India’s airline industry has expanded its reform pitch beyond fuel pricing to include structural changes in taxation.
Accordingly, the expanded pitch comes after the Centre rolled out temporary measures to cushion airlines against rising fuel costs due to West Asia crises.
In a representation to the Centre, airlines have cited current measures as only addressing immediate volatility but leaving deeper cost distortions unresolved.
Major concern
A key concern flagged by the industry is the Goods and Services Tax (GST) structure on air travel, particularly the increase in tax on premium-class tickets from 12 per cent to 18 per cent.
Notably, airlines have warned that the higher tax burden could affect the viability of long-haul international routes, where premium cabins contribute a significant share of revenues, potentially weakening network sustainability on key global sectors.
According to industry insiders, rising input costs combined with higher taxation on premium fares could impact demand in revenue-critical segments of international aviation, influencing capacity deployment on long-haul routes.
Besides, airlines have reiterated the need for discipline in refinery margins, or crack spreads, during periods of volatility.
As per industry estimates, these margins rose sharply during the March 2026 crude surge, pushing Aviation Turbine Fuel (ATF) prices higher beyond global oil benchmark increases.
Meanwhile, speaking to businessline, a senior airline executive said refining margin spikes “go beyond cost recovery and are difficult to absorb,” noting the need for greater predictability in pricing to manage volatility.
The industry views such increases as market distortions rather than underlying cost changes, he said.
Furthermore, airlines have proposed a mechanism to smoothen fuel price shocks by deferring incremental costs over 12 months.
The proposal is intended to ease liquidity pressure during sudden spikes while allowing oil marketing companies to recover full costs over time.
Other industry insiders told businessline that the mechanism is aimed at managing timing rather than avoiding costs, as sudden spikes strain liquidity due to advance capacity commitments.
These proposals come even as the Centre has limited the cost pass-through of fuel price increases.
Another concern raised is India’s fuel taxation framework, which remains outside the GST regime, making such levies a non-creditable cost for airlines.
Industry insiders say this effectively turns fuel taxes into a “dead cost” in India.
Longer-term options
On its part, the Centre is examining longer-term options such as bringing ATF under the GST framework.
At present, fuel accounts for up to 40 per cent of airline operating costs in India, significantly above global averages.
In addition, industry estimates suggest rationalising fuel taxation could lower overall costs by up to 10 per cent, with potential benefits for fares and demand.
Published on April 17, 2026