Even as the prices of aviation turbine fuel (ATF), or jet fuel, have surged globally due to the raging West Asia war, the price of the fuel for domestic scheduled flights in India has been hiked only partially by the public sector oil marketing companies (OMCs), according to the Ministry of Petroleum and Natural Gas (MoPNG). According to the ministry, given the surge in international prices of jet fuel, the price in India was expected to more than double from Wednesday (April 1), but only a “partial and staggered” increase is being passed on for now for scheduled domestic airlines. For overseas flights, however, airlines will have to pay the full market-linked price for ATF. Non-scheduled operators, like private charter operators, will also have to pay the full price, which has gone up by almost 115% from March levels.

“ATF prices in India were deregulated in 2001 and are revised on monthly basis based on a formula of international benchmarks. Due to the closure of Strait of Hormuz and extraordinary situation in global energy markets, price of ATF for domestic markets was expected to increase by more than 100% on 1 April. In order to insulate the domestic travel costs from the substantial increase in international prices, PSU Oil Marketing Companies of the Ministry of Petroleum, in consultation with Ministry of Civil Aviation (MoCA), have passed only a partial and staggered increase of 25% (only Rs.15/litre) to the airlines. Foreign routes will pay for the full increase in ATF prices consistent with what they pay in other parts of the world,” the MoPNG posted on social media platform X.

Following the announcement from the MoPNG, ATF prices listed on the website of India’s largest OMC Indian Oil Corporation (IOC) were revised significantly downwards from levels that were published early Wednesday morning. The price of ATF in Delhi had jumped almost 115% month-on-month to a record Rs 2.07 lakh per kiloliter as of early Wednesday; the price listed now specifically for scheduled domestic airlines is Rs 1.05 lakh, higher by just 8.6% from March levels. The new reduced price for domestic scheduled airlines in Mumbai is Rs 98,247 per kilolitre, against the full price of Rs 1.95 lakh. For airlines on international run, the price of ATF in Delhi jumped 107% to $1,690.81 per kilolitre. The OMCs usually revise jet fuel prices on the first of every month; ATF prices vary across the country due to differences in levies charged by states.

On being asked about the difference between the 25% increase announced by the government and the actual hike of 8.6% that was reflected on the IOC website, Petroleum Ministry Joint Secretary Sujata Sharma said that former was the increase on the base price of jet fuel, while the latter was the increase in the final price inclusive of all taxes and levies. MoCA Joint Secretary Asangba Chuba Ao said that the decision to only partially pass on the price hike would help keeping domestic airlines’ costs manageable, and expressed hope that it would lead to a rethink on the fuel surcharges that some airlines had already announced in anticipation of a steep fuel price hike. He also said that the measure is expected to dissuade airlines from imposing further fuel surcharges on domestic flight tickets.

Anticipating a surge in jet fuel prices in India in line with the jump in other countries, major Indian airlines like IndiGo, Air India group, and Akasa Air had imposed or hiked fuel surcharges on tickets, varying from around Rs 200 for domestic flights to $200 for long-haul international routes. The surcharges and fares could go up further, particularly for international flights, industry insiders said.

Jet fuel accounted for over 40% of Indian airlines’ operating costs even before the war and industry insiders had cautioned that a significant jump in fuel prices and the consequent surge in airfares could lead to demand destruction, forcing airlines to cut flights on routes that see a fall in passenger footfalls. MoPNG, MoCA, and the OMCs were in talks on ATF pricing in view of the global price surge amid the West Asia war.

Anticipating a surge in jet fuel prices in India in line with the jump in other countries, major Indian airlines like IndiGo, Air India group, and Akasa Air had imposed or hiked fuel surcharges on tickets, varying from around Rs 200 for domestic flights to $200 for long-haul international routes. The surcharges and fares could go up further, particularly for international flights, industry insiders said.

It is not clear yet whether the government will support the OMCs in covering their under-recoveries on jet fuel sales to domestic airlines. Sharma did not comment on being asked about it. The fuel retailers are also bearing losses on retail sales of petrol and diesel as the prices of the two fuels have remained unchanged despite the surge in international prices of crude oil and petroleum products. To cushion the OMCs, the government recently reduced excise duty on the two automobile fuels by Rs 10 per litre each.

Civil Aviation Minister Ram Mohan Naidu said that the move to allow only a partial pass-on of ATF price hike for scheduled domestic flights is “both pragmatic and forward-looking, while ensuring that foreign routes bear the full market-aligned price”. In a post on X, Naidu wrote, “This calibrated approach will help shield passengers from sharp fare increases, ease the burden on domestic airlines, and support the continued stability of the aviation sector at this crucial juncture. It will also benefit the broader economy by ensuring the smooth movement of cargo and maintaining vital air connectivity for trade and logistics”.

The jump in ATF prices—except for the regulated increase for domestic airlines—in India appears broadly in line with the movement in international prices. ATF prices in India are linked to the Mean of Platts Arab Gulf (MOPAG), a price assessment by S&P Global based on jet fuel prices in West Asia. The global average jet fuel price for the week ended March 27 was $195.19 per barrel, up 103.9% from the February average and 116.8% higher than last year’s average, according to data from S&P Global Energy compiled by the International Air Transport Association (IATA).

Since the beginning of the West Asia war on February 28, global ATF prices have almost doubled to $195.19 per barrel for the week ended March 27 from $99.40 for the week ended February 28, as per the data compiled by IATA. The crack spread—difference between the price of crude oil and products like ATF derived from it—trebled to $81.44 per barrel for the week ended March 27 from $27.83 for the week ended February 27. Given the surge in crack spreads, which are reflective of margins, there have been calls in recent weeks from India’s aviation sector to de-link ATF pricing in India from global jet fuel prices, and instead have a pricing model based on the price of crude and an agreed margin over that, it is learnt.

“The financial impact of this crisis is yet to be fully felt, as although the spot price of jet fuel has more than doubled, most of the impact will only hit us from next month. We, like other Indian carriers, have already imposed a fuel surcharge on new tickets to help mitigate this imminent cost increase, but not every customer is willing to pay higher airfares so there is a limit to how high we can price before demand drops. Additionally, given economic uncertainties, it is not certain that customers or companies will be as willing to travel as they were prior to the conflict, and may choose to stay put for a while,” Air India MD and CEO Campbel Wilson wrote in an email to employees on March 20, it is learnt.

“There will be pockets of new demand, such as we’re seeing on—and deploying additional flights to—some Europe and North America cities, but already airlines in some parts of the world are reducing some flights due to high fuel prices. Depending on how fuel costs, airfares and customer demand moves, we may also have to adjust,” Wilson wrote.

With the West Asia war effectively closing off the critical maritime chokepoint of the Strait of Hormuz, crude oil and fuel prices have surged globally. In many countries, there are growing concerns of fuel shortages, including that of jet fuel. While ATF prices have increased in India as well, the country appears to be in a relatively comfortable position on the supply front as it produces significantly more volumes of jet fuel than its own consumption. Moreover, the government has also imposed an export duty of Rs 29.5 per litre on ATF to disincentivise the fuel’s export and ensure adequate availability in the domestic market.