The Federation of Indian Airlines (FIA) has called on the Indian government to reconsider the prevailing fuel pricing model for aviation turbine fuel (ATF), citing a sharp increase in costs that could impact airline profitability and service stability. In a recent letter submitted to the Civil Aviation Ministry, FIA advocates for a transition to a 'Cost Plus' pricing approach, which would help airlines better absorb fluctuations in international fuel prices.
The organization noted that rising geopolitical tensions and currency depreciation have significantly elevated operating expenses, with fuel comprising a large portion of airline costs. The global crude oil prices have surged from about USD 72 to USD 118 per barrel, with domestic ATF prices climbing from USD 87.24 to a high of USD 260.24 per barrel, an escalation of nearly 295%. Current ATF prices hover around USD 175.33 per barrel, well above recent historical levels.
Crack Spread Increases Add to Cost Pressures
FIA also expressed concern over the widening crack spread, which has jumped from a normal USD 10-12 per barrel to approximately USD 60, intensifying the financial strain on airlines. The federation proposes revising the pricing model to focus on actual fuel costs plus a reasonable margin, thereby shielding domestic carriers from international market volatility.
"The continued rise in fuel prices and crack spreads underscores the urgent need for policy reforms," stated FIA, emphasizing the importance of government intervention to stabilize costs.
The FIA warns that airlines are limited in their ability to transfer increased costs to consumers due to advance ticket sales and price caps. If these financial pressures persist, they could force airlines to cut unprofitable routes or face operational challenges.
To counter these risks, FIA has called for ongoing government support measures, including fuel price caps, VAT reductions on ATF, and lower landing and parking charges. Such policies are deemed essential to sustain connectivity, especially during current economic uncertainties affecting the aviation sector.
Major Indian airlines such as Air India, IndiGo, and SpiceJet have joined FIA in urging policymakers to implement these support measures, ensuring that the industry remains resilient in face of rising fuel costs.
