The flames of the US-Iran conflict in the Middle East have now reached Indian Airlines. Rising crude oil prices and the blockade of the Strait of Hormuz have crippled Indian airlines. The situation has become so serious that major airlines like Air India, IndiGo and SpiceJet have appealed for ‘SOS’ (emergency assistance) from the central government, and warned that if immediate assistance is not received, they may be on the verge of shutting down their operations.
Fuel prices wreak havoc on the budget
In a letter to the Civil Aviation Ministry, the Federation of Indian Airlines (FIA) has warned that the “unjust increase” in Aviation Turbine Fuel (ATF) prices is causing irreparable financial loss to the airlines. It is worth noting that for any airline, fuel alone accounts for 40 percent of its total expenses.
Huge increase of ₹73 on international routes
Airlines have pointed out that while the government has limited the increase in ATF prices to ₹15 per liter for domestic flights, it has imposed a huge increase of ₹73 per liter for international flights. Additionally, the falling value of the rupee and 11% excise duty have only added fuel to the fire.
What is the reason for this crisis?
The immediate root cause of this serious crisis is the blockade of the Strait of Hormuz. This sea route serves as the lifeline of global oil trade; About 20% of the world’s oil passes through this route. Iran has blocked this route, stopping the flow of oil from countries like Saudi Arabia, Qatar and UAE. As a result, fuel prices are skyrocketing in the international market due to this disruption in supply.
What effect will this have on passengers?
FIA has clearly stated that if fuel prices do not come down, airlines will be forced to suspend their flight services. The direct result of this will be the cancellation of a large number of flights and a huge increase in air fare prices. The coming days may prove to be extremely challenging for travelers traveling long distances.
What is the demand from the government?
Airlines have sought immediate financial assistance from the government. Apart from this, he has appealed for re-introduction of ‘crack band’ system and temporary exemption from excise duty to save the aviation sector from collapse. ‘Crack Band’ is a pricing mechanism for ATF (Aviation Turbine Fuel) which prevents excessive variation between the prices of crude oil and ATF.