India cabinet clears $1.05b aviation fuel price stabilisation fund to help domestic carriers

India's cabinet today (3 June) approved a $1.05 billion aviation fuel price stabilisation fund to help domestic air carriers continue their flight operations uninterrupted.

Information Minister Ashwini Vaishnaw told a media briefing after a cabinet meeting in New Delhi that the aviation sector has been impacted by unprecedented volatility in global Aviation Turbine Fuel (ATF) prices following the West Asia crisis.

"Due to the ongoing West Asia crisis, international ATF prices have surged nearly 2.5 times from Rs60.50 per litre in March 2026 to Rs142 per litre in May 2026," he said.

ATF accounts for nearly 40% of an airline's operating cost, he said, adding, "Therefore, this volatility in ATF prices has resulted in high cost pressure on airline financials."

While ATF prices have been capped for domestic operations, Indian carriers continue to purchase ATF for international operations at import parity prices, exposing them to elevated fuel costs.

The fund's approval came at a meeting of the cabinet chaired by Prime Minister Narendra Modi.

"It will be in the form of one-time budgetary support for Oil Marketing Companies (OMCs) to provide ATF price stabilisation support to Indian air carriers for their domestic and international operations," Vaishnaw said.

According to an official statement, "The budgetary support would be in the form of interest-free advances to OMCs to facilitate stable ATF pricing for airlines during the ongoing period of exceptional fuel price volatility arising from the West Asia crisis."

The statement added the fund provides greater predictability in fuel costs by adopting a fixed-price arrangement for domestic and international operations, thereby reducing airlines' exposure to sudden fuel price spikes.

"The budgetary support would compensate OMCs for losses arising from elevated international ATF prices whenever the prevailing import parity price exceeds the benchmark price determined under the approved mechanism. When international ATF prices moderate, the differential amount will be recovered from OMCs and returned to the government," reads the statement.

"The arrangement shall continue until the entire support amount is fully recovered and settled. The fund will be available to all willing Indian carriers for both domestic and international operations."

Under the one-time arrangement, airlines will procure ATF only from OMCs for up to three years, subject to annual review or until the advance amount is fully recovered, whichever is earlier.

According to the statement, the mechanism is expected to provide greater stability and predictability in ATF pricing for Indian airlines, support better operational and financial planning and shield OMCs from losses arising from elevated fuel prices during the West Asia crisis.

The measure will help sustain domestic and international air connectivity, ensure continuity of air services and moderate airfare volatility. It will also support connectivity to remote, regional, Tier-II and Tier-III cities, facilitating the movement of passengers, high-value cargo, business travellers and tourists.

The statement noted that ATF price capping is a temporary measure and is not sustainable in the long run for OMCs, which are incurring losses amid volatile and surging fuel prices. 

It added that the closure of Pakistani airspace has increased fuel consumption and operating costs for Indian carriers, while higher fares have weakened international demand and led airlines to reduce or suspend services on several international routes.