Domestic ATF Prices Remain Stable Amid OMC Pricing Strategies

Indian Government Freezes Aviation Turbine Fuel Prices for Domestic Flights

The state-run oil marketing companies (OMCs) have decided to keep aviation turbine fuel (ATF) prices for domestic flights unchanged for the second consecutive month. This decision comes as a relief to Indian airlines, which have been struggling with the sharp rise in global fuel prices triggered by the West Asia conflict.

The OMCs, which include Indian Oil Corporation, Bharat Petroleum Corporation, and Hindustan Petroleum Corporation, revise ATF prices on the first day of every month based on international benchmark prices and currency movements. While domestic ATF prices were left unchanged, OMCs reduced jet fuel prices for international flights by nearly 27 percent in June.

The reduction in international ATF prices reflects changes in global fuel prices and was not linked to requests made by airlines. Indian carriers had earlier urged the government to revisit the ATF pricing mechanism by reintroducing crack spread bands to cap refinery margins charged by OMCs and bring parity between domestic and international fuel pricing.

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Several airlines had increased fuel surcharges on international routes in recent weeks after jet fuel prices surged amid escalating tensions in West Asia. The government had said OMCs would pass through only 25 percent of the increase in ATF prices for scheduled domestic flights, while international flights were subjected to the full increase in fuel costs.

Despite the pricing restraint, OMCs continue to incur losses on fuel sales. The petroleum ministry has said that OMCs are currently incurring under-recoveries of around Rs 30 per litre on domestic jet fuel sales. They are also losing around Rs 550 crore per day on petrol and diesel sales despite four retail fuel price increases amounting to about Rs 7.5 per litre. LPG under-recoveries currently stand at around Rs 650 per cylinder.

Analysts said the earnings outlook for OMCs could weaken if crude oil prices remain elevated and geopolitical disruptions in West Asia continue. OMCs reported strong earnings in FY26, supported by stable crude prices and healthy refining margins for much of the year. However, rising crude oil prices, softer product margins, and rupee depreciation are expected to weigh on profitability in the first quarter of FY27.

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Market participants said the current freeze on domestic ATF prices may continue only as long as OMCs are able to absorb the gap between retail prices and input costs. Some analysts expect the government could consider compensation support for OMCs if under-recoveries continue to widen.