The Anatomy of an Air Ticket
When you purchase an airline ticket in India, you're paying for much more than just your seat. A significant portion of the total fare, often between 35% and 45%, is composed of various charges that are outside the airline's control. These include Goods
and Services Tax (GST), a Passenger Service Fee (PSF), and crucially, charges that go towards fuel and airport operations. While airlines have the power to set the base fare based on demand and competition, this component is often squeezed by the mountain of other mandatory costs. This structure is central to understanding why, despite a boom in passenger numbers, Indian airlines often struggle with profitability and why fares remain a contentious issue.
Fueling the Fire: The ATF Problem
The single largest operating expense for any Indian airline is Aviation Turbine Fuel (ATF). It can account for a staggering 40-50% of an airline's total costs, a figure much higher than the global average. The primary reason for this is taxation. ATF in India faces a multi-layered tax structure that makes it one of the most expensive in the world for domestic carriers. The central government levies an excise duty, and on top of that, state governments impose their own Value Added Tax (VAT), which can vary dramatically from one state to another, sometimes reaching as high as 29%. Because ATF was kept out of the GST regime, airlines cannot claim input tax credits on this massive expense, meaning the entire tax burden is embedded in their cost structure and ultimately passed on to passengers.
The Debate Over Fuel Taxation
Airlines have been vocal in their demand for the rationalisation of fuel taxes, arguing that it is treated as an elitist product rather than an essential component of public transport. In mid-2026, facing pressure from rising global oil prices, the governments of Maharashtra and Delhi provided temporary relief by slashing VAT on ATF from over 20% to 7% for a six-month period. However, the core issue remains a point of friction. State governments are often reluctant to reduce VAT as it is a significant source of revenue. The central government, meanwhile, has periodically urged states to lower the tax to make flying more affordable and the industry more viable, but a uniform, nationwide solution has remained elusive. Airlines argue that consistently high fuel taxes make it impossible to offer sustainably low fares in a price-sensitive market like India.
The Airport's Cut: Fees and Charges
Beyond fuel, the second major cost battleground is airport charges. As India's airports have been modernised, many through public-private partnerships, the costs to use them have risen. Airlines are charged for landing, parking their aircraft, and more. Passengers, in turn, pay a User Development Fee (UDF), which is collected by the airlines on behalf of the airport operator. These fees are regulated by the Airports Economic Regulatory Authority (AERA) and are meant to fund infrastructure development and maintenance. However, the rates can be substantial. For example, in February 2026, Hyderabad's airport was reported to have the highest domestic UDF among metros at ₹750 per departing passenger, significantly more than Delhi or Mumbai. For greenfield airports like the new ones in Bhogapuram or Navi Mumbai, these fees are set even before operations begin to ensure financial viability.
A Call for Rationalisation
The collective argument from airlines is that the combination of high fuel taxes and rising airport charges creates a high-cost environment that stifles growth. Industry leaders like IndiGo's Rahul Bhatia have publicly called on the government to rationalise both ATF taxes and airport charges, arguing that lower costs would unlock massive demand by making fares more affordable for the Indian consumer. While airlines try to manage what they can control—like inducting more fuel-efficient aircraft—they remain vulnerable to these largely fixed, external costs. The government has shown awareness of the problem, occasionally stepping in with measures like temporarily capping the pass-through of ATF price hikes or reducing airport charges, but these have often been short-term fixes rather than long-term structural reforms.
