If crude stays high, Indian aviation faces margin squeeze, demand risk: Oil Analyst

New Delhi [India]: If crude oil prices remain high, Indian aviation faces increasing financial strain. Aviation turbine fuel (ATF) constitutes a significant portion of operating costs, and airlines are highly sensitive to price changes. Airlines may raise fares on certain routes, but they cannot fully offset higher fuel costs without reducing demand. Abhishek Kumar, Senior Oil Analyst at Sparta Commodities, explained that the aviation sector is particularly vulnerable due to ATF’s high cost burden. Airlines are already reducing discounts, increasing fares, and reviewing weaker routes. The industry is seeking policy support, including relief on ATF pricing and taxes. Kumar noted that jet fuel prices have risen faster than crude oil, exacerbating the cost squeeze. Brent crude is currently trading around USD 109 per barrel, while jet fuel prices have surged, directly impacting airline margins. Airlines have moved from absorption to adjustment phases, cutting discounts, adding fuel surcharges, and raising fares. The first casualty is margins, with airlines now facing capacity cuts. Kumar warned of demand risks, as price-sensitive passengers may delay or cancel trips if fares rise too quickly. Leisure travel, budget flyers, and weaker domestic routes are likely to be most affected. He highlighted that fuel costs for Indian airlines have increased significantly, now accounting for 55-60% of operating costs compared to 30-40% before the war. The government has reduced export duties on petroleum products for the fortnight beginning May 1. Export duty on diesel is Rs 23 per litre, while ATF duty is Rs 33 per litre. Petrol export duty remains nil. These duties fall under Special Additional Excise Duty (SAED), imposed on exported petroleum products.