The Engine of Airline Costs
For any airline in India, Aviation Turbine Fuel (ATF) is the single biggest expense. It accounts for a staggering 40-50% of a carrier's total operating costs. This is significantly higher than the global average of around 25-30%. When such a large portion
of an airline's budget is spent just on fuel, any fluctuation in its price has a direct and immediate impact on the company's finances and, ultimately, the price passengers pay for their tickets. This heavy reliance on fuel costs means that even before considering salaries, maintenance, or airport fees, airlines are already dealing with a massive, volatile expense that sets a high baseline for their ticket prices.
A Tale of Two Taxes
The primary reason for India's high ATF prices isn't just the global cost of crude oil; it's the taxes layered on top. ATF is one of the few items kept outside the Goods and Services Tax (GST) regime. This means it is subject to two main levies: a central excise duty imposed by the Union Government and, more significantly, a Value Added Tax (VAT) applied by each state. State VAT rates have historically varied wildly, from as low as 1% in some states to as high as 29% in others. This creates a fragmented and expensive landscape for airlines, which are forced to pay different fuel prices depending on where they refuel. Unlike GST, airlines cannot claim input tax credit on these fuel taxes, meaning the tax becomes a deadweight cost that gets passed on to consumers.
How Taxes Inflate Your Ticket
When you see an airline advertise a promotional fare, that price is often battling against the high wall of fuel costs. Airlines want to offer discounts to fill seats, a strategy crucial in a price-sensitive market like India. However, the fixed, high cost of taxed fuel limits how low they can go. For example, a reduction in the base fare by the airline can be easily wiped out by the fuel surcharge component, which is directly linked to ATF prices. While some states like Maharashtra and Delhi recently cut their high VAT rates on ATF from 18-25% down to 7% in May 2026, this was a temporary measure. Experts note that while such cuts provide relief to airlines, they might only prevent fares from rising further rather than leading to significant price drops for passengers, especially when demand is high.
The Airlines' Balancing Act
Airlines are caught in a difficult position. On one hand, leaders like IndiGo's Managing Director, Rahul Bhatia, have publicly stated that lowering fares could unlock massive demand, arguing that aviation should be treated as a public utility rather than a luxury good to be heavily taxed. On the other hand, they must remain profitable. To cope, some airlines engage in 'fuel tankering'—loading extra fuel at airports in states with lower VAT to avoid refuelling in more expensive states, even though this makes the aircraft heavier and less fuel-efficient. The industry has repeatedly appealed to the government to bring ATF under the GST framework, which they estimate could reduce fuel costs by nearly 28% and overall operating costs by 8-9%, creating more room for lower fares.
Seeking a Stable Solution
The government is aware of the volatility. As recently as June 2026, a new price stabilisation scheme was introduced, offering airlines a fixed ATF price of around ₹115 per litre in Delhi to shield them from global price shocks. However, this came after a price cut in early July 2026 to ₹110 per litre was reversed by early August, bringing the price right back up. These fluctuations highlight the core issue: as long as ATF remains a major source of tax revenue for central and state governments, its price will be a key factor limiting the affordability of air travel. For passengers, this means that while airline discounts are welcome, the final ticket price will always be tethered to the high cost of taxed fuel, keeping the dream of truly low-cost flying just out of reach.
