HIDDEN costs of the continuing West Asia crisis are coming out in the open for all economies dependent upon oil imports from the Gulf countries. With fuel supplies severely impacted due to the closure of the Strait of Hormuz by Iran after a battle-deadlock with the United States, many countries in Asia and other parts of the world are struggling with energy crisis. Fuel prices have already seen steep hikes in many economies lacking sufficient oil reserves and mechanisms to absorb losses. Hardly a few countries, including India, have managed to cope up with the rising crude oil prices with the system of offsetting heavy losses with hike in duty on oil exports. It might have helped retail customers in the country but the burden is getting too heavy for the airlines industry.

 

The SOS call by three major airlines -- Air India, IndiGo and SpiceJet -- to the government is a reminder to the Centre to act fast and take care of the Aviation Turbine Fuel (ATF) prices. The situation in the aviation industry has come to such a point that many airlines are on the verge of stopping operations. In a letter to the Ministry of Civil Aviation, the Federation of Indian Airlines (FIA) has asked for immediate government support to help airlines continue normal operations. The industry body has warned that unpredictable fuel pricing was making both domestic and international operations difficult. The desperate call has come after ATF prices surged to an all-time high of over Rs two lakh per kilolitre in certain categories earlier this month.

 

Rising global prices have left no room to calibrate the ATF costs but if the US-Iran war goes on for some more time, then the airlines industry would be the first to surrender and halt all operations. Airlines in India have faced such a situation in the past too but none was so severe like what it is today. This is for the first time jet fuel prices have crossed the Rs 2 lakh per kilolitre barrier. It was not the case even during the global energy crisis triggered by the Russia-Ukraine war in 2022. This time, the danger is clear and serious. Grounding of flights is a likely possibility in the next few weeks if a solution is not found at all levels. The ongoing war has resulted in sharp increase in overseas ATF prices which has weakened profitability on many international routes for India’s airlines. This is an additional disadvantage for India’s carriers which are competing with foreign airlines that operate from countries with lower fuel costs. All these factors have severely altered operational strategies for the airline industry. Fuel costs directly affect ticket pricing in the aviation industry.

 

The burden of high ATF prices is passed on to the consumer who has to shell out huge amounts for even a short duration flight. It is a dangerous cycle ultimately affecting networks and travellers. Against this backdrop, the Federation’s demand to the government to temporarily suspend the 11 per cent excise duty on domestic ATF and reduce VAT rates at major aviation hubs needs serious consideration. Airlines have become a top-preferred mode for people, especially in the searing summer heat in India. With heatwaves dominating the majority of India’s landscapes, travellers are preferring flights for quick commutes to save time and avoid long journeys in harsh conditions. It is imperative for the Centre to find a solution to this crisis, for, it can cause a huge dent on the government’s own UDAN scheme too. There is also an opportunity in this crisis for the policy-makers. The government has already pushed for cleaner fuel reforms by updating ATF regulations to permit blending with synthesised hydrocarbons under revised fuel standards. The move aims to support sustainable aviation fuel (SAF) development and cleaner long-term alternatives. This will surely encourage future path to biofuel but immediate pricing relief is must to prevent high fares and reduced connectivity. Stalled airline operations is a bad optic for a fast-growing economy.