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The government has ‘shielded’ the domestic aviation market from the full force of a deregulated pricing system that has been in place for a quarter of a century
A 100% hike in fuel costs would have grounded a significant portion of the domestic fleet and made air travel inaccessible to the middle class. (Representational image)
On April 1, India’s aviation sector faced a moment of reckoning. As global energy markets buckled under the weight of the conflict in West Asia and the closure of the Strait of Hormuz, the market-linked price of Aviation Turbine Fuel (ATF) in Delhi theoretically surged by more than 114%, crossing the Rs 2 lakh per kilolitre mark for the first time in history. Yet, for domestic passengers, ticket prices did not double overnight. This was due to a rare and decisive intervention by the central government, which effectively “shielded” the domestic market from the full force of a deregulated pricing system that has been in place for a quarter of a century.
How is the standard price of ATF calculated?
Since the formal deregulation of the sector in 2001, ATF prices in India have been governed by a formula based on international benchmarks. State-owned Oil Marketing Companies (OMCs) revise these rates on the first day of every month. The calculation primarily relies on “Import Parity Pricing”, which considers the international price of jet fuel (usually the Arab Gulf benchmark), adjusted for ocean freight, insurance, and the prevailing exchange rate of the Rupee against the US Dollar.
Because India imports a significant portion of its crude oil, any geopolitical instability that affects global supply immediately reflects in the monthly ATF revision. In April 2026, the calculated market rate for domestic flights in Delhi hit Rs 2,07,341 per kilolitre—a staggering leap from approximately Rs 96,638 in March. Under normal deregulated circumstances, this cost would be passed directly to the airlines, who would then be forced to hike fares to maintain operational viability, as fuel accounts for nearly 45% of their total expenses.
Why did the government intervene in a deregulated market?
The decision to override the 2001 deregulation framework was driven by the “extraordinary situation” of 2026. A 100% hike in fuel costs would have grounded a significant portion of the domestic fleet and made air travel inaccessible to the middle class. To prevent a systemic collapse, the Ministry of Petroleum and Natural Gas, in consultation with the Ministry of Civil Aviation, implemented a “partial and staggered” increase.
Instead of the projected 114% hike, the government capped the increase for domestic carriers at roughly 25%, or an additional Rs 15 per litre. This intervention serves a dual purpose: it maintains the stability of the domestic aviation industry while preventing a spike in the Wholesale Price Index (WPI), as air transport is a critical component of high-speed logistics and trade.
Who is paying the full market price?
It is important to note that this “shield” is not universal. The government has maintained a strict distinction between domestic operations and international routes. Foreign airlines refuelling in India, as well as Indian carriers operating international legs, are required to pay the full market-linked price consistent with global benchmarks. For these operators, the price has indeed crossed the $1,600 per kilolitre threshold in major hubs like Delhi and Mumbai.
By isolating the domestic market, the government has created a tiered pricing structure. While international travel remains subject to the volatile realities of the global energy crisis, domestic connectivity—essential for schemes like UDAN (Ude Desh ka Aam Naagrik)—remains protected.
What does this mean for the future of fuel pricing?
The recent intervention does not signal a permanent return to the “Administered Price Mechanism” of the pre-2001 era. Rather, it represents a “calibrated approach” to crisis management. The government remains committed to a deregulated market in the long term but has demonstrated that it will act as a circuit breaker during “black swan” events.
For airlines, this provides a much-needed breathing space. However, carriers like IndiGo and Air India have still been forced to introduce distance-based fuel surcharges to cover the 25% increase that was passed through. Moving forward, the industry continues to lobby for the inclusion of ATF under the Goods and Services Tax (GST) regime, which would allow for input tax credits and potentially lower the high baseline cost of fuel in India, which remains amongst the most expensive in the world.
April 01, 2026, 8:31 PM IST
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