India's cabinet has approved a one-time budgetary support package of up to INR100bn ($1.04bn) for oil marketing companies to help stabilise aviation turbine fuel (ATF) prices for domestic airlines, as the government moves to cushion the aviation sector from the impact of soaring fuel costs linked to the ongoing conflict in West Asia.

The measure, cleared by the cabinet chaired by Prime Minister Narendra Modi, will enable state-run oil marketing companies to provide ATF price stabilisation support to Indian carriers operating both domestic and international services. 

Global oil and aviation turbine fuel prices have risen sharply due to the Iran conflict. This rise has impacted the operations of Indian airlines. 

The government said the initiative is intended to reduce uncertainty surrounding fuel costs, improve pricing predictability for airlines and prevent sudden increases in airfares for passengers. The aviation sector has faced mounting pressure from sharp fluctuations in global energy markets, with fuel accounting for one of the largest components of airline operating expenses.

Civil Aviation Minister Ram Mohan Naidu said the support mechanism builds on a series of interventions undertaken by the government to help the aviation industry navigate the current crisis. Previous measures included liquidity support under the Emergency Credit Line Guarantee Scheme, moderation of domestic ATF price increases and reductions in airport landing and parking charges.

The government also highlighted recent cuts in value-added tax on aviation fuel by the governments of Delhi and Maharashtra, which together account for a substantial share of the country's ATF consumption.

ATF typically represents about 40% of an airline's operating costs under normal market conditions. During periods of extreme fuel-price volatility, however, its share can rise to as much as 60%, significantly affecting profitability, route economics and ticket pricing.

Officials said the stabilisation mechanism is expected to strengthen the resilience of India's aviation sector, while supporting related industries such as tourism, hospitality, trade and air cargo logistics. The government believes the initiative will help maintain uninterrupted flight operations and facilitate the movement of both passengers and high-value freight.

The support programme will remain in force for up to 36 months, subject to annual reviews or until the financial assistance is fully recovered and settled. Oversight will be provided by a monitoring committee comprising representatives from the Ministry of Civil Aviation, the Ministry of Petroleum and Natural Gas and the Department of Expenditure.

The decision comes as policymakers seek to shield one of the world's fastest-growing aviation markets from the economic fallout of geopolitical tensions and elevated energy prices while preserving connectivity and supporting broader economic activity.