Heading Home for Festive Holidays? Expect Steeper Airfares After Consecutive ATF Price Hikes

New Delhi: A sharp increase in aviation turbine fuel (ATF) prices for the second consecutive month is set to put further pressure on Indian airlines, with industry experts warning that at least part of the higher fuel cost could eventually be passed on to passengers, particularly as travel demand rises during the upcoming festive season.

ATF prices have increased by 5.46% for the second consecutive month, taking jet fuel prices to around 10% above their July levels. In Delhi, the latest revision has taken ATF prices to ₹121.28 per litre, up by ₹6.28 per litre, following an increase of around ₹5 per litre in August.

The consecutive increases come at a time when airlines are already operating in a highly competitive environment, with profitability dependent on fuel costs, aircraft utilisation, route economics, passenger demand and pricing.

The impact could become more visible as the festive travel season approaches, with demand typically strengthening around Dussehra, Diwali and Durga Puja. Experts, however, said the latest ATF hike should not be viewed as a direct indication that airfares will rise by the same percentage.

Captain CS Randhawa, president of the Federation of Indian Pilots (FIP) and a former Directorate General of Civil Aviation (DGCA) official, said the higher fuel prices would ultimately increase the burden on passengers. “The government gives no relief to the airlines by virtue of tax reliefs on fuel and subsidies. The fuel hike will raise the fares, and in turn the public will bear the brunt,” Randhawa said.

“The airlines will not bear the increased fuel charges but will pass it to the passengers to pay,” he added, predicting that fares could rise ahead of the festive season, although the extent of the increase would vary from airline to airline.

Fuel accounts for a major share of airline costs

The significance of the latest increase stems from the large share of fuel in an airline's operating expenditure. Aviation fuel typically accounts for around 35-40% of airline operating costs, meaning even a moderate percentage increase in ATF can have a meaningful impact on an airline's overall cost structure.

Energy expert Sudhir Bisht said the latest increase could translate into a rise of around 2-2.5% in airlines' overall input costs. “Aviation fuel accounts for about 40% of all operational expenses of a flight. So a 5-6% hike in ATF could raise input cost by at least 2-2.5%,” Bisht said.

He pointed out that the concern is amplified by the fact that this is the second consecutive monthly increase. “Also remember that this is the second price hike, after just one month. So in Delhi the ATF price has gone up by over ₹11.5 per litre in the last six weeks,” he said.

According to Bisht, airlines would therefore face additional pressure on their operating costs, although the impact on ticket prices would not necessarily be proportionate. “This will definitely put pressure on airlines,” he said. At the same time, Bisht cautioned against viewing the ATF increase simply as a result of pricing decisions by oil marketing companies (OMCs). International crude oil and refined fuel prices remain important factors in determining domestic aviation fuel prices, while geopolitical developments could add further uncertainty.

“However, one must also appreciate that the price hike is not there in isolation or for profiteering by OMCs. Look at the international crude and finished prices. With fresh signs of escalation in the Iran-USA war, things could go worse,” he said.

Will passengers have to pay more?

While higher ATF costs create a strong incentive for airlines to increase fares, experts said the relationship between fuel prices and airfares is not one-to-one. Prof Bejon Kumar Misra, international consumer policy expert, said a 5.46% rise in ATF should not automatically translate into a similar increase in airfares.

“The important point is that the 5.46% ATF increase does not automatically translate into a 5.46% increase in airfares, because fuel is only one component of total airline costs and fares are also determined by demand, capacity, competition and advanced bookings,” Misra said.

He noted that ATF has now risen to ₹121.28 per litre after the latest increase, following another increase in August. “ATF can account for roughly 35-40% of airline operating costs, making this a meaningful cost pressure,” he said. According to Misra, airlines have several ways of responding to higher fuel expenses. They could absorb part of the increase, improve operational efficiency or pass some of the additional cost on to passengers.

“Ultimately, the extent of any fare increase will depend on demand, available capacity, competition on individual routes and booking patterns,” he said. Aviation industry veteran Ajay Jasra also said airlines could initially absorb some of the additional cost but may have limited room to continue doing so, especially on routes where margins are already thin.

“The ATF price hike will definitely put additional pressure on airline costs, especially at a time when airlines are already operating in a highly competitive and cost-sensitive environment. Fuel is one of the largest components of an airline’s operating cost, so a 5.46% increase cannot be ignored,” Jasra said.

“Airlines may initially try to absorb some of the increase, but they have limited room to do so, particularly on routes where margins are already thin. Some part of the additional cost is likely to eventually find its way into airfares,” he added.

Festive demand could give airlines pricing power

The timing of the ATF increase is significant as airlines enter the run-up to India's major festive travel period. The third week of October through mid-November is expected to see stronger travel demand around Dussehra and Diwali, while Durga Puja is another major period for domestic and inter-city travel. Bisht said travellers are unlikely to cancel their plans solely because of higher airfares, particularly when travel is linked to festivals and family visits.

“The upcoming festive season in the third week of October till mid-November and Durga Puja festival are our most cherished festivals. People like to travel to their hometowns, and a few smart people may have already booked their tickets,” he said. “I don’t think people will drop their plans just due to price hikes. So, airlines would pass on at least some of the price hikes to customers for sure,” he added.

Jasra, however, said the ATF increase alone would not determine festive-season fares. Instead, the interaction between demand and available capacity on individual routes would be critical. “With the festive season approaching, the impact on passengers could be more visible. However, I would expect fares to be driven more by demand and capacity on individual routes than by the ATF hike alone,” he said.

“Where festive demand is strong and capacity is tight, airlines will have greater ability to pass on the higher fuel cost,” Jasra added. This means passengers travelling on popular routes or booking closer to the travel date could face greater exposure to higher fares, even if airlines do not introduce a uniform fuel surcharge.

Misra similarly said demand normally strengthens around Dussehra and Diwali, potentially giving airlines greater pricing power on high-demand routes. “Passengers could see higher fares, especially for last-minute bookings. But the fuel component alone should not become a justification for indiscriminate fare increases,” he said.

Calls for tax relief and greater transparency

The latest increase has also revived questions around the tax burden on aviation fuel and whether governments could provide some relief to airlines. Bisht pointed out that the Centre levies excise duty on ATF on an ad valorem basis, meaning the tax is linked to the value of the fuel rather than being a fixed amount.

“Can the government also reduce a small amount of Central excise duty? We don’t know. But it can,” he said. He also raised the possibility of states reducing VAT on aviation fuel, pointing to earlier instances where states such as Delhi and Maharashtra had reduced VAT.

Such measures, according to industry observers, could partially cushion airlines against increases in international fuel prices, although the extent of relief would depend on government decisions. For consumers, meanwhile, the larger concern is whether airlines use higher fuel costs as a basis for disproportionate fare increases.

Misra said airlines should be transparent if they raise fares or introduce fuel-related charges. “Higher ATF will put pressure on airlines, but consumers should not be made to bear the entire burden through opaque or disproportionate fare increases,” he said.

“From a consumer perspective, what is needed is transparency. If airlines increase fares or introduce fuel-related charges, passengers should be able to clearly understand the basis of the increase,” Misra added.

He also called for closer monitoring of airfares during the festive season. “The regulator (DGCA) should also closely monitor fares during the festive season to ensure that genuine cost increases are not used as a pretext for excessive or opportunistic pricing,” he said.

ATF hike comes amid wider concerns over aviation demand

The fuel-cost pressure is also unfolding against a backdrop of broader concerns about India's aviation market, including passenger demand, airline competition and the ability of domestic carriers to retain customers.

Mark D Martin, founder and CEO of an aviation safety and consulting firm, argued that the industry's challenges cannot be explained solely by geopolitical disruptions in West Asia. “The government is not being transparent about the situation and is trying to hide the facts. The reality is that India’s aviation market has shrunk significantly, and this cannot simply be attributed to the West Asia or Gulf crisis,” Martin said.

He said passenger traffic to major international markets such as Europe and the US has also declined, with some traffic shifting towards foreign carriers. According to Martin, this raises questions about the competitiveness and appeal of Indian airlines among increasingly discerning passengers.

“Indian travellers are not naïve; they are increasingly discerning about the price and quality of the product they receive,” he said. He argued that travellers increasingly compare fares, service quality, connectivity and overall value before choosing an airline.

“If an Indian family is spending its savings on a holiday to Germany or Austria and can get a better product at a better price from airlines such as Lufthansa or Austrian Airlines, why would they choose an Indian carrier and take a longer or less convenient routing?” Martin said.

He also highlighted differences in onboard services, including meals and other amenities, as factors influencing consumer choices. Against this backdrop, another increase in fuel costs could make cost management even more important for Indian carriers.

For airlines, the immediate challenge will be to balance higher operating expenses with the need to remain competitive on fares. For passengers, the outcome is likely to vary by route: travellers on competitive routes may see airlines absorb a larger share of the increase, while those travelling on capacity-constrained routes during peak festive periods could face higher fares.

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