Cabinet clears Rs 10,000 crore fund to cap jet fuel prices for Indian airlines

The Union Cabinet approved a Rs 10,000 crore fuel price stabilisation programme for airlines on Wednesday, providing financial support to state-owned oil retailers to cap aviation turbine fuel (ATF) prices and shield carriers from soaring fuel costs linked to the ongoing West Asia crisis. A one-time, interest-free advance of up to Rs 10,000 crore will be provided to oil marketing companies (OMCs), enabling them to supply jet fuel to scheduled Indian airlines at a fixed price for both domestic and international operations. Briefing reporters on the decision, Information and Broadcasting Minister Ashwini Vaishnaw said the government has capped the ATF price for domestic airlines at Rs 75.6 per litre, significantly below the current market price.

While the cap is expected to provide immediate relief to airlines, it could increase financial pressure on refiners and fuel retailers, which will be compensated through the stabilisation fund. The support mechanism comes as international jet fuel prices have surged amid geopolitical tensions in West Asia. Vaishnaw said international ATF prices have risen nearly 2.5 times, from Rs 60.5 per litre in March to about Rs 142 per litre in May. Fuel accounts for roughly 40 per cent of airline operating costs and can rise to as much as 60 per cent during periods of extreme price volatility, making it one of the industry's largest cost components.

Under the approved framework, OMCs will be compensated whenever international import parity prices exceed a benchmark level determined by the government. Once global fuel prices moderate, the support provided to OMCs will be recovered and returned to the Consolidated Fund of India through a defined true-up mechanism. The arrangement will remain in force for up to three years, subject to annual review, or until the entire support amount has been recovered, whichever occurs earlier. Participating airlines will be required to purchase ATF exclusively from OMCs under agreements signed with the fuel retailers and overseen by the ministries of civil aviation and petroleum. Vaishnaw said the scheme would help stabilise airline operating costs, reduce fare volatility for passengers and preserve domestic and international air connectivity.

Officials also said the measure would support regional air services, including routes connecting smaller cities under India's regional connectivity programme. The move comes as Indian airlines face mounting operational costs from both elevated fuel prices and longer international flight routes, following the closure of Pakistani airspace to Indian carriers. The detours have increased fuel consumption on services to Europe, North America and Central Asia, contributing to higher operating costs and weaker demand on some long-haul routes.

A monitoring committee comprising representatives from the ministries of civil aviation and petroleum and the Department of Expenditure will oversee implementation, claims verification and settlement, with all transactions subject to audit. The scheme would help sustain domestic and international air connectivity, including services to regional and smaller cities, while supporting employment across aviation, tourism, hospitality, logistics and related sectors. 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, he said.

According to the minister, the fund would shield air passengers from fare spikes, driven by the global oil price surge, and also protect 77 lakh jobs dependent on the aviation ecosystem. The budgetary support will be in the form of interest-free advances to OMCs through the Demands for Grants of the Ministry of Petroleum and Natural Gas, an official release said. The support will be provided to OMCs to facilitate stable ATF pricing for airlines during the ongoing period of exceptional fuel price volatility arising from the West Asia crisis. The corpus will compensate OMCs for losses arising from elevated international ATF prices whenever the prevailing Import Parity Price exceeds the benchmark price, determined under the approved mechanism. "When international ATF prices moderate, the differential amount shall be recovered from OMCs and returned to the Consolidated Fund of India. The arrangement shall continue until the entire support amount is fully recovered and settled," it added.

ATF price stabilisation support will be in force for a period of 36 months with provision for annual review or until the advance amount is fully recovered/settled, whichever is earlier. Vaishnaw further said the fund would help safeguard public investment in airport infrastructure by keeping airline operations viable and maintaining air connectivity to Europe, North America and Central Asia amid the Pakistan airspace closure.

Indian airlines are now taking longer routes for international flights, which also means increased fuel burn due to the Pakistan airspace closure that has been in place since early last year. While ATF price has been capped for domestic operations, Indian carriers continue to purchase the fuel for international operations at Import Parity Prices (IPP), exposing them to elevated fuel costs. However, capping ATF prices is a temporary measure and not sustainable in the long run for OMCs. Due to the capping of ATF prices, OMCs are also incurring losses, particularly with volatile and surging ATF prices during the West Asia crisis, the statement added.

IndiGo said the timely intervention was a welcome relief that reflects the government's understanding of the critical role aviation plays in connecting people and enabling economic growth.