New Delhi: With Aviation Turbine Fuel (ATF) prices continuing to move northward, all three major airlines in India have warned of possible shutdowns and widespread flight cancellations in the days to come unless the government steps in.
The airlines have warned that operations could shrink sharply, as soaring ATF costs threaten viability. The Federation of Indian Airlines (FIA) has asked the Union government for urgent intervention on ATF prices to prevent disruption across domestic and international airline networks.
The FIA – which represents Air India, IndiGo and SpiceJet – wrote to the Ministry of Civil Aviation on April 26, stating that “urgent support is required for ATF pricing to continue airline operations”, as reported by CNBC TV 18.
The FIA requested several tax changes on ATF prices as a short-term measure. It has urged the Centre to temporarily remove the 11% excise duty on ATF for domestic flights, restore the earlier “crack band” pricing formula, and push for lower value-added tax in major aviation hubs.
Claiming that the current tax structure is magnifying financial strain because excise duty is linked to ATF prices, the federation has said that when fuel prices jump, tax outgo rises in tandem, leaving airlines with little room to manage fares. This interaction between taxes and ATF prices has deepened the crisis, the airlines have said.
“The airline industry in India is under extreme stress and are on the verge of closing down or of stopping its operations,” the FIA has written, stating that unpredictable ATF prices have damaged route planning and cash flows, affecting both domestic and international services operated by Indian carriers.
It criticised what it described as ad-hoc pricing of ATF, saying “ATF adhoc pricing is creating severe imbalance in domestic and international operations and rendering airline networks unviable and unsustainable.” This imbalance is forcing airlines to re-examine route economics and reconsider the viability of several segments, the federation said.
According to the FIA, the pressure is most visible on overseas routes, where there has been an increase of Rs 73-75 per litre in ATF prices. This jump has made some long-haul and regional routes “completely unviable,” causing heavy losses as Indian airlines compete with foreign rivals based at lower-fuel-cost hubs, the federation noted.
“Unprecedented increase in ATF cost has moved the airline operation cost from 30-40% to 55-60%”, the federation claimed, describing the situation as “non-operatable conditions.” With fuel now forming more than half of operating expenses, airlines say they have limited options other than trimming capacity or raising fares.
“Any adhoc pricing… or irrational increase in the price of ATF will result in unsurmountable losses for airline and will lead to grounding of aircraft resulting in cancellation of flights,” the FIA has said. Airlines said such grounding would reduce connectivity, cut frequencies and likely raise ticket prices.
