Shares of Indian aviation sector companies, including IndiGo and SpiceJet, among others, were trading sharply lower on Tuesday, April 28, amid concerns over rising crude oil prices.
In a letter dated April 26 to the Ministry of Civil Aviation, the Federation of Indian Airlines (FIA), which represents Air India, IndiGo and SpiceJet, said that urgent support is required for ATF pricing to continue airline operations, CNBC-TV18 reported.
Airline stocks have remained under pressure as crude oil prices extended gains amid escalating tensions in West Asia. Brent crude rose above $110 per barrel, marking its seventh straight session of gains. The disruption in supplies through the Strait of Hormuz, a key global energy route that typically handles around 20 per cent of global oil and gas flows, has tightened supply conditions and kept energy prices elevated. Last checked, Brent crude rose 2.24 per cent to $110.65 per barrel, while US West Texas Intermediate (WTI) crude was up 2.31 per cent at $98.68.
InterGlobe Aviation, the parent of IndiGo, fell as much as 3 per cent to ₹4,427 on the National Stock Exchange (NSE), with its market capitalisation (m-cap) falling to ₹1.71 trillion. Similarly, SpiceJet shares touched a 5 per cent lower circuit to hit a low of ₹14, taking its m-cap down to ₹2,136.54 crore. In comparison, the benchmark BSE Sensex index slipped to 76,875 levels, down by 428 points or 0.55 per cent. Among others, AFCOM Holdings, FlySBS Aviation, and Global Vectra Helicorp were also trading lower.
According to the industry body, the airline industry in India is under extreme stress and is on the verge of closing down or of stopping its operations. This comes as the pricing of Aviation Turbine Fuel (ATF) has become increasingly unpredictable, hurting both domestic and international operations.
The FIA criticised the current pricing mechanism, stating that ATF adhoc pricing is creating a severe imbalance in domestic and international operations and rendering airline networks unviable and unsustainable. It added that this imbalance is distorting route economics and compelling airlines to reassess the viability of their networks, the report said.
The sharp rise in crude oil prices has led Indian oil marketing companies (OMCs) to hike aviation turbine fuel (ATF) prices, which typically account for more than 50 per cent of an airline’s operating costs. This has not only increased overall operating expenses but also made it difficult for airlines to balance ticket pricing.
The impact is more severe on international routes. According to reports, FIA highlighted that ATF prices for overseas operations have risen by around ₹73-75 per litre, making certain routes unviable and resulting in substantial losses. This, in turn, has further squeezed margins for Indian carriers, especially as they compete with foreign airlines operating from lower-cost hubs.
Additionally, the FIA has urged the government to temporarily suspend the 11 per cent excise duty on ATF for domestic operations, reinstate a crack band pricing mechanism, and reduce VAT in key aviation hubs.