Aviation turbine fuel (ATF) tax relief announced by Delhi and Mumbai, India’s two largest aviation hubs, could provide meaningful cost support to airlines battling volatile crude prices, rupee weakness and rising operational expenses, industry experts said.
The move assumes significance because Delhi and Mumbai together account for a disproportionately large share of India’s airline traffic, fuelling activity and long-haul connectivity, giving any ATF tax cut at these hubs an outsized impact on airline economics.
Delhi government last week reduced VAT on ATF from 25 per cent to 7 per cent for an initial six-month period, while Maharashtra cut VAT on ATF in Mumbai from 18 per cent to 7 per cent.
Delhi Chief Minister Rekha Gupta said the move could result in an estimated revenue loss of nearly ₹985 crore for the government, but argued that the decision would boost aviation activity and give the national capital a competitive edge.
The tax cuts come at a time when airlines continue to grapple with elevated fuel prices and mounting cost pressures due to the West Asia crisis.
Why Delhi and Mumbai matter
Fuel remains among the biggest cost components for airlines globally and especially in India, where state-level taxation on ATF has historically remained uneven.
According to data from the Petroleum Planning and Analysis Cell (PPAC), India’s ATF consumption stood at around 764 thousand metric tonnes in February 2026, reflecting the scale of the country’s aviation fuel demand. DGCA data, meanwhile, showed domestic airlines carried nearly 167 million passengers in calendar year 2025.
Delhi and Mumbai together handle a substantial portion of this traffic, particularly metro, premium and international operations. Mumbai airport alone handled 55.5 million passengers in 2025 and recorded over 331,000 aircraft movements, according to airport data.
Experts say the concentration of traffic and fuelling activity at these hubs makes the tax cuts more consequential than similar relief measures at smaller airports.
“ATF contributes nearly 35-40 per cent of an airline’s operating expenditure in India, and therefore even a modest reduction in VAT can translate into meaningful savings, especially at major hubs such as Delhi and Mumbai,” said former president of The Air Cargo Agents Association of India and managing director of Activair Airfreight India Pvt Ltd.
He said lower fuelling costs could improve airline cash flows, support route sustainability and provide greater operational flexibility at a time when carriers remain exposed to geopolitical uncertainties and volatile fuel prices.
How meaningful could the savings be?
Industry experts cautioned that the relief, while significant, may not dramatically transform airline balance sheets overnight.
“The impact is definitely meaningful because fuel continues to remain one of the biggest cost components for Indian airlines, typically contributing anywhere between 30–40 per cent of overall operating expenses depending on crude oil prices and currency fluctuations,” said an aviation expert with over 15 years of experience in the sector.
“Delhi’s reduction from 25 per cent to 7 per cent is especially significant because it earlier had one of the highest ATF VAT structures among the metro airports,” he added.
He said the biggest gains were likely to accrue to airlines with extensive hub operations, high aircraft utilisation and stronger metro connectivity through Delhi and Mumbai. Airlines operating long-haul or widebody international services could also benefit more in absolute terms because of higher fuel uplift volumes, he said.
“For large carriers operating extensive metro and hub-based networks, these savings could potentially run into several hundred crores annually if the relief continues for a longer duration,” Mehta said, while adding that the cuts were more likely to improve cost structures “by a few percentage points” rather than fundamentally alter profitability overnight.
An tax expert said the cuts would provide “some breathing space” to airlines already under pressure from higher crude prices and a weakening rupee.
“Fuel costs constitute a significant portion of the operating P&L in the aviation sector and reduction in taxes will give some breathing space to this sector,” he said.
Could airlines change fuelling strategies?
Experts also pointed to another operational implication: the possibility of airlines changing fuelling and network strategies.
Historically, airlines in India have adopted practices such as selective refuelling and fuel tankering to optimise around varying state-level ATF taxes. Under fuel tankering, airlines carry extra fuel from lower-tax airports to avoid refuelling at more expensive locations, even though additional weight can reduce operational efficiency.
“With some states reducing VAT on ATF, budget airlines operating primarily in the domestic sector will consolidate fuelling in those states which offer a competitive rate of VAT on ATF,” he said.
He similarly said Delhi and Mumbai moving closer to lower-tax jurisdictions could gradually reduce tax-driven fuelling decisions and make airline operations more efficiency-oriented.
“In many cases, airlines would carry extra fuel from lower-tax airports to avoid refuelling at high-tax stations, even though carrying additional weight is not always operationally ideal,” he said.
He added that Delhi could become even more attractive as a connecting hub for long-haul and transfer traffic, though airline network decisions still depended far more on slot availability, passenger demand, airport charges and fleet deployment than fuel taxes alone.
For the cargo and logistics ecosystem, the relief could also help airlines sustain belly cargo capacity and maintain connectivity on key sectors.
“Reduced operating costs can help airlines maintain capacity deployment on key domestic and international sectors, which is critical for belly cargo movement and supply chain continuity,” he said.
Will passengers benefit?
Despite the relief, experts do not expect airlines to substantially cut ticket fares immediately.
“Airfare pricing in India is influenced far more by demand-supply dynamics, seasonality, crude oil prices, exchange rates and competitive market conditions,” he said. “In practical terms, the tax relief may help prevent fares from increasing further rather than resulting in visible fare reductions.”
He said low-cost carriers could selectively pass on some benefits through tactical pricing, though volatile geopolitical conditions and rising jet fuel prices may limit the extent of fare reductions.
The aviation sector has, in recent years, repeatedly flagged high ATF taxes as a major challenge. Airlines have also faced pressure from rising lease rentals, supply-chain disruptions, Pratt & Whitney engine issues affecting fleet availability, and currency volatility.
GST debate may regain traction
The decisions by Delhi and Mumbai may now intensify pressure on other states to revisit ATF taxation, industry observers said.
India’s aviation industry has long pushed for bringing ATF under the Goods and Services Tax (GST) regime, arguing that fragmented state-wise VAT structures distort airline operations and raise costs.
“The issue of bringing ATF under the GST regime will certainly gain traction,” he said.
He said the latest tax cuts reinforced the need for a “more harmonised and rationalised ATF taxation structure” across the country.
However, he cautioned that a nationwide GST framework for ATF remained fiscally challenging because states continue to depend heavily on fuel tax revenues.
The latest moves by Delhi and Mumbai, experts said, could nevertheless renew debate around whether India’s aviation growth ambitions can coexist with widely varying state-level fuel taxation structures.
