Why you’re paying for flights you never took

In today’s Finshots, we talk about the government’s ₹10,000 crore ATF (Aviation Turbine Fuel) Price Stabilisation Fund aimed at protecting aviation and passengers, but one that may still end up costing you indirectly.

But here’s a quick sidenote before we begin. We’re looking for a business writer to join Finshots’ newsletter team. If you’re someone who can tell compelling stories and explain financial concepts in plain English without drowning readers in jargon, do consider applying through the link here. Or share this with someone who might be a good fit for the role.

With that out of the way, let’s dive into today’s story.

The Story

Fuel prices as you know are wreaking havoc globally as the West Asia crisis has pushed crude oil prices higher. And India, which depends heavily on crude imports for its fuel and energy needs, isn’t immune. That’s why the government has had little choice but to let fuel and LPG refill prices rise for people like you and me.

But there’s one place where this pain is hitting even harder. We’re talking about aviation.

For context, over the past few weeks, India’s two dominant airlines — Indigo and Air India, which together control over 90% of the domestic market, have quietly been doing three things:

They’ve been hiking fares through fuel surcharges just to stay afloat. They’ve temporarily suspended flights on certain routes. Some airlines have even put non-technical employees on unpaid leave to cut costs.

And that’s because fuel makes up anywhere between 25–40% of an airline’s operating costs. But with jet fuel prices nearly 2.5 times higher at around ₹142 per litre in just the last three months, fuel alone could now account for nearly 60% of operating expenses for Indian airlines.

That’s a problem as airlines can only absorb so much pain. Raise fares too much, and passengers may stop flying. Cut too many routes, and revenues take a hit. Slash too many jobs, and well, that comes with its own consequences.

So now, the government seems to have a ₹10,000 crore plan up its sleeve. It’s called the ATF (Aviation Turbine Fuel) Price Stabilisation Fund .

What’s that, you ask?

Well, we’ll get to that in a bit, but first, some quick context. Most Indian airlines buy jet fuel or ATF from oil marketing companies (OMCs) like Indian Oil, BPCL, and HPCL. And since fuel prices are deregulated in India, OMCs can raise prices when global crude prices climb. Which means airlines end up bearing the pain of costlier fuel and, eventually, passengers like you and me pay for it through higher ticket prices.

But there’s a small nuance here. Even though OMCs have hiked ATF prices, they still aren’t selling fuel at levels that make them a profit or even help them break even for that matter. In fact, they’ve been selling ATF at a loss, with under-recoveries of nearly ₹30 per litre .

So now you have a two-sided problem. Airlines are struggling with soaring fuel costs, while OMCs are bleeding money.

That’s where the government’s ₹10,000 crore ATF Price Stabilisation Fund comes in.

In simple terms, it’s a one-time, interest-free loan to OMCs, so that they don’t have to fully pass on soaring fuel costs to airlines. In return, OMCs will supply jet fuel to airlines at fixed prices (of ₹86 per litre for domestic flights and ₹104 per litre for international operations) even if actual market prices are much higher.

So instead of airlines buying fuel at today’s elevated prices, they get access to cheaper ATF for a while. That gives airlines some breathing room and reduces the pressure to sharply hike ticket prices or cut routes.

But this doesn’t mean that the government is simply handing over ₹10,000 crore upfront. Instead, OMCs will be compensated whenever global ATF prices rise above a benchmark set by the government. And once fuel prices cool down, this money will gradually be recovered and returned to the government’s coffers.

And this you can imagine has made the aviation industry happy as it could help keep flights running without fares spiralling out of control.

But there are two tiny problems here.

To begin with, this sounds like great news for passengers. After all, if airlines get cheaper fuel, ticket prices shouldn’t spiral out of control, right?

Well, not necessarily.

There’s no rule saying airlines must pass on all those savings to passengers. Sure, this scheme could prevent fares from exploding overnight. But moderate fare hikes may still continue, especially if airlines choose to keep some of the benefit to protect their profit margins. So while the fund may soften the blow, it doesn’t guarantee cheaper tickets.

But the second problem is slightly trickier.

See, petrol, diesel and ATF prices in India are technically deregulated, meaning markets are supposed to decide prices. In fact, ATF was deregulated way back in 2001 and is revised monthly based on global benchmarks.

But fuel has always been a politically sensitive issue . Rapid price spikes hurt inflation, consumer sentiment and, well, a government’s image too.

So while fuel prices are deregulated on paper, reality has often looked different. As Brookings once described it, India has operated in a strange middle ground of “de jure free markets, but de facto government control”.

To put it more plainly, ATF may have been deregulated two decades ago, but it was never fully left to the market.

Which is exactly how you end up with a ₹10,000 crore rescue package when things go sideways. And that simply means that whether you fly or not, you still end up paying for aviation fuel indirectly because cushions like these are ultimately funded by taxpayer money.

But hey Finshots, what else could the government do, you might say? We’re already in a tough spot. At least this helps prevent immediate pain from spilling into inflation.

And that’s a fair point. Because while this fund may not be perfect, it does buy some time when fuel prices are spiralling and airlines are struggling to stay afloat.

That said, there are still a couple of things the government could do to tackle the problem more sustainably.

One option is to nudge airlines to hedge fuel prices.

In simple terms, hedging is a way for airlines to protect themselves from sudden fuel shocks by locking in prices ahead of time using financial contracts.

Say an airline signs a deal that, no matter what happens to oil prices, it will pay $85 a barrel over the next 12 months. If prices jump to $100, the airline still pays $85 and avoids a financial shock. If prices fall to $60, it still pays $85 and technically “loses” on the trade. But the upside is that the airline would have budgeted for this and predictability does carry value.

And there’s proof this can work. Take Southwest Airlines in the US. It began fuel hedging in the early 1990s and between 1998 and 2008 reportedly saved $3.5 billion compared to what it would’ve paid at average jet fuel prices. To put that in perspective, that was equal to nearly 83% of its profits during that period. Lower fuel costs also helped it expand routes, jobs and even add 149 aircraft.

Now of course, hedging isn’t perfect. It costs money upfront or a premium, much like insurance . Southwest for instance, spent about $150 million annually on premiums and eventually stopped the strategy last year as it wasn’t paying off as much when fuel prices weren’t so high. Ironically, fuel prices surged soon after.

That’s why the government could simply push airlines to disclose their hedging plans publicly, creating accountability. Because left to themselves, airlines may avoid hedging altogether. After all, it costs money upfront and can feel unnecessary when fuel prices are stable. But crises don’t announce themselves.

The logic here is similar to why banks are required to hold capital reserves or why drivers need third-party insurance. Most wouldn’t voluntarily bear the extra cost unless they had to. But when things go wrong, the damage rarely stays contained. In aviation, it spills over to passengers, employees, creditors and eventually taxpayers.

Sidebar: IndiGo is considering fuel hedging after a recent quarterly loss as surging crude prices squeezed its margins.

The second workaround is to let private fuel companies or airlines themselves import ATF directly. Sure, India allowed this in 2013 , but poor airport infrastructure to transport fuel and OMC control over fuelling meant that it never really took off.

So that leaves just one meaningful solution on the table. And arguably, it’s the single biggest reform India still hasn’t acted on: bringing ATF under GST .

ATF as you know sits outside the GST regime right now. Instead, it attracts an 11% central excise duty, along with state-level VAT that can range anywhere from 1% to 29%.

And that creates a problem because being kept outside GST means that airlines can’t claim Input Tax Credit (ITC) on fuel taxes. In simple terms, businesses usually get to offset taxes already paid on inputs against taxes they collect from customers. But airlines can’t offset the VAT paid on fuel against the GST collected on flight tickets.

That makes fuel more expensive than it needs to be, pushing up airline operating costs.

And bringing ATF under GST could change that. Lower taxes and access to ITC could reduce fuel costs, ease pressure on airlines and eventually help keep ticket prices in check.

In fact, the Union Petroleum Minister had said in 2025 that “ATF is likely to come under GST soon”.

But here we are.

And to be fair, the delay is understandable. No state government is exactly eager to give up the crores it earns every year through fuel VAT.

So for now, we’ll have to wait and see whether the government chooses longer-term structural fixes like these or continues stepping in with temporary cushions funded by public money whenever fuel prices spiral.

Until then…

If this story helped you make sense of the ATF Price Stabilisation Fund and understand both its upsides and downsides, then please consider sharing it with your friends, family or even strangers on WhatsApp, LinkedIn or X.

Our co-founder asked people why they avoid Term Insurance. The top reason? Right here. 👇🏽

31% said their biggest fear is being mis-sold. Many worry that agents may push costly plans or add confusing extras without full transparency.

That's a valid concern. After all, how can you trust something you don’t completely understand?

That’s why Ditto, a product of Finshots, has pioneered India’s #1 Spam-Free insurance platform. Our IRDAI-Certified advisors offer honest advice and help you find the right plan. Book a FREE consultation today.