India has unveiled a draft policy requiring international airlines to source 90% of their fuel at domestic airports to stop 'economic tankering.' The plan also introduces a mandatory sustainable aviation fuel (SAF) blending target starting at 1% in 2027. These rules could increase operational costs for carriers already facing financial pressure in a high-cost environment.
The Ministry of Civil Aviation has released a draft 'National Sustainable Aviation Fuel Policy 2026,' proposing significant changes to how airlines purchase fuel for international operations. Under the new rules, both Indian and foreign carriers would be required to uplift at least 90% of their annual fuel requirements for international departures from Indian airports. This move is designed to eliminate a practice known as 'economic tankering,' where airlines fill their tanks in countries with cheaper fuel to avoid purchasing more expensive aviation turbine fuel (ATF) in India. By ensuring fuel is purchased locally, the government aims to create steady demand for the emerging domestic sustainable aviation fuel (SAF) sector.
Impact on Airline Costs
For Indian carriers like IndiGo and Air India, the proposal arrives at a challenging time. The domestic aviation sector is currently grappling with significant headwinds, including volatile global fuel prices, geopolitical disruptions, and a weakening rupee. Industry estimates project that Indian airlines could face total losses of up to ₹38,000 crore in the current fiscal year. Adding a mandate to purchase the vast majority of fuel locally could limit the ability of airlines to optimize their fuel procurement strategies, potentially raising their total operating expenses. Investors will likely monitor whether airlines can pass these increased costs to passengers through higher ticket prices or if they will have to absorb the impact, further affecting profit margins.
The SAF Blending Trajectory
The draft policy also lays out a long-term roadmap for sustainable aviation fuel (SAF). It suggests a mandatory blending requirement of 1% starting January 1, 2027. This requirement is proposed to scale upward, reaching 2% by 2028, 3% by 2029, and 5% by 2030, with an ambitious target of 20% by 2040. While the government has indicated that it may provide fiscal support—such as viability gap funding, tax relief, and import duty waivers—to help manufacturers set up production, the success of this transition will depend heavily on the availability and pricing of SAF. If supply chains cannot keep up with the government’s timeline, airlines could face significant supply bottlenecks.
Regulatory Oversight
The Directorate General of Civil Aviation (DGCA) is set to manage a national registry to track fuel transactions and verify compliance. Airlines will be required to submit independently verified reports on their fuel uplift at every airport. While the policy allows for some exemptions for humanitarian and maintenance-related flights, non-compliance with the general mandate could attract penalties. As the policy moves from draft to implementation, investors should track management commentary regarding potential infrastructure costs, the timeline for fiscal incentives, and how effectively the industry can manage the transition without compromising operational efficiency.