Cabinet approves ₹10,000 crore ATF support package for Indian airlines
Jet fuel prices surged 135% after Strait of Hormuz disruption
Air India cuts international flights as fuel and route costs rise
The Union Cabinet on Wednesday approved a ₹10,000 crore budgetary support package for state-run oil marketing companies (OMCs) to provide stable aviation turbine fuel pricing for Indian airlines, as the West Asia war continues to drive jet fuel costs to levels that have forced carriers to cut flights and raise surcharges sharply.
The one-time support, structured as interest-free advances to OMCs through the Ministry of Petroleum and Natural Gas, will fund a price stabilisation mechanism running for up to three years. Under the arrangement, OMCs will be compensated whenever international import parity prices exceed a benchmark level set under the approved mechanism.
When global ATF prices moderate, the differential will be recovered from the OMCs and returned to the Consolidated Fund of India. Indian airlines participating in the scheme must procure jet fuel exclusively from OMCs for the duration, subject to annual review or until the advance is fully recovered, whichever comes first. Foreign carriers are excluded from the facility.
The trigger for the intervention is stark. International jet fuel prices surged to ₹142 per litre in May from ₹60.50 per litre in March — a jump of 135% — following the closure of the Strait of Hormuz after hostilities broke out on February 28.
ATF, which typically accounts for around 40% of Indian airlines' operating costs, had risen to 55-60% of total costs, according to an industry body. OMCs have been selling ATF at a loss for domestic flights, incurring under-recoveries of close to ₹30 per litre, while also absorbing losses on petrol, diesel and household cooking gas.
Air India Among the Hardest Hit
The financial strain has already produced visible disruptions. Air India, the only Indian carrier with significant operations to Europe and North America, will operate roughly 27% fewer international flights in the June-August period compared with the same period last year. Domestic flights have also been trimmed by around 27% from April-May levels. Beyond fuel costs, the airline has been forced onto longer, more fuel-intensive routes to Europe as Gulf airspace disruptions — compounded by Pakistan's airspace closure since late April last year — have removed critical transit corridors.
The stabilisation mechanism is prospective and will not cover losses OMCs have already incurred on jet fuel sales. Implementation will be overseen by a monitoring committee drawn from the Ministry of Civil Aviation, the Ministry of Petroleum and Natural Gas and the Department of Expenditure, with all claims subject to audit. On Monday, OMCs kept domestic ATF prices unchanged for the second consecutive month and cut jet fuel prices for international flights by 27%, bringing them broadly in line with domestic rates — a measure that provided some immediate relief ahead of Wednesday's broader intervention.
