Airlines flag rising refinery margins behind ATF spike

Aviation turbine fuel (ATF) prices in India have risen far more sharply than crude oil prices since the West Asia conflict began on February 28, as Indian refiners’ margins on jet fuel have expanded steeply even though their cost of converting crude oil into ATF has largely remained unchanged, aviation industry executives told Business Standard.

- DEEPAK PATEL

Aviation turbine fuel (ATF) prices in India have risen far more sharply than crude oil prices since the West Asia conflict began on February 28, as Indian refiners’ margins on jet fuel have expanded steeply even though their cost of converting crude oil into ATF has largely remained unchanged, aviation industry executives told Business Standard.

As ATF typically accounts for nearly 40 per cent of an airline’s operating expenses in India, the dramatic increases in jet fuel prices have pushed airfares upward and forced India's two major carriers to impose a “fuel surcharge” on passengers.

Starting Thursday, Air India introduced a fuel surcharge of ₹399 on all domestic flights and $10 on international flights to Saare countries, West Asia, and Singapore. Following suit, IndiGo on Friday announced a fuel surcharge to be implemented from Saturday — ₹425 on domestic and Indian subcontinent flights, ₹900 for Middle East flights, ₹1,800 for Southeast Asia, West Asia, China and Africa, and ₹2,300 for Europe.

Both carriers said the move came in response to a sharp spike in ATF prices triggered by the ongoing conflict in West Asia. "While offsetting the entire impact of this fuel price surge requires a very substantial adjustment to fares, IndiGo has introduced a relatively smaller amount as a fuel charge, keeping in mind the consequential burden on customers,” IndiGo said.

Amid the sharp volatility in jet fuel prices, airline executives said India should delink domestic ATF pricing from the "Mean of Platts Arab Gulf (Mopag)" benchmark and instead adopt a domestic "crude oil price plus fixed refining margin" model.