NEW DELHI: Alarmed by the steep rise in aviation turbine fuel (ATF) prices, IndiGo, Air India and SpiceJet have warned of shutting down operations unless the government intervenes to save the aviation sector, which is already bleeding due to the frequent airspace closures amid the war in West Asia.
The Federation of Indian Airlines (FIA), which represents the three airlines, have written to the civil aviation ministry seeking its urgent intervention to set the same fuel pricing mechanism uniformly across both domestic and international operations.
The letter pointed out that this was done in 2022 through the establishment of the ‘crack band’ mechanism (pricing framework linked to fair refining margins, or ‘crack spread’, between crude oil and ATF). This was set at $12–22/barrel in 2022.
As global jet ATF prices more than doubled to $180-190/barrel since the war broke out in West Asia on February 28, the Indian government last month limited the hike to `15 per litre for domestic operations. However, for international operations, the price rose by `73 per litre.
ATF prices account for 30-40% of an airline’s overall operating cost. Following the April hike, this percentage band increased to 55-60%.
The letter said the ‘irrational increase’ in ATF prices will result in ‘insurmountable losses’ for airlines, grounding of aircraft and cancellation of flights. “In order to survive, sustain and continue operation, we request your urgent intervention for immediate and meaningful financial support to tide over the current situation,” said the letter dated April 26.
The airlines are also seeking a temporary suspension of excise duty (currently set at 11%) on ATF and VAT rates in key states.
Crack band
FIA has called for a pricing framework based on the ‘crack band mechanism’ ($12–22/bbl), which was implemented in October 2022, claiming this leaves room for a reasonable and fair margin for oil marketing companies
