The Federation of Indian Airlines has written an urgent letter to the government, warning that Indian carriers are “on the verge of closing down”. The situation is grave, and the root cause is real. The industry wants temporary excise relief and a reinstated price cap, which would immediately lessen the pain but avoid a long-term solution.
Aviation turbine fuel accounts for 40 per cent of an Indian airline's operating costs. Following the current oil crisis, it has grown to 55-60 per cent of its total costs in April 2026. Brent crude is now $118 per barrel, up from $72 a barrel during the escalations of the West Asia confrontation.
Fuel costs squeeze airlines
The crack spread—the difference between crude and refined jet fuel—has exploded from the range of $11-18 per barrel to $132.59, and that alone is something that does not have to be rooted in market forces. Airspace closures over Pakistan have added route length and fuel burn. The rupee has softened. All these pressures are compounding.
But before the government looks at a relief measure, it should sit with one inconvenient fact buried in the FIA's own letter: the “crack band” mechanism airlines now desperately want to bring back—a $12-22 per barrel cap on refiner margins—was scrapped in December 2024, following the airlines’ own agreement.
After Covid and global ATF costs stabilised, the band also felt redundant. The benefits of lower fuel costs accrued to the carriers. Now that that cycle has turned, the same carriers want the government to pick up the cost. The government may want to reinstate the band, as the current crack spread is indefensible. But it also underscores the fact that the industry’s relationship with pricing risk is selective.
High tax burden under scrutiny
The deeper problem is the ATF tax model in India. Jet fuel at the central level is subject to an excise duty of 11 per cent. At the state level, VAT is 16-20 per cent in Mumbai, Bengaluru, and Hyderabad, 25 per cent in Delhi, and 29 per cent in Tamil Nadu. Collectively, India has one of the highest effective tax burdens on aviation fuel in the Asia-Pacific.
Possible long-term solutions
How to fix this problem that keeps rearing its head? Perhaps the solution lies in bringing the ATF into GST, but it would leave the states one less source of income. States will obviously oppose it; hence, the government needs to find a middle path.
It could follow the European model, where, instead of taxing fuel, states levy a fixed per-passenger departure charge at airports within their jurisdiction. Revenue becomes tied to passenger volumes—which grow with the sector—rather than volatile fuel prices.
There could be other solutions as well, but what the government needs to be more than aware of is that this crisis presents an opportunity to establish a robust framework.
