ATF price cap for Indian airlines approved with Rs 10,000 crore stabilisation support

The Union Cabinet approved a Rs 10,000 crore fuel price stabilisation programme for airlines on Wednesday. The plan supports state-owned oil retailers that supply aviation turbine fuel, or ATF. It aims to limit ATF prices and reduce cost shocks for carriers. The decision follows sharp fuel price rises linked to the ongoing West Asia crisis.

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The government will give oil marketing companies, or OMCs, a one-time, interest-free advance of up to Rs 10,000 crore. This funding allows OMCs to supply jet fuel to scheduled Indian airlines at a fixed price. The fixed pricing will apply to both domestic and international operations under the approved approach.

ATF price stabilisation fund sets domestic ATF cap

Information and Broadcasting Minister Ashwini Vaishnaw said the government capped domestic ATF at Rs 75.6 per litre. Vaishnaw told reporters this is well below the present market price. The cap is expected to ease airline costs quickly. Officials said the stabilisation fund will offset added pressure on refiners and fuel sellers.

Vaishnaw said global ATF prices rose nearly 2.5 times in recent months. The price moved from Rs 60.5 per litre in March to about Rs 142 per litre in May. Officials linked the rise to tensions in West Asia. Airlines face higher risk because fuel forms a major share of expenses.

Fuel is about 40 per cent of airline operating costs. During steep volatility, it can reach as much as 60 per cent. Officials described fuel as one of the biggest cost items for carriers. The capped pricing is meant to reduce fare swings for passengers. It also aims to keep flight networks running.

ATF price stabilisation fund compensation and recovery rules

Under the framework, OMCs get compensation when import parity prices cross a benchmark set by government. When global fuel prices ease, the support will be recovered. The recovered amount will go back to the Consolidated Fund of India. A defined true-up mechanism will be used to settle differences.

The arrangement will run for up to three years and will face an annual review. It can also end earlier if the full support amount gets recovered. Participating airlines must buy ATF only from OMCs. The purchases will be under agreements overseen by civil aviation and petroleum ministries.

A monitoring committee will oversee how the scheme runs. It will include officials from civil aviation, petroleum, and the Department of Expenditure. The panel will check claims and manage settlement. All transactions will remain subject to audit. Officials said this is needed due to the size of the support.

ATF price stabilisation fund addresses connectivity and airspace costs

Officials said the support should stabilise airline costs and reduce fare volatility. It also aims to preserve domestic and international air connectivity. The measure is expected to support routes to smaller cities. Officials linked this to India’s regional connectivity programme and regional air services.

The move comes as airlines face higher costs from longer flight paths. Pakistani airspace remains closed to Indian carriers, affecting many routes. Detours increased fuel use on services to Europe, North America and Central Asia. This added pressure on costs and hurt demand on some long-haul routes.

Vaishnaw said the fund would help stabilise ATF prices for scheduled Indian carriers and prevent disruption of airline operations. "With the fund, airlines would get a stable ATF price as long as the turmoil is there, and once the crisis is over, then the participating airlines would have to reimburse the amount,\" Vaishnaw said.

According to Vaishnaw, the measure could help limit fare spikes tied to global oil moves. Vaishnaw also said it would protect 77 lakh jobs linked to aviation. Officials said the scheme supports employment across aviation, tourism, hospitality, logistics and related sectors. The plan also aims to protect spending on airports.

The budget support will be routed as interest-free advances to OMCs through the Demands for Grants of the Ministry of Petroleum and Natural Gas. An official statement said losses will be covered when import parity price exceeds the benchmark. It added that later recovery will return funds to the Consolidated Fund of India.

The statement said support is temporary and may not be sustainable long term for OMCs. It also said OMCs are incurring losses due to capped pricing. The strain is sharper when ATF prices are volatile and rising during the West Asia crisis. Meanwhile, international operations still face import parity exposure.

IndiGo reacted after the Cabinet decision. IndiGo said the timely intervention was a welcome relief that reflects the governments understanding of the critical role aviation plays in connecting people and enabling economic growth. The airline did not share any further operational details. The government scheme remains under committee oversight.

With inputs from PTI