If crude stays high, Indian aviation faces margin squeeze, demand risk: Oil Analyst

New Delhi [India], May 3 (ANI): If the crude oil prices stay elevated, losses will become harder to absorb as Indian aviation is more sensitive, stated Sparta Commodities Senior Oil Analyst Abhishek Kumar.
In an exclusive conversation with ANI, he said, "If the fuel shock stays elevated, the risk is that losses become harder to absorb, flights are cancelled, and government intervention may be needed to protect connectivity and prevent deeper stress across the sector."
Kumar explained that India's aviation sector is particularly vulnerable because aviation turbine fuel (ATF) already forms a large part of operating costs and the market is highly price-sensitive. Airlines may increase fares on some routes, but they cannot fully pass on higher fuel costs without hurting demand.
"India is more sensitive because ATF is already a large cost item and the airline sector is highly price-sensitive. Airlines may raise fares on some routes, but they cannot pass through the full cost without hurting demand," he said.
He added that the impact is already visible, with airlines reducing discounts, increasing fares and reviewing weaker routes, along with a rising risk of capacity cuts. The industry has also started seeking policy support, including relief on ATF pricing and taxes.
Kumar noted that the surge in aviation fuel prices is creating a direct margin shock for airlines. "The aviation fuel surge is now a direct margin shock for airlines. The issue is not only higher crude, but that jet fuel has risen faster than crude, making the ATF cost squeeze much sharper," he said.
Brent crude is currently trading around USD 109 per barrel, jet fuel prices have risen faster, increasing the cost burden on airlines.
He pointed out that airlines have now moved from the absorption phase to the adjustment phase after several weeks of elevated prices and disruptions.
"We are also no longer in the first week of the shock. After several weeks of elevated prices and war-related disruption, airlines have moved from the absorption phase to the adjustment phase," he said.
Airlines initially relied on hedging and limited fare increases, but that protection is now weakening. "Airlines are cutting discounts, adding fuel surcharges, raising fares, reviewing weaker routes and becoming more cautious on capacity. The first casualty is margins," Kumar said.
He also warned about demand risks. "The next risk is demand destruction. Airlines can pass on part of the fuel cost, but not endlessly. If fares rise too quickly, price-sensitive passengers start delaying or cancelling trips," he added.
Kumar noted that leisure travel, budget flyers and weaker domestic routes are likely to be impacted first.
He further highlighted that fuel costs for Indian airlines have increased significantly. He also shared that Federation of Indian Airlines had recently reported that for Indian airlines fuel cost is now 55-60 per cent of operation cost as compared to 30-40 per cent before war, you can see how big the margin pressure is.
Meanwhile, the government has reduced export duties on petroleum products for the fortnight beginning May 1. The Finance Ministry said export duty on diesel has been set at Rs 23 per litre, while export duty on ATF is Rs 33 per litre. Export duty on petrol continues to remain nil.
These duties fall under the Special Additional Excise Duty (SAED), which is imposed on domestic crude oil and exported petroleum products such as petrol, diesel and ATF. (ANI)