NEW DELHI: The Union Cabinet on Wednesday approved a one-time price stabilisation fund of ₹10,000 crore to help Indian airlines manage soaring aviation turbine fuel (ATF) prices amid the ongoing West Asia conflict.
The support will be provided to oil-marketing companies (OMCs) in the form of interest-free advances through the Ministry of Petroleum and Natural Gas. The OMCs, in turn, will use the fund to provide ATF price stabilisation support to Indian carriers operating domestic and international flights.
According to a government statement, the mechanism is intended to provide airlines with “enhanced stability and predictability in ATF pricing” during a period of exceptional fuel-price volatility.
OMCs will be compensated whenever international ATF prices exceed a benchmark determined under the scheme. The government said the corpus would offset losses incurred by OMCs from elevated fuel prices while allowing airlines to operate under a fixed-price arrangement.
The support will remain in force for 36 months, with provision for annual review, or until the advance amount is fully recovered, whichever is earlier. The government may extend the arrangement if the corpus has not been fully settled within that period.
According to the government, the mechanism would provide “greater predictability in fuel costs” and reduce airlines’ exposure to sudden fuel-price spikes.
The scheme will be available to scheduled Indian carriers for both domestic and international operations. Participating airlines will sign agreements with OMCs and procure ATF exclusively from them for up to three years, subject to an annual review or until the support amount is fully recovered.
The arrangement also includes a recovery mechanism. When international ATF prices moderate, the difference will be recovered from OMCs and returned to the Consolidated Fund of India. The process will continue until the entire support amount is recovered and settled.
Implementation will be overseen by a monitoring committee comprising representatives of the Ministry of Civil Aviation, Ministry of Petroleum and Natural Gas, and the Department of Expenditure. All claims and recoveries will be subject to audits.
The decision comes against the backdrop of a spike in global aviation fuel prices. According to the government, international ATF prices rose from ₹60.50 per litre in March 2026 to ₹142 per litre in May 2026, nearly 2.5 times higher in the space of just two months.
ATF accounts for around 40 per cent of operating costs for airlines and can rise to as much as 60 per cent during periods of extreme volatility, putting significant pressure on the aviation business.
The government also cited the closure of Pakistani airspace for Indian carriers, which has led to longer flight paths to Europe, North America and Central Asia, increasing fuel consumption and operating costs. It said the resulting pressure has contributed to higher long-haul fares, weaker international demand and reductions in services on some overseas routes.
While domestic ATF prices have been capped, international operations continue to purchase the fuel at import parity prices. The government said prolonged capping of ATF prices is not sustainable for OMCs, which are also bearing losses amid elevated global fuel prices.
According to the government, the measure will help “protect and sustain domestic and international air connectivity” while reducing the pass-through of fuel-cost shocks to passengers.
The government said it would also support air links to remote, regional, Tier-II and Tier-III cities.
IndiGo, India’s largest airline by passengers carried, last Friday reported a consolidated net loss of ₹2,536.9 crore in the fourth quarter of 2025-26 (Q4FY26), hurt by sharp foreign exchange losses, elevated ATF prices, and flight cancellations due to the ongoing conflict in West Asia.
An IndiGo spokesperson said, “This timely intervention is a welcome relief that reflects the government’s understanding of the critical role aviation plays in connecting people and enabling economic growth, while also fostering an environment that empowers airlines to serve passengers better and contribute towards India’s journey as a global aviation hub.”
Sahil Mahajan, partner, aviation, airports and hospitality, at PwC India, said, “The Cabinet’s move is a timely intervention for an industry where fuel accounts for nearly half of operating costs. By cushioning airlines from extreme volatility, it protects margins and enables more predictable pricing for consumers. It also gives the sector critical breathing room to rebuild resilience amid ongoing geopolitical uncertainty.”
“That said, this is not a permanent fix—but at times like this, a well-timed intervention is exactly what the industry needs to stay on course. Structural reforms in fuel taxation and pricing will remain essential for long-term sustainability,” he added.
Source: Business Standard / Millennium Post
