Indian Airlines Warn Government They May Stop Operations as Aviation Turbine Fuel Prices Surge to 55-60 Per Cent of Total Costs
India’s aviation sector is facing its most severe financial crisis in years as major carriers have issued an unprecedented joint warning to the Central Government that they may be forced to scale down or even suspend operations if urgent relief from soaring Aviation Turbine Fuel (ATF) prices is not provided. In a letter to the Ministry of Civil Aviation dated April 26, the Federation of Indian Airlines (FIA) — representing IndiGo, Air India, SpiceJet, and other major carriers — flagged that ATF now accounts for an astonishing 55 to 60 per cent of total operating costs, up from the 30 to 40 per cent range that prevailed until recently.
The Scale of the Crisis
The numbers are stark. ATF prices in India have surged dramatically in 2026, driven by a combination of global crude oil price increases, the US-Iran conflict and Strait of Hormuz disruptions, and India’s own domestic tax structure. International ATF prices have jumped to approximately Rs 73 to 75 per litre, making several long-haul and overseas routes commercially unviable.
The FIA’s letter described the situation as “existential.” Airlines reported that the widening gap between domestic and international ATF pricing has distorted route economics, forcing carriers to absorb losses on routes that were previously profitable. The federation warned that without immediate government intervention, the industry faces “capacity cuts, route suspensions, and potentially the cessation of operations for some carriers.”
This is not empty rhetoric. India’s aviation sector has a history of financial fragility. Jet Airways collapsed in 2019 due to mounting debts and fuel costs. Go First went bankrupt in 2023. The current crisis threatens to push more airlines to the brink, particularly smaller carriers and regional operators with thinner margins.
Why ATF Prices Are So High in India
Several factors are contributing to the extraordinary fuel cost burden facing Indian airlines. First, global crude oil prices have been elevated since the escalation of the US-Iran conflict in early 2026. The disruptions to oil shipping through the Hormuz chokepoint have constrained supply, with Brent crude hovering around $110 per barrel and showing no signs of easing.
Second, India’s tax structure amplifies the impact. Excise duty on ATF for domestic operations is currently at 11 per cent, levied as a percentage of price. This means that as ATF prices rise, the tax burden increases proportionally — a procyclical structure that hurts airlines precisely when they can least afford it. Additionally, state-level VAT on ATF varies widely, ranging from 1 per cent in some states to as high as 30 per cent in others, creating a patchwork of costs that complicates route planning.
Third, the FIA highlighted unusually high refinery margins, known as crack spreads, which are keeping ATF prices elevated even when global crude prices show temporary dips. This means airlines are not benefiting from any softening in oil prices — a phenomenon that has frustrated the industry and led to accusations that refineries are profiteering at the expense of the aviation sector.
What the Airlines Are Asking For
The FIA has proposed a package of urgent measures to the government. The key demands include the immediate suspension of excise duty on ATF, which the federation argues would provide direct relief without requiring complex policy changes. The federation has also called for the reintroduction of crack band pricing — a mechanism that would cap refinery margins on ATF — and a reduction of state VAT to a uniform low rate across all states.
Additionally, airlines have requested the creation of an emergency fuel price stabilisation fund, funded by a portion of the windfall tax revenue the government has collected from oil and gas companies during the current price spike. The FIA argued that the government has been a net beneficiary of high oil prices through increased tax collections, and some of this windfall should be redirected to support an industry that employs hundreds of thousands and is critical to India’s connectivity.
Impact on Passengers and Connectivity
The immediate consequence for passengers is higher airfares. Airlines have already begun increasing ticket prices across domestic and international routes, with some fares on popular routes rising by 25 to 40 per cent compared to six months ago. For a country where air travel has increasingly become a mass-market mode of transport — thanks in large part to IndiGo’s aggressive expansion to 144 destinations and the broader growth of low-cost carriers — this price shock threatens to reverse years of progress in making flying accessible to middle-class India.
Route suspensions are already being planned. Several airlines have indicated they may reduce or eliminate service on international routes that have become loss-making, particularly those involving longer flight paths necessitated by airspace restrictions around the Iran conflict zone. Domestic routes with lower load factors are also under review.
The tourism and hospitality sectors, which depend heavily on air connectivity, have expressed alarm. Industry bodies like the Federation of Associations in Indian Tourism and Hospitality (FAITH) have warned that reduced air service could dampen the domestic tourism recovery and hurt India’s positioning as an international tourist destination.
Government Response and Outlook
The Ministry of Civil Aviation has acknowledged receiving the FIA’s letter and stated that it is “evaluating the concerns raised.” However, no concrete relief measures have been announced as of April 29. Government sources indicated that any decision on excise duty would need to be coordinated with the Ministry of Finance, which is wary of reducing tax revenue during a period of elevated fiscal spending.
For the latest economy news and corporate developments, the aviation fuel crisis highlights a fundamental tension in India’s economic management: the government benefits from high energy prices through taxation, while the private sector and consumers bear the cost. How this tension is resolved in the coming weeks will determine whether India’s aviation success story continues or enters a new period of turbulence.
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