West Asia crisis: Centre in a huddle to cushion jet fuel shock for airlines

NEW DELHI: India is exploring ways to safeguard airlines from spiralling jet fuel prices amid the widespread disruptions caused by the worsening conflict in West Asia. Through this, the government is also seeking to prevent any sharp rise in fares and adverse effect on domestic air travel demand.

Over last few days, officials of civil aviation ministry led by secretary Samir Sinha have engaged with their counterparts in the petroleum ministry and oil marketing companies, with aim of ensuring that any rise in jet fuel price is not passed over immediately during the upcoming price revision on April 1.

The jet fuel crack spread, which measures the difference between the price of a barrel of crude oil and the price of jet fuel refined from it, soared to nearly $100 before cooling. Jet fuel makes up around 26% of an airline's operating expenses on average, according to global airlines association IATA.


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India's jet fuel pricing is linked to the 'Mean of Platts Arab Gulf (MOPAG)'-a widely used benchmark for pricing refined petroleum products in the Gulf. Oil marketing companies generally levy an extra cost, which is the expense of refining and carriage cost for them.

Indian airlines have been advocating for the domestic pricing model based on crude oil prices plus fixed refining margin, delinked from international price swings.

"We are trying to devise a mechanism where the carriage cost of the oil marketing companies can be spread over a larger timeline rather than one single shot," said a senior government official.

IATA in a recent analysis highlighted that when fuel prices remain elevated but stable, airlines can adjust pricing and operations gradually, and continue to operate profitably, although typically with thinner margins. Fuel price shocks push costs higher faster than revenues can adjust, posing a greater risk to margins and profits.

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For Indian airlines, jet fuel cost rises further as excise duty and value-added tax are levied as a percentage of the fuel price rather than as a fixed amount. Excise duty is 11%, while VAT in major aviation hubs such as Delhi is 25%. All Indian carriers IndiGo, Air India, and Akasa Air have imposed fuel surcharges, but executives said maintaining high ticket prices is difficult as it would dent demand. "The pricing is completely correlated to supply and demand," said an airline official. "Airlines can't increase ticket prices very high. They will have to absorb the increased cost."

Costs have soared for airlines as they are being forced to take longer routes for overseas flights. Insurance companies have started raising premiums for hull war risk insurance coverage. There has been an increase of ?30-?40 lakh for a narrow-body flight and ?90 lakh-?1 crore for a wide-body flight on routes such as Delhi-Dubai-Delhi.

Airlines have begun limited operations to West Asia, to evacuate thousands of Indian nationals stranded in the region. Airline executives lament that such flights are unviable due to the unreliability of operations at hub airports like Dubai, Doha, and Riyadh while the aircraft flies empty on its leg to West Asia.