Airlines flying to West Asia are facing sharply higher fuel costs, threatening to make some routes unprofitable and potentially leading to flight cancellations or higher ticket prices. The price of Aviation Turbine Fuel (ATF), which powers commercial aircraft, has surged in recent weeks as geopolitical tensions in the Middle East create supply uncertainty in global oil markets.
ATF prices in India have climbed to levels not seen since mid-2022, according to fuel tracking data. For airlines, fuel typically accounts for 30-40% of operating costs, making sudden price spikes directly hit profitability. Routes to cities like Dubai, Abu Dhabi, and Doha, which are central to Indian airline operations, are now at risk of becoming loss-making if prices remain elevated. Some airlines are already reviewing their schedules and considering whether certain routes remain economically viable.
The West Asia crisis has disrupted global oil supply chains. Tensions have raised concerns about potential disruptions to tanker traffic through critical shipping lanes. Even without actual supply cuts, the uncertainty alone pushes fuel prices higher as traders hedge against future shortages. International crude oil prices have climbed accordingly, and this directly translates to higher ATF costs for Indian airlines.
Indian carriers, already operating on thin margins after the pandemic recovery, face a squeeze. Budget airlines, which operate on lower fares and cannot easily absorb cost increases, are particularly vulnerable. Some airlines may respond by raising ticket prices on affected routes, shifting costs to passengers. Others might reduce frequency or consolidate flights to fewer larger aircraft. In the worst case, routes with lower demand could be suspended entirely until prices stabilise.
The timing is difficult for the Indian aviation sector, which has seen strong passenger growth in recent years. During monsoon and winter seasons, when travel to West Asia typically picks up, higher fuel costs could dampen ticket sales if fares climb too much. Business travellers and migrant workers heading to Gulf countries may face unexpected price hikes on routes they depend on regularly.
ATF pricing in India is not freely set by the market. It is regulated and adjusted monthly by state-owned fuel retailers based on global crude oil prices and rupee-dollar exchange rates. This means prices cannot spike overnight, but they do move in response to sustained global pressure. If current geopolitical tensions persist, monthly ATF price adjustments could remain elevated for several quarters, keeping airline costs high throughout.
Airlines have limited immediate options to absorb these costs. Hedging against fuel price movements is expensive and many carriers lack sufficient capital to lock in prices long-term. The next moves will likely involve either price increases for passengers, route rationalisation, or pressure on airports and vendors to reduce other operational costs.
Source: ET Finance
