This summer has become hot for the aviation sector. In the United States, low-cost carrier Spirit has ceased operations after 34 years of service. the reason? The reason for the rise in aviation fuel prices was the conflict in West Asia. Alarm bells are ringing at home as well. The Indian Airlines Association has written to the government about operations becoming unsustainable and the need for relief measures.
Many things seem to be going wrong for this sector. The first is rising jet fuel prices. Domestic airlines were also affected by the rise in the US dollar against the rupee. The closure of airspace over West Asia and Pakistan is forcing Indian airlines to take a longer route to go west. Adding insult to injury is Prime Minister Narendra Modi’s appeal to citizens to limit international travel.
The country echoes this sentiment. RPG Enterprises President Harsh Goenka took to microblogging site X to announce the strict improvement of travel. “Travel abroad should be reduced to an absolute minimum,” his post read.
The Delhi government has taken a similar step. Prime Minister Rekha Gupta announced that no minister or official of the Delhi government will travel abroad during the next year.
Impact
To keep operations as smooth as possible, domestic airlines are reworking their strategies. They reduced their summer schedule by about 10%. Air India recently reduced its international operations by 25%, or 1,200 flights, affecting 33 routes in four regions. IndiGo – whose fleet size is 440 aircraft, 80% of which are leased – has reportedly reduced its flights by 12%, while SpiceJet is facing the toughest times with non-payment of employee benefits for more than two-and-a-half months. The small carrier’s entire international operation has been affected. Many of its domestic flights have been canceled due to the expiration of its aircraft lease, resulting in its fleet size decreasing from 35 to 21 over the past few weeks.
However, if the war continues, its extension may be visible in the second quarter of fiscal 2027 as well, according to analysts.
Losses are expected to continue amid an adverse cost environment shaped by geopolitical developments, says Kinjal Shah, Senior Vice President and Associate Group Head, Corporate Ratings, ICRA Ltd.
For FY27, ICRA expects net losses to narrow to Rs 11,000-12,000 crore from Rs 17,000-18,000 crore in FY26, supported by growth in passenger traffic. However, the conflict in West Asia, which has led to flight cancellations, rerouting of select long-haul international routes, increased fuel burn, higher costs due to airport surcharges as more aircraft continue to be grounded, increased fuel cost, and depreciation of the rupee against the dollar, constitutes a downward bias for the forecast.
Troubled weather
The closure of Gulf airspace since the end of February poses a major challenge. The Gulf market is a major contributor to the Indian aviation sector, accounting for nearly half of international passenger traffic to and from India, according to the DGCA.
Notably, international passenger traffic witnessed a sharp contraction of 36% year-on-year and 35% sequential basis in March 2026.
Speaking at a town hall on May 8, Campbell Wilson, CEO and MD of Air India, asked employees to maintain a “relentless focus on costs” amid airspace closures, rupee depreciation, and jet fuel prices increasing by 2.5 to 3 times compared to previous levels.
The sombre mood is reflected at the airline’s headquarters in Gurugram. Management has postponed annual salary increases by at least a quarter.
Air India’s losses more than doubled to Rs 26,000 crore in FY26 compared to the consolidated loss of Rs 10,859 crore in FY25, according to Singapore Airlines, which holds a 25.1% stake in the airline.
“The main driver of this pressure was ATF prices, which rose 18.2% year-on-year and 9.2% sequentially in April, following the escalation of tensions in West Asia. Although ATF prices announced on May 1, 2026, remained unchanged for domestic routes and increased moderately by 5.3% for international operations, higher crude oil prices and a weaker rupee continue to pose downside risks to the cost structure,” says Shah.
The impact of the dollar on airlines is significant as 35-50% of airline operating expenses – including aircraft lease payments, fuel expenses, and a significant portion of aircraft and engine maintenance expenses – are denominated in dollars. A lower rupee increases costs.
Furthermore, some airlines have foreign currency debt. While domestic airlines also have a partial natural hedge to the extent of earnings from international operations, they generally have net foreign currency receivables. This natural hedge has been hit hard as international operations have been severely disrupted by the war. Airline operators should be wary of these headwinds.
Tingling feeling
Are consumers feeling upset? While domestically, airfare prices rose by 10-15%, international travelers saw an increase of almost 40%; These rates are expected to rise further due to capacity constraints.
The old saying goes: “One person’s loss is another person’s gain.” This seems to be the case here as well. As the international footprint of Indian domestic airlines shrinks, foreign carriers are gaining space. According to OAG data, the international schedule share of Indian-origin foreign airlines rose to 58.4% in the March-May period this year, up from 51.2% during the same period in 2025.
Departures of Lufthansa-owned Swiss Airlines to India rose 39% in the March-May period compared to last year. Amsterdam-based KLM’s Indian departures rose 19.5%.
Hong Kong-based Cathay Pacific increased its flight schedule by 19%.
In the international sector to and from India, foreign airlines have increased their capacity to fill the void left by airlines in West Asia as well. Indian airlines are at the receiving end as Pakistani airspace is open to foreign airlines, which means shorter flying time.
The summer schedule (for airlines) has been reduced, and after Covid, this is the first time this capacity has been reduced.
-Gagan Dixit,Researcher, Elara Securities
Analysts agree. The reduction in Air India’s operations is expected to further boost the IndiGo market, says Gagan Dixit, researcher for aviation, chemicals and oil and gas sectors at Elara Securities.
“Almost 50% of IndiGo’s international departures were to the Middle East. So, there is a knock-on effect. But it has routed most of the international capacity to the domestic market or other destinations in Asia. So, this 50% may actually be less than 20%,” says Dixit. He says ATF’s price hikes were partly taken care of by increased airfare prices.
“On the domestic side, there has been no increase in air ticket prices, but air ticket prices have risen,” he says. “Domestic air ticket prices, which have jumped 13-15% in the past two months, will remain high throughout the entire year of 2026 if the war continues.”
Dixit adds that the summer schedule has been reduced, and this is the first time post-Covid that capacity has been reduced.
Before the start of the summer schedule, the Ministry of Civil Aviation (MoCA) had lifted the cap on air tickets that was in place after IndiGo’s operational collapse in December 2025. High fares led to lower demand.
Fuel used represented 30-40% of operating expenses before the Gulf conflict. This percentage has now risen to 55-60%. Weak passenger demand growth also affects profitability.
Domestic traffic grew only about 1.2% in fiscal 2026 and fell about 1.2% year-on-year in March 2026, while international traffic growth was modest at about 3.9% for the year, according to ICRA.
Compensatory measures
Difficult times call for drastic measures. Domestic airlines are on a path of austerity by deferring raises, cutting costs, and eliminating waste and leakage. The government has also intervened to reduce pressure on local airlines. It has floated a Rs 5,000-crore emergency credit line to domestic transport companies, allowing them to borrow Rs 1,500 crore each with a repayment period of seven years and a moratorium of two years. Other measures include capping ATF prices in the domestic sector and reducing airport parking fees by 25%.
Last month, in an appeal to the Ministry of Civil Aviation (MoCA), the Indian Airlines Association — a grouping of Air India, IndiGo and SpiceJet — pointed out the existing ad hoc pricing mechanism of the ATF, which is creating severe imbalance in domestic and international operations and making airline networks unviable and unsustainable.
It demanded that the jet fuel formula be reversed to one with marginal bands – with a floor and a ceiling – on what refiners can charge and Indian airlines get the same prices for domestic and international flights. There was a moderate increase of 5.3% in international ATF prices in May.
Continued rise in crude oil prices and weak rupee continue to pose downside risks to airlines’ cost structure.
-Kingal Shah,Senior Vice President and Associate Group Head, Corporate Ratings, ICRA LTD
To support the industry, the Ministry of Civil Aviation announced in April 2026 a 25% reduction in landing and parking fees for domestic airlines for a period of three months from April 2026. A cap on domestic jet fuel prices has been put in place to ensure domestic flight prices remain sustainable. Dixit says credit support is the lifeline for small transport companies.
ICRA notes that these measures provide partial relief from structurally high fuel costs, currency pressures and expenses associated with disruption.
A prolonged war could hurt the industry’s growth and serve as a death knell for smaller domestic players, leading to further consolidation of the country’s aviation market. With the Prime Minister’s alarm bell ringing across an already struggling economy and other industries hesitating that caution, the disruption is expected to continue, at least in the short term. Airlines operators better fasten their seat belts!
@richajourno
