Indian aviation stocks came under pressure on Tuesday as a sharp rise in crude oil prices pushed up aviation turbine fuel (ATF) costs, raising fresh concerns over airline profitability and operations.

Shares of InterGlobe Aviation, which operates IndiGo, fell nearly 3 per cent to Rs 4,427.90, while SpiceJet dropped around 5 per cent to Rs 14 apiece during afternoon trade, reflecting investor unease over rising cost pressures.

Oil Rally Sends Shockwaves Through Aviation Sector

The sell-off in airline stocks comes amid a sustained rally in crude oil prices. Brent crude has climbed above $110 per barrel, extending gains for a seventh straight session as tensions in West Asia disrupt global energy supply chains.

A key concern remains the Strait of Hormuz, a critical shipping route that typically handles about one-fifth of global oil and gas flows. Disruptions in this corridor have tightened supply and kept energy prices elevated.

ATF Costs Spike, Margins Take a Hit

Higher crude prices directly impact ATF, the single-largest cost component for airlines. According to a report by CNBC TV18, the Federation of Indian Airlines (FIA) has warned that the sector is under “extreme stress” due to the sharp surge in fuel prices.

In a communication to the Civil Aviation Secretary, the industry body said ATF prices for international operations have increased by around Rs 75 per litre. Fuel expenses now account for nearly 60 per cent of total operating costs.

The FIA also flagged concerns over pricing remaining “ad hoc” and misaligned with crude trends due to persistently high crack spreads, further aggravating cost pressures.

‘Precarious Situation’: Airlines Flag Viability Concerns

The industry body described the current environment as “very difficult, precarious and challenging”, warning that airline networks could become “unviable and unsustainable” if high fuel costs persist, as reported by Moneycontrol.

It cautioned that airlines may be forced to take drastic measures such as cutting routes, grounding aircraft or cancelling flights, raising the risk of widespread operational disruption.

Capacity Cuts on the Horizon?

According to a report by NDTV Profit, domestic carriers are currently in a wait-and-watch mode ahead of the next ATF price revision expected in May.

Media reports indicate that airlines may look to rationalise operations, particularly on low-yield routes. Short-haul sectors are likely to be the first to see reductions, while routes with consistently weak passenger demand could also face cuts.

Airlines are also evaluating multiple scenarios, including the possibility of changes to the existing cap on ATF price increases.

Government Steps In, But Challenges Persist

The government has introduced some relief measures to cushion the aviation sector from the ongoing crisis. These include a 25 per cent reduction in parking and landing charges at major airports and a cap on ATF price increases at 25 per cent for April.

However, pressures remain. The Ministry of Finance has also increased excise duty on ATF to Rs 42 per litre from Rs 29.5 per litre earlier, even as oil marketing companies have already raised fuel prices.

A Sector Caught Between Costs and Demand

India’s aviation sector remains particularly vulnerable due to its heavy dependence on imported oil, which accounts for over 85 per cent of the country’s fuel needs.

With limited pricing power and rising input costs, airlines are facing a difficult balancing act between maintaining profitability and sustaining operations.

As global energy markets remain volatile, the coming weeks, particularly the next ATF revision, will be crucial in determining whether airlines opt for capacity cuts or absorb the pressure for longer.