The Union Cabinet on Wednesday approved a one-time Price Stabilisation Fund of up to ₹10,000 crore to cushion Indian airlines from sharp swings in aviation turbine fuel (ATF) prices amid the ongoing West Asia crisis.
The decision provides interest-free advances to oil marketing companies (OMCs) to enable stable ATF pricing for scheduled Indian airlines across domestic and international operations, according to a government release.
Under the mechanism, the budgetary support will be routed through the Ministry of Petroleum and Natural Gas. The corpus will compensate OMCs for losses when international ATF prices remain elevated above a benchmark. When prices soften, the differential will be recovered from OMCs and returned to the Consolidated Fund of India, ensuring a full true-up over time.
The scheme will be implemented through a memorandum of understanding between participating airlines and OMCs, with the ministries of civil aviation and petroleum as signatories. Airlines opting in will procure ATF exclusively from OMCs for up to three years, subject to annual review or until the advance is fully recovered, whichever is earlier. A monitoring committee comprising government representatives will oversee claims, reconciliation, and audit.
Fuel accounts for nearly 40% of airline operating costs, rising to as much as 60% during periods of extreme volatility. ATF prices have surged nearly 2.5 times in recent months, while longer routings due to regional disruptions have pushed up fuel burn and costs on international flights, squeezing airline finances and pressuring fares.
The government said the fixed-price arrangement would improve cost predictability for carriers, moderate fare volatility for passengers, and help sustain air connectivity, including to Tier-II and Tier-III cities. It is also expected to protect OMCs from prolonged losses arising from temporary price caps and extreme market swings.
Mohit Jajoo, CEO, BKJ Airports, on this development to ETLegalWorld, said, “This is a timely and much-needed initiative by the Government. The sharp increase in ATF prices has placed considerable pressure on airlines, resulting in temporary service disruptions and capacity constraints across several airports. The proposed relief measures will provide vital support to the aviation sector and help ensure a smoother and faster recovery.”
He added, “We commend the Government’s proactive and exemplary governance in addressing these challenges and supporting the industry during a difficult period. Such decisive action reinforces confidence across the aviation ecosystem. We also urge the Government to consider extending similar relief measures to ground handling companies.”
Further explaining, “As BKJ Airports, operating across 11 airports in India, we have been equally affected by these challenges while continuing to provide critical services that keep airport operations running efficiently and support the sector’s overall resilience and recovery.”
Indian airlines have welcomed this policy development, with Air India appreciating the timely intervention. Air India, in a press statement to ETLegalWorld, said, “This progressive measure provides a much-needed support to the Indian aviation ecosystem and reinforces the Government’s commitment to strengthening connectivity for the people of India, while enabling airlines to serve passengers more effectively.”
The stabilisation support will run for 36 months, with scope for extension if the corpus is not fully settled within the period.
