Aviation Turbine Fuel (ATF) prices for domestic airlines were increased by 5.46% on Tuesday, September 1, marking the second consecutive monthly hike and adding to the operating-cost pressure on Indian carriers.

The latest revision has raised the price of ATF from ₹115 per litre to ₹121.28 per litre, an increase of ₹6.28 per litre. The figures were reported citing sources at Indian Oil Corporation (IOCL). 

The increase comes after ATF prices were raised by ₹5 per litre in August. With the latest revision, airlines are facing higher fuel costs at a time when global crude oil prices remain elevated.

Second consecutive monthly increase

The September 1 hike follows the 7.5% increase introduced in August, when domestic-airline ATF prices rose from ₹110 to ₹115 per litre.

Before the two consecutive increases, ATF prices had been reduced for three successive months. The earlier reductions had provided some relief to airlines, but the subsequent hikes have now reversed a substantial part of that benefit. 

State-owned oil marketing companies revise ATF prices on the first day of every month, with the pricing process linked to international fuel benchmarks and foreign exchange movements.

Fuel is a major airline expense

ATF is one of the largest operating expenses for Indian airlines. Industry estimates put aviation fuel at around 35% to 40% of an airline's operating expenditure, making monthly fuel-price revisions important for the financial performance of carriers.

A sustained increase in jet fuel prices can therefore affect airline margins, particularly when carriers are unable to immediately pass higher costs on to passengers.

Airfares may come under pressure

The latest ATF hike could put upward pressure on domestic airfares, although a rise in jet fuel prices does not automatically translate into an immediate increase in ticket prices.

Airlines consider several factors while determining fares, including passenger demand, competition, available seats and capacity on individual routes. As a result, the impact of the ATF increase may vary between airlines and routes. 

Routes with strong demand may provide airlines with greater scope to pass on some of the additional cost, while intense competition could limit fare increases.

Global oil prices remain a concern

The latest ATF revision comes amid continued volatility in international crude oil markets. Recent movements in crude prices have been influenced by geopolitical tensions and concerns over disruption to energy supplies.

Reports on September 1 said West Texas Intermediate crude was trading above $86 a barrel, while Brent crude was near $90 a barrel following recent gains. 

Higher international crude prices can feed into aviation fuel costs in India, although domestic ATF pricing also reflects other factors, including currency movements and applicable local taxes.

ATF rates vary across cities

The effective price of ATF differs between Indian airports because of variations in state taxes, including VAT.

In August, reported ATF prices stood at around ₹86,077.14 per kilolitre in Mumbai, ₹95,512.26 in Chennai and ₹95,164.90 in Kolkata. The city-wise rates mean that the impact of the national pricing revision can differ depending on where an airline operates. 

Airlines face fresh cost pressure

The second straight monthly increase is likely to keep fuel costs in focus for domestic carriers. Higher ATF prices can affect airline profitability if the additional expense cannot be fully absorbed or passed on through ticket prices.

For passengers, the immediate impact will depend on how individual airlines respond to the higher fuel bill. While the latest hike creates a potential upward pressure on fares, actual ticket prices will continue to be determined by market conditions, competition and demand.