Aviation Turbine Fuel Pricing and Airline Crisis in India

Aviation Turbine Fuel Latest News

• Indian airlines have raised concerns over rising Aviation Turbine Fuel prices, warning of operational disruptions.

Aviation Turbine Fuel (ATF): Basics

• Aviation Turbine Fuel (ATF) is a refined petroleum product used as fuel in aircraft engines, particularly jet engines.
• It is derived from crude oil and is similar to kerosene in composition, but with higher quality specifications to ensure safety, efficiency, and performance at high altitudes.
• ATF is a critical input cost for airlines, accounting for 30-50% of total operating expenses.

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ATF Pricing in India

• ATF pricing in India is market-linked but not fully deregulated like petrol and diesel. Prices are revised periodically by oil marketing companies (OMCs).
• The price of ATF varies across states due to differences in state-level taxation (VAT), making India one of the costliest markets for aviation fuel.

ATF Pricing Formula

• The pricing of ATF is based on a combination of international and domestic factors.
  • International Benchmark Prices: ATF prices are linked to global jet fuel prices, which in turn depend on crude oil prices. 
  • Exchange Rate: Since crude oil is imported, fluctuations in the rupee-dollar exchange rate directly affect prices. 
  • Freight and Insurance Costs: Transportation and logistics costs are added to the base price. 
  • OMC Margins: Oil companies include refining and marketing margins. 
  • State Taxes (VAT): States impose VAT ranging from 1% to over 25%, leading to price variation across locations. 
• Thus, ATF price = Import Parity Price + Refining Margin + Freight + Marketing Margin + State Taxes.

Challenges in ATF Pricing

• India’s ATF pricing faces structural issues.
  • High taxation increases operational costs for airlines.
  • Lack of uniform tax structure leads to regional price disparities, affecting airline route planning.
• ATF is currently outside the GST framework, which prevents input tax credit benefits.

News Summary: Airline Concerns over Rising ATF Prices

• Leading Indian carriers such as Air India, IndiGo, and SpiceJet have warned of possible operational disruptions or shutdown risks due to rising fuel costs.
• The sharp increase in ATF prices has significantly raised the operational burden on airlines, as fuel constitutes the largest expense component.
• Airlines are struggling to absorb these costs, especially in a competitive market where ticket prices cannot be increased proportionately.
• Impact on Airline Viability
  • Persistent high fuel costs are affecting the financial health and sustainability of airlines.
  • Some carriers have indicated that continued cost escalation may lead to capacity reduction, route rationalisation, or service disruptions.
• Demand for Policy Intervention
• Airlines have urged the government to take measures such as:
  • Bringing ATF under the GST regime. 
  • Reducing state-level VAT. 
  • Providing temporary relief measures to stabilise the sector. 
• These steps are seen as necessary to ensure the survival and competitiveness of the aviation industry.

Source: IE | TH