India’s aviation sector is witnessing rising air travel demands and significant infrastructural developments in terms of new greenfield airports and capacity enhancements at existing ones. Owing to rising domestic and international air traffic, there is an increased demand for aviation turbine fuel (ATF). As per the Petroleum Planning and Analysis Cell, ATF consumption in India increased by approximately 11 per cent in 2023-24 in comparison to 2022-23. The consumption also witnessed a 12 per cent jump during April-May 2024 in comparison to the same period in 2023.
In line with this trend, the segment has been adopting various measures to ensure the efficient utilisation and consumption of ATF, in addition to promoting the blending of sustainable aviation fuels (SAFs).
ATF prices and fuel efficiency initiatives
ATF prices
ATF prices are revised on the first of every month based on average prices of benchmark international fuel and foreign exchange rates. These prices follow a series of cuts and rises. For instance, in Delhi, domestic ATF prices were slashed by around 6 per cent on November 1, 2023, following four rounds of spikes since July 2023. Following this, prices witnessed cuts for four months straight from November 2023 up until February 2024, before witnessing a hike in March 2024. More recently, prices increased by 1.2 per cent in July 2024 to Rs 96,148.38 per kilolitre. ATF prices in other cities, including Kolkata, Mumbai and Chennai, also witnessed similar trends. In July 2024, Mumbai and Chennai saw a rise of 1.2 per cent (Rs 89,908.31) and 1 per cent (Rs 99,573.79) respectively, while Kolkata witnessed a 1 per cent fall (Rs 102,635.53).
Several sources indicate that ATF costs account for 40-50 per cent of an airline’s operational costs. Hence, variations in fuel prices are likely to impact the financial burden for airlines. Due to this, various measures, such as changes in the tax rates, focus on efficient infrastructure, and initiatives for aircraft fuel efficiency have been adopted.
VAT on ATF
ATF currently falls under the value added tax (VAT) rather than the goods and services tax (GST). The VAT has witnessed significant changes over the years. As of March 2024, 31 states and union territories have reduced the VAT on ATF, which now ranges between 1 and 5 per cent. The exceptions are five states–Delhi, Bihar, Tamil Nadu, West Bengal and Assam— which currently charge between 20 and 30 per cent, but are expected to reduce these rates soon.
ATF pipelines
ATF infrastructure across airports is witnessing noteworthy developments. Various suppliers of ATF are focusing on this, with an aim to cater to the rising demands. Reportedly, pipelines are the most economical way to transport liquid fuels and overcome issues like logistics inefficiencies and supply chain disruptions in comparison to other modes of transport such as roads. Currently, the majority of airports in India transport ATF via road or rail, with only a few airports, such as those at Kochi and Bengaluru, connected to pipelines. However, these pipelines face certain constraints related to open access. With regard to this, the Petroleum and Natural Gas Regulatory Board, in February 2024, suggested a plan for ATF distribution at airports to take place via pipelines, accessible to any supplier.
Recently, the country has also witnessed the rising adoption of ATF pipelines. In April 2024, Bharat Petroleum Corporation Limited (BPCL) signed an agreement with the Noida International Airport to lay a dedicated ATF pipeline from the Piyala terminal at Faridabad to the tank farm at the airport. It spans a length of over 34 km and extends to around 1.2 km within the premises of the airport. The common-use fuel transportation pipeline is expected to ensure a seamless transportation of fuel to the airport, eliminating the need for tank lorry movements. It also aligns with the airport’s vision of offering cost-efficient and sustainable solutions that are more economical for transporting liquid fuels in comparison to road transport.
Further, in May 2024, BPCL inaugurated advanced hydrant facilities at the new Manohar International Airport in North Goa. The hydrant fuel farm spans an area of 6 acres with a storage capacity of 8,270 kilolitres. It also features an intricate network of underground pipes that connect to the 13 aircraft parking bays at the airport.
Initiatives by airlines
Various measures have also been taken by airlines to increase aircraft fuel efficiency. Airline operators are increasingly ordering and inducting more fuel-efficient aircraft. For example, Boeing 737 MAX-8 aircraft are known to be technologically advanced and fuel-efficient, capable of reducing fuel use and emissions by around 20 per cent and reducing noise pollution by around 50 per cent in comparison to older models. Measures are also being deployed to adopt optimised routing to ensure fuel efficiency. This is further boosted through the use of advanced technologies. For instance, in October 2023, Vistara deployed SITA eWAS and SITA OptiClimb solutions. SITA OptiClimb can reportedly predict fuel burn during the climb-out by leveraging historical flight data, helping the airline save around 80 tonnes of fuel per aircraft per year and reduce carbon emissions by around 250 tonnes a per year.
SAF
To promote sustainability in the Indian aviation sector, the use of SAF is gaining traction. It has the potential to contribute to a notable reduction in greenhouse gas emissions, aligning with the overall net-zero targets. Various sources suggest that India has a notable potential for producing SAF. It can be produced from sources, including agricultural wastes, municipal solid waste and indigenous feedstock such as sugarcane molasses. Various airlines have already commenced trials and have operated a few flights using SAF. For example, in May 2023, Air Asia operated India’s first commercial passenger flight using SAF-blended ATF, which was produced using indigenous feedstock by Praj Industries Limited and supplied by Indian Oil Corporation Limited (IOCL). Further, Vistara also operated the first wide-body commercial aircraft using SAF-blended jet fuel on a Boeing 787 aircraft in May 2023.
In a major move, indicative blending targets for SAF were set in India in November 2023. The targets specify a 1 per cent blending by 2027, and a 2 per cent blending target by 2028, both initially for international flights. Recent moves by players are also aligned with meeting these targets. For instance, in May 2024, GPS Renewables Private Limited announced a partnership with SAF One, a Dubai-based SAF developer, to build a facility in India for the annual production of 20 million-30 million litres of SAF. Lignocellulosic waste feedstock will be used for the production of the fuel. Similarly, BPCL also plans to set up SAF units at its three refineries, entailing an investment of up to Rs 14 billion. Further, IOCL signed an MoU with LanzaJet for the large-capacity production of SAF in India, with plans to set up commercial-scale plants for SAF production.
Global trends and outlook for the Ind ian aviation sector
The global aviation space is experiencing a notable recovery in air travel following the Covid 19 pandemic. According to the International Air Transport Association (IATA), the total traffic measured in terms of revenue passenger kilometres witnessed a rise of almost 37 per cent in 2023 in comparison to 2022. The year 2023 also witnessed global traffic reaching around 94 per cent of pre-pandemic levels of 2019. As per the International Energy Agency (IEA), this recovery has contributed to a rise in the demand for jet fuel from the sector and has also led to a notable contribution to the increase in global oil demand. However, the IEA also states that the demand for fuel was lower for the second half of 2023 in comparison to the same period in 2019, although air traffic during these periods was roughly the same. This lower fuel demand could likely be due to the increase in aircraft fuel efficiency.
Global trends also indicate the growing importance of SAF, witnessing a notable increase in usage in 2023. As per IATA estimates, around 0.5 million tonnes (mt) of SAF was produced in 2023, almost double the 0.25 mt produced in 2022. Further, IATA estimates that productions are likely to triple to 1.5 mt in 2024.
Based on insights from current trends, the demand for ATF in India is expected to witness an upward trend in the coming years. Rising aircraft induction and an increase in air travel demand, both domestically and internationally, are key driving factors for this rise. From the infrastructure front, the adoption of ATF pipelines is expected to yield various benefits. Further, SAF is set to make a major headway in the Indian aviation sector. In sum, numerous initiatives aimed at increasing SAF production both domestically and globally are expected to transform the entire segment, significantly contributing to reducing emissions.
Shreya Annie Mathew
