The message from the airlines is clear: if prices go up, so do their losses, and they may have to cut back on flights. A decision is on the table, and it will be a make-or-break moment for schedules across the country.
Government’s balancing act
Those in the know say the oil and gas ministry is part of the conversation, and it could be a replay of what happened in April and May when the government put its foot down as global crude ran hot after the Iran conflict. Back then, officials ceded the most recent aviation turbine fuel (ATF) hike to 25% and told the big oil players to hold steady in May. It was a reprieve for the airlines, if only for a while.
Normally, the first of the month is when oil marketing companies set their rates. Even though the market has been open for some time, the rules still only pertain to domestic travel, which has left a two-tier system in place.
How pricing pressure has shifted
There is talk of a 25% bump in June from the likes of Indian Oil, Hindustan Petroleum and Bharat Petroleum, according to sources. The numbers don’t lie: refiners are moving domestic jet fuel at roughly 105,000 rupees ($1,090) a kiloliter and are out of pocket by 92,000 rupees. That kind of loss is why they are looking for some leeway, even with the airlines on their case.
The core numbers shaping boardroom decisions are stark:
– June domestic ATF increase under discussion: up to 25%
– Current domestic ATF price: about 105,000 rupees per kiloliter
– Loss on domestic ATF to refiners: 92,000 rupees per kiloliter
– International ATF in May: $1,511.86 per kiloliter
– Fuel share in airline costs: around 40%
It’s a different story for international routes. Unregulated there, jet fuel costs more than doubled in April and were $1,511.86 a kiloliter in May. You can see the strain in that disparity.
Airlines’ economics and competitive stakes
Fuel is about 40% of an airline’s bill in India, so where ATF is heading is a big deal for the bottom line. Add in a soft rupee and you have higher dollar costs for everything from leases to airport fees. Some have already put the boot to demand with higher fares and seen it in return with fewer bookings, leading to some schedule pruning.
Routes, fares, and demand
Geopolitics have made life harder on the international front, too. After Pakistan closed its airspace to Indian carriers, some had to fly over Iran to get to Europe or the U.S., which is not cheap and makes for complicated logistics. Those costs have been shouldered by the passenger, and now we are seeing the fallout in how the industry is managing its capacity and revenue.
Signals from broader fuel markets
You can see the pressure on the refiners in other ways. In New Delhi, state-run firms hiked diesel and gasoline by 1% on top of a 3% increase last week. Not much compared to the 50% run-up in Brent since the war, but it shows why the refiners want to bring their pricing back to normal.
No one from the oil ministry, the refiners or the airlines would comment on the matter. But a call on jet fuel is coming. Since the trouble in Iran, the government has been chipping away at the problem with rebates on landing and parking, and some tax breaks for flights out of Delhi and Mumbai, all to keep the spillover to the public in check.
What happens next
What happens in the next review period will be telling. For an airline that wants to stand still and a refiner that needs to make back what it has lost, the stakes are high.
