Understanding the true cost behind an airline ticket reveals that a significant portion of what passengers pay goes directly towards fuel. Data from India's aviation regulator, DGCA, indicates that for every ₹100 spent by Indian airlines in the fiscal year 2023-24, ₹39.4 was dedicated to aircraft fuel and oil. This makes fuel, by far, the single largest expenditure item in the industry.
Breaking Down Airline Operating Costs
Beyond the substantial fuel expenses, other critical components contribute to an airline's operational overhead. Flight equipment maintenance and overhaul represent the second-largest cost, consuming 15.8% of the total budget. Following this are other miscellaneous expenses at 12.7%, and depreciation and amortisation, which account for 10% of spending.
User charges, encompassing airport and navigation fees, make up 8.4% of expenditures. Interestingly, flight crew salaries and associated expenses constitute a comparatively smaller 5.4%, while sales, promotion, and passenger services account for 3.4%.
Impact of Rising Fuel Prices
The heavy reliance on Aviation Turbine Fuel (ATF) means that any volatility in global crude oil prices or domestic ATF rates directly impacts airline profitability and, consequently, ticket prices. This was recently highlighted by a nearly 10% hike in domestic ATF prices by state-owned fuel retailers, one of the sharpest increases in recent months. This surge is attributed to higher global oil prices, partly influenced by the Iran conflict that began in late February.
Government's Fuel Price Stabilization Scheme
In response to these pressures, airlines are now evaluating a new government-backed fuel price stabilization scheme. This framework allows carriers to voluntarily lock in ATF prices at ₹115 per litre for up to three years. This contrasts with the previous fixed rate of ₹104.927 per litre and current market-linked rates, which hover around ₹142 per litre for those not opting into the scheme.
While the scheme offers a buffer against future spikes in crude oil prices, participating airlines might pay higher rates if global prices decline. Given that fuel constitutes almost 40% of operating costs, any sustained increase in jet fuel prices will inevitably influence airline profitability and, ultimately, the cost of air travel for consumers.