What is unfolding is not just a spike in crude oil. It is a sharper, more immediate squeeze on jet fuel, or aviation turbine fuel (ATF), the single largest cost for airlines. And the effects are already being seen across India and the world.
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Jet fuel is rising faster than crude
Since the outbreak of the conflict in West Asia, crude prices have surged. But refined products like jet fuel have moved even faster, exposing a structural bottleneck in global energy supply chains.
Fuel typically accounts for 30–40% of airline operating costs. That makes aviation uniquely vulnerable to sudden price shocks.
As Sahil Mahajan, PwC Aviation, puts it, “If you’re doubling a cost which has a weightage of about 30%, everything goes bonkers.”
The numbers reflect that strain. According to the International Air Transport Association’s jet fuel monitor, prices have more than doubled in recent weeks, rising to $195.19 per barrel in the week ending March 27, from $99.40 at the end of February.While crude initially surged after the conflict, it had begun to ease by late March. Jet fuel, however, continued climbing.
That divergence — with jet fuel surging even as crude softens — is what is turning a volatility story into a full-blown cost crisis.
Over the same period, Brent crude, the international benchmark, slipped below $100, touching $98.83 during that week.
India’s ATF spike adds another layer of pressure
India is not just exposed to global prices, it amplifies them through its own tax structure and currency dynamics.
As per Kinjal Shah, Senior Vice President & Co-Group Head, Corporate Ratings, ICRA Limited: “The average ATF prices announced on April 01, 2026 increased by 9.2% on a sequential basis and by 18.2% on a YoY basis on account of the impact of the West Asian conflict. Further, crude oil prices continue to remain elevated, which could have a contagion effect on ATF prices. The continued weakening of the INR against the USD is another concern.”
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ATF remains outside the GST framework, meaning airlines cannot claim input tax credit. On top of that, state-level VAT varies widely, creating a fragmented pricing system that pushes costs even higher.
The government, however, has tried to soften the impact. As reported by Bloomberg, a sharp spike in ATF prices on April 1 — which briefly saw rates double in Delhi — was rolled back within hours, with only a partial increase ultimately passed on to airlines.
State-owned Indian Oil Corp., which typically leads price revisions, had initially raised the Delhi rate to ₹207,341 ($2,187) per kilolitre for April before cutting it to ₹104,927 the same day, according to its website.
The oil ministry said the cost for “domestic markets was expected to increase by more than 100% on 1 April,” citing factors including the closure of the Strait of Hormuz. However, it added that state-run fuel retailers implemented only a partial and staggered increase.
Oil marketing companies absorbed the remaining burden, even as their own losses mounted.
In effect, the government capped the increase for domestic airlines at 25%, despite global benchmarks indicating a potential surge of over 100%, to limit the impact on airfares.
“ATF prices in India were deregulated in 2001 and are revised on monthly basis based on a formula of international benchmarks. Due to the closure of Strait of Hormuz and extraordinary situation in global energy markets, price of ATF for domestic markets was expected to increase by more than 100% on 1 April,” the post read.
“In order to insulate the domestic travel costs from the substantial increase in international prices, PSU Oil Marketing Companies of the Ministry of Petroleum, in consultation with Ministry of Civil Aviation, have passed only a partial and staggered increase of 25% (only Rs.15/litre) to the airlines,” the Ministry further wrote on X.
The government clarified that international operations will not receive similar relief. “Foreign routes will pay for the full increase in ATF prices consistent with what they pay in other parts of the world,” the statement added.
Under revised rates effective April 1, 2026, ATF prices rose across major metros: Delhi to ₹1,04,927 per kilolitre (from ₹96,638.14), Kolkata to ₹1,09,450 (from ₹99,587.14), Mumbai to ₹98,247 (from ₹90,451.87), and Chennai to ₹1,09,873 (from ₹1,00,280.49).
Airlines are already passing costs to passengers
For consumers, fuel surcharges have returned. As per ICRA, airlines have already added surcharges amounting to 5–6% of average airfares.
Carriers like IndiGo and Air India have shifted to distance-based fuel charges. As per their websites, domestic passengers are now paying anywhere between ₹275 and ₹950 extra per sector on IndiGo, while Air India’s surcharge ranges from ₹299 to ₹899 domestically and up to $280 on long-haul international routes.
Mahajan explains how airlines are managing this, “They are passing on the cost, but passing on structural costs is only a short-term fix. You don’t pass on actual costs fully.”
The result is a gradual but persistent increase in ticket prices, especially on international routes where price controls are absent.
Airspace disruptions are making flights longer, and costlier
Fuel prices are only part of the story. The conflict has also reshaped flight paths.
With airspace closures across parts of West Asia, airlines are being forced into longer routes. Flights between Europe and India are now detouring via the Red Sea, adding up to 2.5 hours of flying time, Mahajan said. Routes to North America are also seeing delays of around two hours.
That translates directly into higher fuel burn. “On an average, you’re burning 5,000 kilolitres of fuel, and then further complications of airspace charges,” Mahajan notes.
Even before the current crisis, restrictions like the closure of Pakistan’s airspace had already added about ₹5,000 per route, he said. The cumulative effect is now significantly higher.
A fragile balancing act for airlines
Despite the mounting pressure, not all airlines are equally vulnerable.
“I’m not that worried about the market leaders… They will manage,” Mahajan says, pointing to strong cash reserves. “The legacy carrier undergoing restructuring is concerning, losses projected higher this year compared to last year. The financially troubled budget operator is a different story.“
ICRA had earlier projected industry losses to narrow to ₹110–120 billion in FY2027. That outlook is now under pressure.
As Shah notes, “the initiation of the West Asian conflict… resulting in flight cancellations, rerouting… increasing fuel burn, higher costs… now pose a downward bias to the FY2027 net loss forecasts.”
Airlines are relying on temporary relief measures like fuel surcharges, reduced airport charges, and operational tweaks; but these are not sustainable if the crisis persists.
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Short-term fixes are piling up
Airlines are deploying a range of stopgap strategies.
Fuel tankering, loading extra fuel at cheaper locations to avoid buying at expensive ones, is one such measure. But it comes with trade-offs.
“Carrying extra fuel impacts aircraft efficiency, what is called payload drain,” Mahajan explains. “It is possible, but… it becomes a complex decision.”
Similarly, surcharges and fare adjustments can only go so far without dampening demand.
Even government interventions, such as reducing landing and parking charges, are temporary buffers rather than structural solutions.
Global warning signs are flashing
The strain is not limited to India. As reported by AP, the International Energy Agency has warned that Europe may have “maybe six weeks” of jet fuel supplies if disruptions continue. Several countries are already operating with less than 20 days of coverage.
Flight cuts have begun. KLM is reducing services, Lufthansa is retiring older aircraft early, and airlines globally are embedding fuel costs into fares and fees.
“This is no longer just a fuel-price story,” said Christopher Anderson of Cornell University, as reported by AP. “For airlines, it is now a network-planning story.”
What happens next depends on how long this lasts
If the disruption eases within weeks, the impact may remain contained to higher fares and temporary financial stress. But if it stretches into the summer and beyond, deeper changes are likely.
“If the situation goes beyond May–June, structural reforms will kick in,” Mahajan says. “Airlines will have no option but to act.”
That could mean cutting capacity, especially on tier-2 and tier-3 routes where margins are thinner and price sensitivity is higher.
The crisis passengers can’t ignore anymore
Even with government intervention and airline adjustments, the direction is clear.
Fares are rising. Routes are getting longer. Flexibility is shrinking.
Passenger traffic growth, once expected to drive recovery, may begin to soften under the weight of higher costs. As Shah warns, flight cancellations and fare hikes “will weigh on passenger traffic growth.”
