Shares decline after ATF price hike
Shares of major domestic airlines IndiGo and SpiceJet declined on Tuesday after another increase in Aviation Turbine Fuel (ATF) prices raised concerns over higher operating expenses for carriers. InterGlobe Aviation, which operates IndiGo, fell 2.80% to Rs 5,042, while SpiceJet shares declined 1.9% to Rs 10.12 during early trade, as reported by Free Press Journal. Moneycontrol reported that InterGlobe Aviation was trading at Rs 5,087.50 on the NSE at 9:35 am, down Rs 146.50, or 2.80%, from the previous close, while SpiceJet shares were trading at Rs 10.23, down Rs 0.09, or 0.87%.
Second consecutive monthly hike
Oil marketing companies increased ATF prices for domestic airlines by 5.46% on Tuesday, marking the second consecutive monthly hike. The price of aviation fuel was raised by Rs 6.28 per litre to Rs 121.28 per litre from Rs 115, according to both Free Press Journal and Moneycontrol. The latest increase follows a 7.5% rise in ATF prices last month.
The two consecutive increases come after three monthly reductions in ATF prices starting April 2025. Prices had been cut by Rs 12,239.17 per kilolitre across those three reductions, while the subsequent increases of Rs 8,949.38 per kilolitre have wiped away almost three-fourths of the gains, as reported by Moneycontrol. Free Press Journal noted that the consecutive hikes have reversed a significant portion of the benefits from earlier reductions, with subsequent increases recovering nearly three-fourths of those reductions.
Impact on airline costs
Fuel remains one of the largest expenses for airlines, accounting for around 40% of their overall operating costs. Any increase in ATF prices directly impacts airline profitability and ticket pricing decisions, as reported by Free Press Journal. Moneycontrol also highlighted that fuel accounts for almost 40% of an airline's operating costs, making changes in ATF prices an important factor for carriers.
Price variations across cities
ATF rates differ across cities depending on local taxes, including value-added tax. In August, prices were revised to Rs 86,077.14 per kilolitre in Mumbai, Rs 95,512.26 per kilolitre in Chennai and Rs 95,164.90 per kilolitre in Kolkata, according to Free Press Journal. Moneycontrol reported that in August, prices were raised to Rs 86,077.14 per kilolitre in Mumbai, Rs 95,512.26 per kilolitre in Chennai and Rs 95,164.90 per kilolitre in Kolkata.
Fuel price revision mechanism
State-owned fuel retailers Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation revise ATF and cooking gas prices on the first day of every month. The revisions are based on international benchmark fuel prices and currency movements, as reported by Free Press Journal. Moneycontrol stated that these companies revise ATF and cooking gas prices on the first of every month, based on the average price of benchmark international fuel and foreign exchange rates.
Other fuel prices unchanged
The latest increase comes at a time when airlines are closely monitoring input costs amid changing global fuel markets. While aviation fuel prices have risen in recent months, domestic petrol and diesel prices remain unchanged, according to Free Press Journal. Moneycontrol also confirmed that domestic petrol and diesel prices continue to remain unchanged.
Outlook
Higher ATF costs could weigh on airline margins if companies are unable to offset the increase through improved operational efficiency or higher passenger yields, as reported by Free Press Journal.