Airlines Seek ATF, Airport Charge Relief as West Asia Conflict Raises Costs

Indian airlines have asked the government for fresh relief on aviation turbine fuel (ATF), taxes and airport charges as the prolonged West Asia conflict pushes up fuel and operating costs. The Federation of Indian Airlines (FIA), which represents Air India, IndiGo and SpiceJet, has sought changes to domestic ATF pricing, continuation of lower VAT rates and an extension of the 25% cut in landing and parking charges that expired in July.

The request comes at a difficult time for carriers. According to the FIA, fuel that historically represented around 30–40% of airline operating costs has risen to roughly 55–60% under the current conditions. Longer flight paths caused by airspace restrictions, a weaker rupee and higher dollar-linked costs such as aircraft leases, maintenance and insurance are adding to the pressure.

Key takeaways

• The Federation of Indian Airlines has sought urgent government intervention over rising operating costs.
• FIA represents Air India, IndiGo and SpiceJet.
• The association wants domestic ATF pricing shifted from an international benchmark-based system to a cost-plus model.
• It has also sought changes to the way excise duty on ATF is calculated.
• FIA wants lower ATF VAT rates to continue in Delhi and Maharashtra and be extended to more states.
• It has requested the government restore the 25% reduction in landing and parking charges for domestic flights.
• The earlier airport-charge reduction introduced in April expired in July.
• ATF prices in Delhi reached about ₹137 per litre after a ₹16-per-litre increase from October 1.
• IndiGo has already raised fuel charges on domestic and international flights.
• The government had earlier approved a ₹10,000 crore ATF price-stabilisation mechanism.
• The government is currently discussing high ATF prices with airlines and oil marketing companies.
• Airlines warn that prolonged cost pressure could eventually force capacity reductions or route curtailments.

Why airlines are asking for relief again

The latest request is effectively a second call for government support.

When the West Asia crisis caused a sharp increase in crude and jet-fuel prices earlier in 2026, the government introduced several temporary measures to protect domestic aviation.

In April, the Ministry of Civil Aviation ordered a 25% reduction in landing and parking charges for domestic flights at major airports under Airports Economic Regulatory Authority (AERA) oversight and at Airports Authority of India airports.

That reduction was designed to last three months.

The government estimated that the measure would reduce landing and parking charges paid by airlines at major airports by about ₹400 crore during the relief period.

The FIA now wants that concession extended until the West Asia crisis eases and airline operations return closer to normal.

For carriers, the timing is important because one temporary cost-saving measure has disappeared just as fuel costs are rising again.

ATF has become the biggest pressure point

Jet fuel is traditionally one of the largest expenses on an airline’s income statement.

Under normal conditions, fuel can account for roughly 30–40% of operating costs.

The FIA says that share has climbed to about 55–60% under the current circumstances.

That changes the economics of every flight.

When fuel represents a smaller share of costs, an airline can potentially absorb a moderate increase without dramatically changing ticket prices.

When fuel becomes more than half of operating expenditure, even relatively small price movements can have a large impact on margins.

The government itself has previously noted that ATF can account for nearly 40% of airline operating costs in normal conditions and as much as 60% during periods of extreme volatility.

ATF prices have surged again

Domestic ATF prices increased by ₹16 per litre from October 1, taking the benchmark Delhi price to around ₹137 per litre.

That followed increases in previous months.

Business Standard reported that Delhi ATF prices had risen nearly 25% since July, from around ₹110 per litre to ₹137 per litre, with October alone bringing an increase of roughly 13%.

For airlines, the problem is not simply the absolute price.

It is the speed and volatility of the increase.

Airlines plan schedules and ticket prices months ahead. Many tickets are sold before the actual fuel cost for the flight is known.

That means an airline cannot always immediately pass a sudden increase in ATF costs to passengers.

The result is a temporary margin squeeze.

FIA wants a cost-plus ATF pricing system

One of the association’s most significant demands is a change in how domestic ATF prices are determined.

The FIA wants domestic ATF pricing to move from the current international benchmark-based approach toward a cost-plus model.

The association argues that the spread between crude oil and the relevant aviation fuel benchmark has become unusually wide.

According to the FIA, Brent crude increased from around $72 per barrel to $118 since the conflict began, while its cited ATF benchmark based on MOPAG plus premium rose from $87.24 to a peak of $260.24 and was around $175.33 at the time of its letter.

The FIA also pointed to an unusually high crack differential between Brent and MOPAG.

It said the differential, historically around $11–18 per barrel, had risen above $100 and remained around $60–61, compared with an earlier average of $8–12.

The industry’s argument is therefore that the current benchmark mechanism is amplifying the effect of abnormal market conditions.

A cost-plus system would attempt to link the domestic price more closely to the actual cost structure of refiners rather than allowing extreme international benchmark movements to flow directly into airline fuel bills.

But changing ATF pricing has a trade-off

The government’s challenge is that lower or more stable ATF prices for airlines do not eliminate the underlying cost.

They shift where that cost is absorbed.

If oil marketing companies sell ATF to airlines below the prevailing import-parity economics, somebody has to bear the difference.

That is why the government introduced a price-stabilisation mechanism earlier this year.

In June, the Union Cabinet approved one-time budgetary support of up to ₹10,000 crore for oil marketing companies to stabilise ATF prices for scheduled Indian airlines.

The mechanism allows OMCs to receive interest-free advances and compensate for losses when international ATF prices exceed the benchmark price under the approved arrangement. When prices moderate, the differential is to be recovered and returned to the Consolidated Fund.

The arrangement was designed to provide airlines with greater fuel-price predictability while preventing OMCs from absorbing unlimited losses.

The government is already talking to airlines and OMCs

The latest request is not being ignored.

Civil Aviation Minister K Rammohan Naidu said on October 6 that the ministry was in discussions with airlines and oil marketing companies over high jet-fuel prices.

He identified the West Asia crisis and its effect on ATF prices as a major concern for the sector.

The ministry is expected to hold discussions with stakeholders before deciding on further action.

This means the next policy response could involve a combination of measures rather than a single intervention.

Possible areas include ATF pricing, state-level VAT, excise duty and airport charges.

FIA wants ATF tax relief too

The airlines’ demands go beyond the price of the fuel itself.

FIA has asked the government to change the way excise duty is levied on domestic ATF.

At present, the association says domestic ATF attracts an 11% excise duty on an ad valorem basis.

That means the tax amount rises as the underlying fuel price increases.

The FIA argues that this creates a second layer of cost inflation.

When ATF becomes more expensive, the percentage-based excise burden also becomes larger. VAT can then apply to the higher tax-inclusive amount depending on the state.

The association has therefore asked for the percentage-based levy to be replaced with a fixed-rate duty.

Airlines also want state VAT relief

ATF taxation in India is complicated because states levy VAT on aviation fuel.

Rates can differ significantly between states.

The FIA wants the 7% VAT rate currently available in Delhi and Maharashtra to continue beyond its present validity period.

It has also asked for lower ATF VAT rates in Tamil Nadu, West Bengal, Karnataka and Telangana.

This matters because airlines operating through multiple airports can face different fuel economics depending on where they refuel.

Airlines naturally prefer to purchase fuel at airports where the effective tax burden is lower, but operational requirements do not always allow them to optimise every refuelling decision.

A more consistent state-tax structure could therefore reduce some of the distortion in the domestic fuel market.

Airport charges are the other major demand

FIA’s second major request is the restoration of the 25% landing and parking charge reduction.

The government introduced the reduction in April as an emergency response to the aviation disruption caused by the West Asia crisis.

The relief applied to domestic flights and covered major airports under AERA as well as non-major AAI airports.

It expired after three months.

FIA now wants the concession extended for as long as the crisis continues and until airline operations normalise.

Landing and parking charges are not the largest airline expense compared with fuel, but reducing them can provide immediate cash-flow relief.

That matters particularly for airlines operating on thin margins.

Longer routes are increasing fuel burn

Fuel prices are only part of the problem.

Airspace restrictions have forced some Indian carriers to use longer routes on international services.

Longer routes mean more flying time, more fuel consumption and higher crew costs.

They can also reduce aircraft utilisation.

An aircraft that previously completed a long-haul rotation within a particular time window may require substantially longer to complete the same journey when forced to avoid restricted airspace.

That can affect the number of flights the aircraft can operate in a day or week.

The result is an increase in cost per available seat even before considering the higher fuel price.

The government acknowledged this problem when it introduced the ATF stabilisation mechanism, noting that the closure of Pakistan’s airspace for Indian carriers had created longer routes to Europe, North America and Central Asia.

A weaker rupee makes the problem worse

Indian airlines also have substantial dollar-linked costs.

Aircraft leases, maintenance contracts, insurance and many aviation-related payments are either denominated in dollars or influenced by dollar prices.

A weaker rupee therefore increases the rupee cost of those expenses.

This creates a double pressure.

The airline pays more for fuel because global energy prices have risen, while its rupee cost for dollar-linked expenses also increases.

That makes the current environment particularly challenging for carriers whose revenues are primarily in rupees.

Airlines cannot immediately pass everything to passengers

One reason the FIA is asking for government support is that raising fares is not a perfect solution.

Airlines can increase ticket prices for new bookings, but they cannot retrospectively reprice tickets already sold.

A passenger who booked a flight weeks or months earlier has already paid.

If fuel prices rise sharply after that booking, the airline absorbs the additional cost unless it has another mechanism such as a fuel surcharge.

Even when airlines raise fares, demand can respond negatively.

Higher fares may encourage passengers to postpone travel, choose alternative routes or switch to competing carriers.

This is particularly relevant during the festive travel season, when airlines need strong passenger volumes but are simultaneously facing higher operating costs.

IndiGo has already increased fuel charges

The pressure is no longer theoretical.

IndiGo, India’s largest airline, announced a fresh increase in fuel charges for domestic and international flights effective October 6.

For domestic flights, the surcharge now ranges from ₹375 for journeys up to 500 km to ₹1,300 for flights longer than 2,000 km.

The previous range was ₹275–₹950.

International charges have also increased across several regions, including South Asia, Southeast Asia and Gulf destinations.

IndiGo said the increase was a measured response and did not fully offset the increase in fuel costs.

That statement is significant.

It suggests that even after the surcharge increase, the airline is absorbing part of the fuel shock.

The passenger will ultimately face some of the cost

Government relief can reduce the immediate pressure on airlines, but it cannot permanently disconnect ticket prices from fuel costs.

If elevated ATF prices continue for months, some portion of the additional cost will eventually need to be reflected in fares, fuel surcharges or network decisions.

That is already happening.

IndiGo’s latest surcharge is effectively a partial pass-through.

Other carriers could follow depending on their fuel exposure, route economics and competitive positioning.

The outcome could be particularly visible on longer domestic routes and international flights where fuel represents a larger absolute cost.

International aviation faces a bigger problem

International routes are particularly exposed because carriers do not always receive the same domestic ATF protection.

The government’s June price-stabilisation framework was designed to cover both domestic and international operations of scheduled Indian airlines, but the economics of international flying remain vulnerable to global fuel prices and route disruptions.

International airlines also face additional exposure to airspace closures, geopolitical restrictions and longer flight paths.

For Indian carriers, routes to Europe, North America and Central Asia can be particularly affected when they cannot use the most efficient corridors.

This can make certain international routes commercially unattractive even when passenger demand remains healthy.

Could airlines reduce capacity?

The FIA has warned that continued uncertainty could eventually force airlines to curtail operations.

This does not necessarily mean an immediate wave of cancellations.

Airlines have several intermediate options.

They can reduce frequencies on marginal routes, deploy smaller aircraft, suspend loss-making international services, consolidate schedules or delay expansion plans.

The longer the cost shock lasts, the more likely these decisions become.

The government therefore has a reason to intervene beyond simply protecting airline profitability.

Air connectivity supports tourism, trade, business travel, employment, cargo and regional development.

The Centre explicitly cited these wider economic effects when it introduced the ATF price-stabilisation scheme.

Why the government cannot provide unlimited relief

There is, however, a clear policy constraint.

Subsidising fuel prices indefinitely would transfer airline operating costs to government finances or oil marketing companies.

Similarly, reducing airport charges means either airports absorb lower revenue or recover the shortfall through future tariffs.

The government’s April airport-charge order explicitly provided for under-recovery at individual airports to be adjusted during tariff determination in the next five-year control period.

That means today’s relief can create a future cost.

Policymakers therefore need to distinguish between temporary emergency support and permanent changes to aviation economics.

The industry is approaching the festive season under pressure

The timing of the FIA request is particularly important.

India is entering a period of stronger travel demand around the festive season.

Normally, that would give airlines an opportunity to improve yields through higher passenger volumes and fares.

But higher fuel costs can absorb much of that benefit.

If airlines raise fares too aggressively, demand could weaken.

If they keep fares low, margins could deteriorate.

That creates a difficult pricing environment.

The ideal outcome for carriers would be strong passenger demand combined with temporary government support that allows them to avoid passing the entire fuel shock to customers.

What the government may do next

The most immediate possibility is an extension of existing relief rather than an entirely new aviation subsidy.

The government could consider extending the landing and parking charge reduction.

It could also review ATF taxation and the current pricing mechanism.

State governments may separately be asked to maintain or lower VAT on aviation fuel.

The existing ₹10,000 crore stabilisation framework provides another policy tool for managing extreme fuel-price volatility.

However, any additional intervention will have to balance airline viability with the financial impact on OMCs, airports and governments.

What this means for airfares

Passengers should expect continued pressure on airfares if ATF prices remain elevated.

The effect will not necessarily appear as a direct percentage increase in every ticket.

Instead, airlines can use fuel surcharges, route-specific pricing, reduced discounts or fewer flights.

IndiGo’s latest fuel-charge revision provides the clearest immediate example.

For consumers, the practical result is that the cost of flying is becoming increasingly sensitive to global energy and geopolitical conditions.

A conflict thousands of kilometres away can therefore affect the price of a domestic Indian flight through the fuel supply chain.

What to watch next

ATF prices

The most important variable remains the global oil and jet-fuel market. A sustained decline would reduce the urgency of the airlines’ demands.

Government discussions

The Civil Aviation Ministry is already talking with airlines and OMCs. The outcome of those discussions could determine whether another round of relief is announced.

Airport-charge extension

The FIA’s request to restore the 25% reduction will be important for airline cash flows, particularly if fuel costs remain high.

State VAT

Any extension or expansion of lower ATF VAT rates could provide direct relief to carriers operating through high-traffic airports.

Airline capacity

If cost pressures persist, investors should watch for route suspensions, frequency reductions or changes to international networks.

Frequently asked questions

Why are Indian airlines asking for ATF relief?

Fuel costs have surged because of the West Asia conflict and related disruption to global oil flows. FIA says fuel has risen from roughly 30–40% of operating costs historically to around 55–60% under current conditions.

What airport relief are airlines seeking?

FIA wants the government to restore the 25% reduction in landing and parking charges for domestic flights. The original concession was introduced in April and expired in July.

Has the government already provided ATF support?

Yes. In June, the Union Cabinet approved up to ₹10,000 crore in one-time budgetary support for OMCs to provide ATF price stabilisation for scheduled Indian airlines, covering domestic and international operations.

Are airfares going up?

There is already evidence of higher fuel-related charges. IndiGo raised its fuel charges from October 6, with domestic surcharges now ranging from ₹375 to ₹1,300 depending on distance.

The Bigger Picture

The latest airline demand highlights a structural weakness in India’s aviation economics: carriers have limited control over their largest variable cost. When global oil prices surge, airlines can raise fares only gradually, while aircraft leases, maintenance and other dollar-linked expenses can simultaneously become more expensive when the rupee weakens.

The West Asia crisis has therefore created a three-way squeeze. Fuel is more expensive, some international routes require longer flight paths, and airlines cannot immediately pass the entire increase to passengers. The expiration of the earlier airport-charge concession has removed another layer of temporary protection just as fuel costs have risen again.

For the government, the challenge is to keep the aviation network functioning without creating an open-ended subsidy. The ₹10,000 crore ATF stabilisation mechanism and the earlier 25% airport-charge reduction show that New Delhi is willing to intervene during exceptional volatility. The question now is whether the current shock is temporary enough for those measures to work or persistent enough to require another round of support.

Looking Ahead

The immediate focus will be on the government’s discussions with airlines and oil marketing companies. A further extension of airport-charge relief, changes to ATF taxation or adjustments to the pricing mechanism could ease the pressure, but each measure carries a fiscal or downstream cost. The government will also have to balance airline viability against the need to prevent a permanent increase in the cost of air travel.

For airlines, the next few months will be a test of pricing power and network discipline. Carriers that can pass through part of the fuel increase without destroying demand, while cutting exposure to structurally loss-making routes, will be better positioned. But if fuel prices remain elevated and airspace disruptions continue, capacity rationalisation could become increasingly important alongside government support.