Airlines Are Flying at Loss With Every Takeoff. The Government Has Four Days to Read the SOS.

Walk through any major Indian airport right now and the departure boards look normal. Flights are showing on time, passengers are queueing, airlines are operating. But inside the finance departments of Air India, IndiGo, and SpiceJet — and in the boardrooms of every other Indian carrier — a very different picture is being assembled, one quarterly loss figure at a time.

On April 26, the Federation of Indian Airlines (FIA) sent a letter to the Ministry of Civil Aviation that was marked "urgent and important" in bold. The language inside it was, by the standards of India's typically measured corporate communication, stark. The airline industry in India is under extreme stress and is on the verge of closing down or of stopping its operations.

That is not a warning about future possibility. That is a description of current reality.

What Happened to ATF Prices — and Why

Aviation Turbine Fuel is the single largest operating cost for any airline. In normal times — pre-crisis times — it accounted for roughly 30% to 40% of a carrier's total operating expenses. That ratio is already high by global standards, because India's jet fuel is among the most expensive in the world, partly due to state-level taxes and partly due to refinery margin structures.

In April 2026, that share has jumped to 55% to 60% of operating expenses. The FIA has described this as creating "completely inoperable conditions." That's not a metaphor. An airline with 55-60% of its revenue consumed by a single input before salaries, maintenance, airport charges, and debt servicing have been paid is not a business that can sustain itself for long.

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Two things have driven this crisis:

First, the West Asia conflict. The US-Israel military operations against Iran and the partial closure of the Strait of Hormuz have sent crude oil prices higher and made the entire Gulf region's energy supply uncertain. Global jet fuel prices moved sharply. This was not a slow, predictable rise — it happened quickly, within weeks of the conflict escalating.

Second, a structural pricing imbalance. Last month, the government stepped in to cap the rise in ATF prices for domestic operations at ₹15 per litre. A reasonable short-term measure. But it did not extend the same cap to international operations. For international flights, ATF prices rose by ₹73–75 per litre — nearly five times the domestic increase.

The FIA's letter calls this "ad hoc pricing," and the word is apt. Airlines plan routes, set fares, hedge fuel costs, and sign contracts months in advance. When the pricing regime changes this sharply between domestic and international operations without warning, that advance planning collapses. Routes that looked viable six months ago now bleed cash with every departure.

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What Airlines Are Asking For

The FIA's letter to the Civil Aviation Ministry is not a vague complaint. It has specific, practical demands:

• Restore the 'crack band' pricing mechanism. This was a framework introduced in October 2022, after the Covid disruption, that capped refinery margins on ATF at USD 12–22 per barrel. Under this mechanism, even when global crude moved, Indian carriers were shielded from excessive refinery profit-taking. It worked. The government discontinued it in December 2024 when prices had stabilised and it seemed no longer necessary. That call now looks premature.
• Temporarily waive the 11% excise duty on ATF. Aviation Turbine Fuel currently attracts 11% excise duty at the central level. In normal times, this is a significant but manageable cost. With base ATF prices having jumped sharply, the 11% is now amplified — it's 11% of a much larger number. Airlines are asking for a temporary waiver, not a permanent exemption.
• Push state governments to lower VAT on ATF. State-level Value Added Tax on ATF varies dramatically across India — some states charge as much as 29-30%, others as low as 1-4%. Airlines have for years flagged this inconsistency. States where high VAT is imposed often find airlines reducing operations there. The FIA wants the Centre to coordinate a VAT reduction.
• Uniform pricing framework for domestic and international operations. The current situation, where domestic ATF saw a ₹15/litre increase while international saw ₹73/litre, is described as creating a structural bias against Indian carriers on international routes. The FIA wants parity.

Why Crude Prices Falling Doesn't Help

Here is something that confuses many people watching this crisis: global crude oil prices are not at historic highs. Brent crude has moved up because of the Iran conflict, but it's not at the extreme levels seen during the 2022 Ukraine war. Yet airlines are screaming about costs. Why?

The answer lies in crack spreads. A crack spread is the margin between the price of crude oil and the price of refined products like jet fuel. Even when crude is at a moderate level, if refinery margins spike — because refineries know they can charge more due to supply disruption and high demand — the jet fuel price still goes up sharply.

The FIA's letter explicitly calls out high crack differentials as keeping ATF prices "high even though global crude oil benchmarks have eased." In other words, Oil Marketing Companies (OMCs) — the refineries supplying ATF — are earning much higher margins than usual, and that's coming directly out of airlines' operating budgets.

The 'crack band' mechanism that the FIA wants restored was specifically designed to prevent this. It capped the refinery margin within a defined range, preventing OMCs from extracting excessive profits when global fuel prices tightened.

The Falling Rupee

Add currency to the mix and the situation gets worse. Airlines import aircraft, spare parts, and significant amounts of fuel on international contracts denominated in US dollars. The depreciation of the rupee against the dollar has increased the burden substantially.

Every dollar of jet fuel bought internationally now costs more rupees. Every maintenance contract, every aircraft lease payment, every dollar-denominated loan servicing — all of it has gotten more expensive. Airlines typically hedge currency exposure, but hedging has limits and lags. In a sharp, rapid depreciation, even well-hedged airlines take losses.

The FIA's letter links this directly: "adding rupee depreciation to the increased prices, the 11% excise duty also increases manifold for the airlines."

What Non-Intervention Looks Like

The FIA has been clear about the consequences of government inaction:

• Grounding of aircraft on economically unviable routes
• Cancellation of flights, particularly international ones
• Reduction in overall seat capacity
• Higher airfares as airlines attempt to pass costs to passengers
• Potential operational shutdowns if losses become unsustainable

India's aviation sector was, until recently, one of the fastest-growing in the world. IndiGo is one of the world's largest low-cost carriers by fleet size. Air India, under Tata ownership, has been on an ambitious expansion and fleet renewal programme. SpiceJet has been in financial difficulty for years and is particularly vulnerable to any further cost escalation.

The sector is also a significant employer — pilots, cabin crew, ground staff, maintenance technicians, airport operations staff, and the entire ecosystem of ancillary aviation services.

The last time Indian airlines faced a crisis of this magnitude — the 2008-12 period of high fuel costs and poor regulation — several carriers went bankrupt. Kingfisher Airlines, the most prominent casualty, collapsed in 2012, leaving thousands of employees unpaid and stranded passengers across the country. That collapse took years to fully absorb.

Has the Government Responded?

As of April 28, the Ministry of Civil Aviation had not issued a formal public response to the FIA's April 26 letter. The ministry is understood to be in internal consultations, and the Petroleum Ministry — which controls OMC pricing policy — is also involved given that ATF pricing touches its remit.

The government's track record on ATF relief has been mixed. During Covid, it did intervene with the crack band mechanism and state governments were encouraged to reduce VAT. That intervention saved the sector. Whether a similar response comes this time — and how quickly — will determine whether this crisis becomes a news story or a structural collapse.