Indian carriers are urging the government to revise the Price Stabilisation Fund for aviation turbine fuel as rising costs squeeze margins. With industry-wide losses projected at up to ₹38,000 crore for FY2027, airlines warn that current operational pressures threaten regional flight connectivity.
Indian aviation companies are intensifying their appeal to the government to revive and reform the Price Stabilisation Fund (PSF) for aviation turbine fuel. The current push comes as jet fuel prices remain elevated, putting significant strain on airline balance sheets. Aviation turbine fuel accounts for over 40 per cent of an airline's total operational expenses, and the ongoing volatility has made it difficult for operators to maintain profitability despite robust passenger demand.
The previous attempt by the government to stabilize these costs in June 2026, which involved a ₹10,000 crore support package, saw limited success. Industry representatives noted that rigid contractual requirements discouraged participation, leading airlines to bypass the scheme. Executives are now calling for a more flexible framework that removes punitive transition clauses, which they argue would help stabilize fuel procurement costs and protect liquidity.
Financial pressures are clearly visible across the sector. ICRA has projected that the Indian aviation industry may face net losses between ₹36,000 crore and ₹38,000 crore for the 2027 financial year, a sharp increase from the ₹28,000 crore to ₹30,000 crore range in the previous year. For instance, major carriers like IndiGo reported a consolidated net loss of ₹1,879.1 crore in the second quarter of FY2027, highlighting the difficulty of shielding margins from rising input costs and currency depreciation.
Regional airlines, which operate nearly 35 per cent of India's unique routes, are particularly vulnerable. To preserve cash, some regional players have already begun scaling back their flight capacity—with some reports of reductions as high as 15 to 20 per cent on specific routes. This contraction poses a risk to regional connectivity, as operators find it increasingly difficult to sustain routes with lower traffic volumes when fuel premiums remain high.
External factors, such as geopolitical conflicts in West Asia, continue to drive fuel price volatility and necessitate longer flight paths, which further increases consumption. Compounding these challenges is the upcoming implementation of the Bharatiya Vayuyan Niyam, 2026, which allows the government to intervene in airfares during extraordinary situations, starting January 1, 2027. While this regulation aims to protect consumers, it adds another layer of complexity for airlines attempting to pass on fuel-related costs through ticket pricing.
Investors may monitor developments regarding potential adjustments to the fuel stabilization fund and whether the government introduces measures to support regional connectivity. Other critical factors include the trend of global crude oil prices, the stability of the Indian rupee against the US dollar, and how effectively airlines can manage fleet utilization amidst these operational headwinds.