Amid soaring aviation fuel prices triggered by the West Asia conflict, the government on Wednesday approved a one-time budgetary support of up to Rs10,000 crore for Oil Marketing Companies (OMCs) to help stabilise Aviation Turbine Fuel (ATF) prices for domestic airlines.
In simple terms, the government will provide financial support to OMCs so that they can hold ATF prices and prevent steep increases beyond a certain level during the ongoing crisis, thereby protecting airlines from the impact of high aviation fuel costs. Currently, jet fuel, which constitutes nearly 40% of the total operating costs of airlines, has become significantly more expensive since the conflict involving Iran, Israel and the United States began in West Asia.
The three-month-long conflict has significantly disrupted shipping through the Strait of Hormuz, a strategic waterway that handles nearly 20% of global oil and gas supplies. Supply disruptions and higher freight costs have pushed up international crude prices, leading to increases in petrol, diesel, LPG and ATF prices in India.
While OMCs have passed on a substantial portion of the increase in ATF prices, airlines—especially those operating international routes—have been bearing the full impact of elevated market-linked fuel costs. As a result, several airlines have curtailed international operations and reduced domestic flights due to the impact of high fuel prices on their overall operations. Industry players have repeatedly urged the government to intervene and stabilise jet fuel prices to prevent further financial stress on the aviation sector.
Under the approved mechanism, the government will provide an interest-free advance of up to Rs10,000 crore to OMCs. The corpus will compensate fuel retailers whenever the prevailing Import Parity Price (IPP) of ATF exceeds a benchmark price determined under the scheme.
However, when international ATF prices soften, the differential amount will be recovered from OMCs and returned to the Consolidated Fund of India. The arrangement will continue until the entire support amount is fully recovered and settled.