Air travel to get costlier? Govt lifts airfare caps, fuel costs climb amid West Asia tensions

India’s air travellers may need to brace for a fresh round of fare hikes, as a confluence of regulatory rollback, geopolitical tensions, and rising cost pressures begins to reshape airline economics.

The civil aviation ministry has withdrawn fare caps imposed during IndiGo’s operational disruptions last December, marking a return to market-driven pricing. The caps ranging from Rs 7,500 for short-haul routes to Rs 18,000 for longer sectors were introduced as a temporary measure to protect passengers amid widespread cancellations. With operations now stabilised, the ministry has stepped back, while cautioning airlines to maintain “reasonable and transparent” pricing.

However, the timing of the rollback coincides with mounting cost headwinds, raising concerns that fares could climb sharply in the coming months.

At the heart of the issue is aviation turbine fuel (ATF), which already accounts for nearly 40% of an airline’s operating costs. The ongoing conflict in West Asia has disrupted global energy supply chains, particularly through critical transit routes such as the Strait of Hormuz, pushing up crude oil prices. While domestic ATF prices have so far risen modestly from $778.85 per kilolitre in February to $816.9 in March, industry executives warn that this may not hold.

If state-run oil marketing companies begin aligning domestic prices more closely with global benchmarks from April, ATF costs could surge significantly, potentially doubling their share in airline cost structures to as high as 80%. Civil Aviation Minister Ram Mohan Naidu has already indicated that the impact of higher fuel prices will likely become visible from April 1.

Airlines are also grappling with operational challenges linked to the geopolitical situation. Rerouting of flights to avoid conflict zones has led to longer flying times, increased fuel burn, and higher crew and maintenance costs, particularly on international sectors connecting India with Europe and North America. These inefficiencies are beginning to erode margins that were only recently stabilising after pandemic-era losses.

Senior airline executives are indicating possible route rationalisation, including frequency cuts or temporary suspension of select sectors, if fuel costs rise sharply or supply disruptions intensify

The impact is already being seen.

Air India CEO Campbell Wilson said in a letter to his employees, "Fuel price hit will be seen from April, hinting at flight cancellations going ahead. Financial impact of this crisis is yet to be fully felt. We have cancelled 2500 flights since the Middle East conflict started, operating only 30% of our normal Middle East schedule. Using longer routes for Europe and North America flights is consuming more fuel, adding more time. Although spot prices for jet fuel have more than doubled,  most of the impact will hit us next month . We've imposed fuel surcharge but there is a limit to how much we can increase before demand drops."

Some airlines in the world have cut flights due to high fuel prices, will have to adjust our schedule depending on how fuel cost, airfares and customer demand moves

The industry has already begun responding. Air India & IndiGo has initiated a phased fuel surcharge increase across domestic and international routes, while Akasa Air has introduced a new fuel surcharge for bookings from mid-March, explicitly citing rising ATF costs.

Adding to the pressure is a proposed government directive mandating that 60% of seats be offered free for selection. Airlines have strongly opposed the move, arguing that it would hit ancillary revenues, a crucial income stream in a price-sensitive market. The Federation of Indian Airlines has warned that such a policy could force carriers to recover losses through higher base fares, effectively negating any consumer benefit.

While the government has assured Parliament that there is no immediate shortage of ATF and that supplies remain stable, the risk of prolonged geopolitical disruption continues to loom large.