Jet fuel for domestic airlines will now cost Rs 115 per litre, up from Rs 104.927, industry sources said.
The new rate will be locked in for up to three years for airlines that opt to participate in the government-backed price stabilisation scheme.
Airlines that do not opt for the scheme will pay market-linked prices, currently around Rs 142 per litre, similar to international carriers.
Those opting into the price stabilisation scheme will continue to receive ATF at Rs 115 per litre, insulated from global benchmark fluctuations. While non-participating carriers will benefit from price declines, they will also face higher costs when international rates rise.
Sources said the scheme is completely voluntary, and airlines will have to take a call if they want to participate in it.Under the voluntary scheme, participating airlines will pay a fixed free-on-board (FOB) benchmark price of Rs 86.32 per litre, plus airport charges, oil company margins and applicable taxes, resulting in an effective selling price of Rs 115 per litre in Delhi, Rs 114.5 in Mumbai and Rs 139 in Chennai.
The new rate compares with a below-market level of about Rs 105 per litre in Delhi, which had remained unchanged for more than two months after the government allowed only a partial pass-through of higher global fuel costs triggered by the outbreak of the West Asia conflict in late February. The freeze had led to losses for oil marketing companies on aviation turbine fuel (ATF), similar to pressures seen in petrol, diesel and LPG segments.
To address these losses, the Union Cabinet approved a Rs 10,000-crore price stabilisation scheme aimed at capping ATF prices and shielding airlines from volatility linked to geopolitical tensions, while also supporting the financial health of state-owned oil companies.
Under the scheme, whenever global benchmark prices rise above the base rate of Rs 86.32, the government will provide an interest-free advance to oil marketing companies to cover the difference. When prices fall, the differential will be recovered from the companies and returned to the Consolidated Fund of India.
ATF typically accounts for about 40 per cent of airline operating expenses and can rise to as much as 60 per cent during periods of sharp volatility.
Sources said international jet fuel prices had climbed to as high as Rs 142 per litre in May from pre-war rates of Rs 60.50 per litre, raising concerns over airline operating costs and potential fare increases.
The new arrangement, they said, is not a subsidy but a temporary stabilisation framework intended to smooth volatility in fuel prices while ensuring accountability, monitoring and full recovery of funds.
For passengers, the most important benefit of this decision is that it will help to moderate sudden increases in the airfare that often result from sharp spikes in fuel prices. By reducing the exposure of airlines to extreme fuel price fluctuations, the government aims to minimise the pass-through of such costs to travellers and provide greater fare stability.