An airline body that represents Indian carriers IndiGo, Air India, and SpiceJet has sent an SOS to the government, urging changes in the pricing formula for aviation turbine fuel (ATF), or jet fuel, whose prices have shot up in the international market amid the West Asia crisis. ATF prices in India, which are linked to global prices, are due for their monthly revision early May.In a letter to the Ministry of Civil Aviation (MoCA), the Federation of Indian Airlines (FIA) wrote that the current “ad hoc” pricing mechanism for ATF is “creating severe imbalance in domestic and international operations and rendering airline networks unviable and unsustainable”.“The airline Industry in India is under extreme stress and are on the verge of closing down or of stopping its operations. The dire condition of the Aviation Sector has been exacerbated by the West Asia War and the exorbitant increase in the price of ATF,” the FIA wrote in the letter dated April 26, as it sought the jet fuel pricing formula to be reversed to one with margin bands — with a floor and ceiling — for what refiners can charge, and have the same pricing for domestic and international flights of Indian airlines.Usually, ATF prices account for about 40% of Indian airlines’ operational costs; the price surge has led to a further increase to 55-60%, according to the FIA. Indian airlines are also suffering due to airspace restrictions in West Asia and the ban on Indian aircraft from entering the Pakistani airspace, as well the depreciation of the rupee given that some major costs for carriers are dollar-denominated.The industry body also urged the government to temporarily suspend the 11% excise duty on ATF sales for domestic flights, and work towards reduction in value added tax (VAT), which is quite high in a few states that house the biggest Indian airports.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. The government has also imposed an export duty on ATF to disincentivise its export.“While the Government of India stepped in last month to prevent the collapse of the Aviation Sector by limiting the increase of ATF to Rs 15 per litre for domestic operations. However, the ATF pricing for international operations was increased by Rs 73 per litre, making…international operations along with domestic operations completely unviable and resulting in significant losses for the aviation sector in April 2026. The April ’26 pricing outcomes do not ensure parity between domestic and international operations,” the FIA wrote.Story continues below this adIn the last price revision on April 1, the price of the fuel for domestic scheduled flights in India was hiked only partially by the public sector oil marketing companies (OMCs). For international flights, however, the full price increase was passed on. This has hurt international operations of Indian airlines. The hike in jet fuel prices resulted in most major airlines increasing fuel surcharges, particularly for international flights, even as they claimed that the surcharges would set off only a part of the cost escalation.Also read | Why your summer travel plans to London and Goa may get more expensive“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 Ministry of Petroleum and Natural Gas had said in a statement on April 1.In its letter to MoCA, the FIA wrote: “In order to ensure uninterrupted operation of airlines within India, FIA earnestly requests the Ministry’s urgent intervention to review the ATF cost challenges in consultation with the relevant Ministries and stakeholders and also respectfully request the Government to extend the same fuel pricing mechanism uniformly across both domestic and international operations as was done in the past with the establishment of Crack (margin) Band. Applying the same framework consistently will ensure parity, reduce the financial burden and enable Indian airlines to compete more effectively with global counterparts.”The margin band argumentThe core issue lies in how jet fuel prices are calculated. 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. In 2022, a “crack band” of $12-22 per barrel was established to cap OMCs’ margins during abnormal price fluctuations. It was done at a time when jet fuel prices had shot up due to high post-pandemic demand and Russia’s invasion of Ukraine. The crack spread is the difference between the price of crude oil and products like ATF derived from it.Story continues below this adBut these crack band limits were discontinued in late 2024 mutually by airlines and the OMCs. With the surge in global jet fuel prices, the airlines now want the crack or margin band to be reintroduced. A reintroduction of this band would mean that the refiners will get a minimum $12 per barrel as margin on jet fuel sales, while the maximum would be $22, no matter the price in the international market.Also read | To cushion Indian flyers, jet fuel price for domestic flights hiked only partially; price for international flights more than doublesThe FIA’s argument is that the band allows “fair and reasonable margin” for the OMCs, while blunting the impact of surging jet fuel prices on the airlines. The crack differential which was in the range of $11 to $18 per barrel has surged to $132.59 even though the refining cost for converting crude into jet fuel has not really changed, according to the airlines’ association.“The current conflict has pushed the (benchmark) Brent crude from $72/bbl (barrel) to $118/bbl and resultant ATF price (MOPAG + Premium) has moved from $ 87.24 and touched a high of $ 260.24/bbl (295% increase) and is currently trading at $ 235.63/bbl, significantly higher as compared to March ’25 pricing. The correlation of crack/differential between Brent and MOPAG has increased significantly since the conflict started,” the FIA said.“We would respectfully like to bring to your kind attention that any ad hoc pricing (domestic vs international) and/or irrational increase in the price of ATF will result in unsurmountable losses for airline and will lead to grounding of aircraft resulting in cancellation of flights,” the industry body wrote.Excise, VAT relief also soughtStory continues below this ad“Considering the extraordinary global circumstances and the fragile financial condition of the aviation sector, keeping in mind already burdened with additional cost due to neighbouring country’s airspace closure, rupee depreciation, FIA requests Government to kindly consider temporarily suspending the excise duty on ATF for domestic operations,” the FIA wrote.NewsletterFollow our daily newsletter so you never miss anything important. On Wednesday, we answer readers' questions.SubscribeATF currently attracts an excise duty of 11% for domestic flight operations. Higher ATF prices vis-a-vis the pre-West Asia war period, along with rupee depreciation, have led to an increase in the airlines’ outgo on account of the ad valorem excise duty. In the past, the airlines had urged the government to make the excise duty on ATF a flat charge instead of an ad valorem duty, but the request did not lead to any change in the duty structure.The industry association said that reduction in VAT on jet fuel at various large Indian airports will also help in providing relief to airlines. ATF prices vary across states due to different rates of VAT charged by the state governments.“The largest Aviation Hub, Delhi has 2nd highest VAT in India i.e. 25%, the highest being Tamil Nadu at 29%. The other major aviation cities viz Mumbai, Bangalore, Hyderabad, Kolkata ranges between 16%-20%. These 6 cities cover more than 50% of airlines’ operation within India,” the FIA wrote.Story continues below this adWhile the excise duty is fully under the Centre’s control, VAT is the state government’s prerogative. For the past few years, the government has been urging states to reduce VAT on ATF, and some states have done so as well. But a few others, including those that house large airports, have been loath to do so.