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 Saarc countries, West Asia, and Sing- apore. 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 char- ge, keeping in mind the consequential burden on custom ers,” 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.
Indian airlines pay ATF prices linked to the Mopag, a benchmark set daily by S&P Global Platts based on the average of spot jet fuel cargo prices in major Gulf refineries such as Jubail, Ras Tanura, Ruwais, Mina Al-Ahmadi, and Sitra. Since the US and Israel conducted military strikes on Iran on February 28, these refineries — which are major export hubs — have either shut down or reduced output.
Meanwhile, airlines in India are buying ATF from domestic refiners such as Indian Oil Corporation Ltd (IOCL), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corporation Ltd (HPCL), which refine crude oil within India. Airline executives stated that the cost of converting crude oil into ATF for Indian refiners has not changed much.
However, since domestic ATF prices are linked to Mopag, airlines are exposed to price swings in Gulf markets. This allows Indian refiners to earn margins far higher than their refining costs, the executives mentioned.
“Also, please keep in mind that about half of the ATF produced in India is exported. In 2023-24, Indian refiners produced about 17 million tonnes (mt) of ATF, of which roughly 8.6 mt was exported. Controlling their margins domestically means government ensures passengers in India do not have to pay high airfares, and refineries can continue earning more from exports because they will remain linked to international benchmarks,” an executive explained.
Multiple Indian airlines have suggested to the Ministry of Civil Aviation (MoCA) over the last several months that the government instead adopt a domestic pricing model based on “crude oil prices plus fixed refining margin”. The MoCA, IOCL, BPCL, and HPCL did not respond to the queries sent by Business Standard on this matter till press time.
Data shared by industry executives shows that crude oil and jet fuel prices moved broadly in tandem until recently. Between April and February of financial year 2025-26 (FY26), Brent crude along with its Platts premium averaged about $69.5 per barrel. Over the same period, the ATF benchmark based on Mopag averaged $84.5 per barrel while refinery margins stood at around $15 per barrel.
The divergence emerged in early March, a few days after the US and Israel conducted military strikes on Iran. By March 4, crude oil prices had risen to $82.5 per barrel, which is about 19 per cent higher than the earlier average. Jet fuel prices, however, surged much more sharply, with the ATF benchmark jumping to $225.5 per barrel on the same day, a rise of about 167 per cent from the fiscal average.
The key driver behind this dramatic spike was refinery margins, according to aviation industry executives. The crack spread, which averaged about $15 per barrel earlier in the year, surged to $143 per barrel by March 4 — nearly 10 times the earlier level. A crack spread is the difference between the cost of crude oil and the selling price of refined products, representing a refiner’s gross profit margin.
Prices moderated after the initial spike but remained elevated. Crude oil rose further to $112.8 per barrel by March 9 before easing to $99.9 per barrel on March 10. Over the same period, refinery margins also declined sharply from their peak but remained well above historical levels, falling from $143 per barrel to $49.1 per barrel.
As a result, the ATF benchmark dropped from $225.5 per barrel on March 4 to $192.2 per barrel on March 9, and further to $149 per barrel by March 10. Even after this correction, jet fuel prices remain disproportionately higher than crude oil compared with earlier months.
While crude oil prices on March 10 were about 44 per cent higher than the April-February average, the ATF benchmark was still roughly 76 per cent higher over the same comparison period.
“The cost incurred by refiners to convert crude oil to ATF has not increased. Therefore, it does not make sense that their margins are increasing at this rate,” said a senior aviation industry executive.
The situation, aviation industry executives said, is further aggravated by the structure of taxes on jet fuel in India. Excise duty and value-added tax (VAT) on ATF are levied as a percentage of the fuel price rather than as a fixed amount. Excise duty is about 11 per cent, while VAT in major aviation hubs such as Delhi is around 25 per cent.
Because these taxes are linked to the fuel price, any spike in refinery margins sharply increases the tax burden on airlines. Executives said that in the example of a $143 refinery margin, the combined excise and VAT component on jet fuel can rise from roughly $32 per barrel to nearly $80 per barrel, amplifying the impact of the global price surge on airline costs.
Airlines have long argued that converting these taxes into fixed ones would reduce the impact of global price swings on the industry. They have also reiterated their demand for ATF to be brought under the goods and services tax (GST) regime, which would allow carriers to claim input tax credit (ITC) on fuel purchases.