India setting up the ATF price stabilisation fund is a very good solution to address the problem of higher jet fuel costs being faced by the domestic airlines, a senior IATA executive has said.

While mentioning that the current jet fuel scenario globally is unprecedented in terms of the cost impact, Hemant Mistry, Director Energy Transition at IATA, cautioned that if the situation continues, there would have to be more flight reductions.

The International Air Transport Association (IATA) represents over 370 airlines, including Air India, IndiGo, Air India Express and SpiceJet. The grouping accounts for around 85 per cent of the global air traffic.

Mistry said the jet fuel situation in terms of cost impact is unprecedented.

"If the situation continues, there will have to be more demand destruction... that is the only way to manage the situation, it is an extreme situation," he told PTI.

Demand destruction broadly refers to a reduction in flights amid rising operational costs, driven by higher jet fuel prices.

He was speaking on the sidelines of the IATA AGM in the Brazilian city.

Mistry said the jet fuel prices are dissociated from the prices of crude. "We have seen that average price of jet fuel increased from USD 96 per barrel in November last year to USD 188 per barrel in April this year and has settled at around USD 156 per barrel." According to him, the Indian government's decision to set up an up to Rs 10,000 crore ATF (Aviation Turbine Fuel) price stabilisation fund will address the problem of rate uncertainties faced by airlines.

"The ATF price stabilisation fund is a very good solution to address the problem. It is a very good output from the government," he said on Saturday.

The current energy shock should add even more urgency to the development of renewables, including SAF, and the sustainable aviation fuel production is projected to touch around 2.4 million tonnes this year, accounting for just 0.8 per cent of the global jet fuel use, according to airlines' grouping IATA.

The fund for Oil Marketing Companies (OMCs) would help provide ATF price stabilisation support to scheduled Indian airlines for their domestic and international operations.

To increase SAF (sustainable aviation fuel) production, the International Air Transport Association (IATA), has suggested expanding renewable energy supply, strengthening policy support, ensuring open access to fuel infrastructure and other measures.

"But we have yet to see either the energy shock, the need to develop energy independence and jobs, or the urgency to mitigate climate change materialise in the incentives needed to create a viable SAF market," IATA Director General Willie Walsh said in a release.

Preeti Jain, Head of Net Zero Research and Programs at IATA, said the SAF production is projected at 2.4 million tonnes, while the production capacity is projected at nearly 9 million tonnes.

Walsh said it looks to be another disappointing year for SAF production.

"Five years after committing to achieve net zero by 2050, SAF production will only account for 0.8 per cent of airline fuel use this year.

"The path to meeting 65 per cent of our needs in 2050 is growing more difficult with each year of ineffectively sequenced government policies and oil companies' manifest lack of interest," he said in the release on Saturday.

With surging jet fuel prices as well as relatively lower demand, IndiGo, Air India and Air India Express have temporarily curtailed their networks.

Regarding the ATF price stabilisation fund, Sheldon Hee, Regional Vice President Asia Pacific at IATA, said any support that the industry gets from the government is welcome.

"We also recognise that there are different dynamics (for domestic airlines) that ensure connectivity between cities in the country.

"Our position is only that we would like the governments to appreciate the challenges that the industry faces as a whole and to consider policies that are supportive," he said.

Along with SAF, which is produced from biofuel sources, electro-SAF or e-SAF is another option for decarbonisation.

The conversion of renewable electricity using a power-to-liquid (PtL) process can produce e-SAF. It requires large amounts of renewable electricity, green hydrogen, water, and CO2.

The European Union and the United Kingdom mandated e-SAF production of around 0.6 million tonnes by 2030, but global production capacity currently operating and under construction stands at around 0.02 million tonnes, IATA noted.

The airlines' grouping also pointed out that it would take approximately 20 commercial-scale refineries to achieve the mandated volume.

Against this backdrop, Marie Owens Thomsen, who is IATA's Senior Vice President, Sustainability and Chief Economist, said if there is a mandate in a market where the product does not exist, the price would go up, and that is exactly what has happened in Europe and the UK.

One of the problems with mandates is that they tend to limit production to the mandated amount, as nobody would have an incentive to do more, she said.

"Use the right policy for the right thing for the right order, and if there is a role for mandate, probably then it is later in the process where we have achieved some degree of liquidity in the market. You also need supporting policies," she said at the briefing.