prices in the Gulf region. OMCs then add refining and transportation costs on top of this benchmark.

However, Indian airlines have long argued for a different pricing structure based on crude oil prices plus a fixed refining margin, which would reduce exposure to sharp fluctuations in international refined fuel markets.

Airlines Face Rising Operational Pressures

The West Asia conflict has already driven up jet fuel crack spreads, the difference between crude oil prices and jet fuel prices, which recently surged to nearly US$100 per barrel before easing.

At the same time, airlines are dealing with additional operational pressures. Several international routes have become longer as carriers reroute flights to avoid conflict zones, increasing fuel consumption and operating costs.

Insurance premiums have also risen sharply. War-risk hull insurance costs have reportedly increased by ₹30–₹40 lakh for narrow-body aircraft and ₹90 lakh to ₹1 crore for wide-body aircraft on routes such as Delhi–Dubai–Delhi.

Airlines including IndiGo, Air India, and Akasa Air have already introduced fuel surcharges, but industry executives say fares cannot be raised indefinitely without hurting passenger demand.

Read more: IndiGo Partners with Adani Airports to Offer BluChip Rewards on Duty-Free Purchases.

Conclusion

With jet fuel prices volatile and geopolitical risks escalating, policymakers are attempting to strike a balance between protecting airline finances and keeping air travel affordable for passengers.

Any mechanism that smooths fuel price shocks could provide temporary relief to airlines, though industry experts note that sustained geopolitical instability could continue to weigh on aviation costs and profitability in the months ahead.

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