The Centre is considering whether to bring back the ATF price stabilisation fund as prolonged West Asia crisis pushes up fuel costs and puts increasing pressure on airline finances. A senior government official said the Centre is weighing a fresh mechanism to stabilise aviation turbine fuel (ATF) prices, with specific details of the proposed mechanism not immediately available, as reported by PTI. Civil Aviation Minister K Rammohan Naidu confirmed on Tuesday that the government was discussing the issue with airlines and oil marketing companies (OMCs), stating "One of the most important things is how the West Asia crisis is putting a big burden on ATF prices. We are in discussions with airlines and OMCs." The move comes after the government had introduced a similar support mechanism in June, with the Union Cabinet clearing one-time budgetary support of up to ₹10,000 crore for OMCs to stabilise ATF prices and support domestic airlines. However, airlines were not keen to use the facility and the scheme has since lapsed, making the current discussions particularly critical for the aviation sector.
India's domestic aviation market is experiencing a dramatic slowdown, with passenger traffic declining 5% in April 2026 and showing drops in four of six months after reaching a peak. According to NDTV Profit, domestic passenger traffic rose 13% year-on-year to 153.6 million in fiscal 2024, moderated to 7.7% in fiscal 2025 with 165.5 million passengers, and increased just 1.2% to 167.5 million in fiscal 2026. The consecutive declines in the past four months - 1% in June, 5% in July, 6% in August and 7% in September - raise questions over whether India's aviation boom is entering a temporary period of capacity and demand adjustment. Also, domestic passenger traffic fell 5% year-on-year to 13.8 million in April 2026, before rising 9% in May, highlighting the volatile nature of current market conditions. The declining passenger traffic is compounded by the falling rupee, which is acting as a double whammy at a time when air traffic is also beginning to decline as higher fares are seeing price-sensitive domestic travellers shift to other modes of transport.
IndiGo, India's largest airline by market share at 65%, announced a hike in fuel charges from October 6 for both domestic and international flights, citing the continuing rise and volatility in ATF prices. The airline said the latest month-on-month increase in fuel prices was more than 14% and had taken ATF costs to among their highest levels in the past decade. The airline has now raised fuel charges three times this year, in March, April and October. Air India, the second-largest airline by market share of 27%, implemented fuel surcharges twice this year, in March and April, but has not announced a fresh surcharge rise following the October ATF increase. Akasa Air has now joined the trend, announcing new fuel surcharges effective October 9, 2026, with domestic routes facing charges ranging from ₹375 to ₹1,150 depending on distance, and international routes fixed at ₹2,500 across six destinations including Kuwait, Qatar, Saudi Arabia, UAE, Thailand, and Vietnam. According to Mint, airlines are passing on fuel costs as surcharges, with no guarantee that surcharges will be waived or reduced if the government reworks the pricing mechanism. Airlines have been restricting capacity and reducing flight departures to protect profitability amid elevated costs, with aircraft availability another constraint as Boeing's slower aircraft deliveries have affected expansion plans at Air India and Akasa Air.
ATF prices for domestic airlines were raised by ₹16 per litre from Thursday to ₹137 per litre from ₹121, according to state-owned oil companies, following hikes in August and September. Air India and Air India Express announced fuel surcharge increases on Thursday, with the revised surcharge for Air India Express applying to new bookings from October 9, while changes for Air India took effect from 11am the same day. For domestic flights, Air India and Air India Express will levy a fuel surcharge of ₹400 on sectors up to 500 km, ₹600 on routes between 501 and 1,000 km, and ₹850 on flights between 1,001 and 1,500 km. The surcharge will be ₹1,200 for domestic flights covering 1,501-2,000 km and those above 2,000 km. On international sectors, the revised surcharge will be $215 for North America, $210 for Australia, $135 for Europe, including the UK, and $55 for West Asia and the Middle East. IndiGo's revised charges came into effect from October 6, with domestic fuel charges set at ₹375 for flights up to 500 km, ₹600 for 501-1,000 km, ₹900 for 1,001-1,500 km, ₹1,150 for 1,501-2,000 km and ₹1,300 for flights above 2,000 km. The airlines said the surcharge revision was calibrated to partially offset the higher cost burden, with Air India and Air India Express periodically reviewing the surcharge and making adjustments depending on the fuel price situation.
The aviation sector faces significant cost pressures from Brent crude remaining above $100 a barrel and the Indian rupee weakening, creating a challenging operating environment. Aviation turbine fuel accounts for around 35-40% of total airline costs, while approximately 70% of airline costs are dollar-denominated, making currency fluctuations particularly impactful. SpiceJet has seen a particularly sharp contraction in operations amid funding constraints, further reducing available capacity in the market. The aircraft order book provides strong indication of long-term growth expectations, with Indian airlines having placed orders for more than 1,600 aircraft compared with a current combined fleet of around 850-860 aircraft, suggesting airlines continue to expect substantial long-term growth despite current challenges.
