BT Explainer: Will airfares moderate because of Centre’s Rs 10,000 crore ATF fund?
The Centre approved the jet fuel stabilisation mechanism to shield Indian airlines from extreme volatility in fuel costs
- Jun 4, 2026,
- Updated Jun 4, 2026 4:17 PM IST
Wondering if the Rs 10,000-crore aviation turbine fuel (ATF) support mechanism to airlines will bring down airfares? Domestic airfares that have jumped 10-15% after jet fuel prices shot up because of the war in West Asia are unlikely to come down. However, the mechanism can help moderate fare volatility.
Air India, IndiGo and Akasa have introduced fuel surcharges on both the domestic and international sectors due to high jet fuel prices. But there is no move to remove them.
The government’s latest relief measures come at a time when Air India and IndiGo have both announced cuts in flight operations due to challenges posed by high ATF prices and the rising dollar against the rupee.
The support mechanism is designed less as a direct airline bailout and more as a buffer for volatile fuel markets. Once international ATF prices moderate, the differential support extended to oil marketing companies (OMCs) will be recovered and returned to the Consolidated Fund of India.
The government expects the stabilisation mechanism to help moderate fare volatility, sustain air connectivity, particularly to regional cities, and protect airline operations during a prolonged period of geopolitical disruption.
The arrangement will remain in place for 36 months or until the entire advance is fully recovered, whichever comes first.
What will airfare be going ahead?
The mechanism can help airfare remain within a certain range, in case the ATF prices rise further. The OMCs have not increased ATF prices in their June revision.
International ATF prices have jumped nearly 2.5 times, from around Rs 60.5 per litre in March to Rs 142 per litre in May. ATF accounts for roughly 40% of airline operating costs and can climb to nearly 60% during periods of extreme volatility.
The pressure has intensified for Indian airlines following the closure of Pakistani airspace, which has lengthened routes to Europe, North America and Central Asia, increasing fuel burn and operating expenses.
What are airlines doing?
Air India posted a loss of more than Rs 26,000 crore in FY26, while IndiGo reported a loss of Rs 2,537 crore in Q4FY26. Air India has effected a 22% cut in domestic and 27% cut in the international sector. IndiGo has also gone for network optimisation.
IndiGo MD Rahul Bhatia also listed airfare hike as an option to manage the losses. The airline has also announced a temporary halt of flights to Manchester as part of network optimisation. It had already stopped flying to Copenhagen. It has said it will return all damp-leased aircraft to cut losses. All leases are dollar-denominated and impact the finances if the rupee falls against the dollar.
Wondering if the Rs 10,000-crore aviation turbine fuel (ATF) support mechanism to airlines will bring down airfares? Domestic airfares that have jumped 10-15% after jet fuel prices shot up because of the war in West Asia are unlikely to come down. However, the mechanism can help moderate fare volatility.
Air India, IndiGo and Akasa have introduced fuel surcharges on both the domestic and international sectors due to high jet fuel prices. But there is no move to remove them.
The government’s latest relief measures come at a time when Air India and IndiGo have both announced cuts in flight operations due to challenges posed by high ATF prices and the rising dollar against the rupee.
The support mechanism is designed less as a direct airline bailout and more as a buffer for volatile fuel markets. Once international ATF prices moderate, the differential support extended to oil marketing companies (OMCs) will be recovered and returned to the Consolidated Fund of India.
The government expects the stabilisation mechanism to help moderate fare volatility, sustain air connectivity, particularly to regional cities, and protect airline operations during a prolonged period of geopolitical disruption.
The arrangement will remain in place for 36 months or until the entire advance is fully recovered, whichever comes first.
What will airfare be going ahead?
The mechanism can help airfare remain within a certain range, in case the ATF prices rise further. The OMCs have not increased ATF prices in their June revision.
International ATF prices have jumped nearly 2.5 times, from around Rs 60.5 per litre in March to Rs 142 per litre in May. ATF accounts for roughly 40% of airline operating costs and can climb to nearly 60% during periods of extreme volatility.
The pressure has intensified for Indian airlines following the closure of Pakistani airspace, which has lengthened routes to Europe, North America and Central Asia, increasing fuel burn and operating expenses.
What are airlines doing?
Air India posted a loss of more than Rs 26,000 crore in FY26, while IndiGo reported a loss of Rs 2,537 crore in Q4FY26. Air India has effected a 22% cut in domestic and 27% cut in the international sector. IndiGo has also gone for network optimisation.
IndiGo MD Rahul Bhatia also listed airfare hike as an option to manage the losses. The airline has also announced a temporary halt of flights to Manchester as part of network optimisation. It had already stopped flying to Copenhagen. It has said it will return all damp-leased aircraft to cut losses. All leases are dollar-denominated and impact the finances if the rupee falls against the dollar.