Air India, IndiGo, SpiceJet Seek Govt Relief As West Asia Conflict Pushes ATF Costs Higher

The Federation of Indian Airlines (FIA), representing Air India, IndiGo and SpiceJet, has sought urgent government support as the West Asia conflict pushes up aviation turbine fuel (ATF) prices and other operating expenses.

According to a report by Moneycontrol, in a letter to the Civil Aviation Ministry, the association warned that continued financial pressure could force airlines to curtail operations. The appeal comes ahead of the busy festive travel season.

According to FIA, fuel costs have increased from around 30%-40% of operating expenses to about 55%-60%.

Airspace restrictions have forced carriers to take longer routes, increasing fuel consumption and crew costs while reducing aircraft utilisation. Rupee depreciation has added to expenses related to fuel, aircraft leases, maintenance and insurance, several of which are dollar-linked.

Airlines seek changes to ATF pricing formula

FIA has asked the government to replace the international benchmark-based pricing system for domestic ATF with a cost-plus model.

The association said Brent crude increased from $72 a barrel to $118 after the conflict began. ATF based on the Mean of Platts Arab Gulf (MOPAG) plus premium climbed from $87.24 to a peak of $260.24 and is currently around $175.33 a barrel.

FIA also flagged an increase in the differential between Brent and MOPAG, saying it is currently around $60-$61 a barrel compared with an average of $8-$12.

Airlines have limited scope to recover these additional costs because tickets are often booked in advance and fare increases cannot be applied retrospectively, FIA said.

FIA seeks excise duty, VAT relief

The association has also sought changes to the 11% excise duty imposed on domestic ATF. Instead of the existing ad valorem levy, FIA wants the government to introduce a fixed-rate duty.

It argued that higher fuel prices increase the excise burden, while value-added tax (VAT) is subsequently imposed on the higher amount.

FIA has also requested the continuation of the 7% VAT rate on ATF in Delhi and Maharashtra beyond mid-November.

The association additionally wants lower ATF VAT rates in Tamil Nadu, West Bengal, Karnataka and Telangana to ease financial pressure on airlines.