Indian airlines are bracing for a significant financial impact this fiscal year, with operating profits expected to decline 10-15% as multiple cost pressures mount. According to a Crisil report released on Wednesday, the combined operating profit of domestic airlines could fall to ₹16,000-17,000 crore in the current fiscal from around ₹19,000 crore recorded in the previous financial year. The rating agency attributes this decline to elevated aviation turbine fuel (ATF) prices, airspace restrictions, and rupee depreciation caused by the Middle East conflict.
Fuel costs remain the biggest concern for airlines, with jet fuel accounting for nearly 40% of an airline's operating expenses under normal conditions. During periods of extreme volatility, this share can rise to nearly 60%. The Middle East conflict has pushed global ATF prices more than 50% above pre-conflict levels, significantly increasing operating expenses for carriers. While global ATF prices have started declining from around $145 per barrel in the week ending June 5 to below $125 currently, they remain higher than the average of around $90 recorded in the previous fiscal. The report noted that any reopening of the Strait of Hormuz, a crucial global energy route, could provide further relief by easing fuel prices.
Beyond fuel costs, airlines face multiple headwinds that will compound their financial challenges. According to the Crisil report, lease rental expenses are expected to rise around 15% to ₹27,000-28,000 crore this fiscal, with ongoing fleet expansion by airlines putting additional pressure on their finances. The depreciation of the rupee has further intensified cost pressures as a large portion of airline expenses, including fuel, aircraft leases and maintenance costs, are paid in foreign currencies. However, the government's decision to cap domestic ATF price hikes at 25% from April 1, 2026, has provided some cushion against the immediate impact of the post-conflict fuel spike. The increase in lease rentals, coupled with moderating operating profits, could weaken airlines' ability to service leases through internal accruals.
The challenges facing Indian carriers reflect broader pressure on the global airline industry due to geopolitical disruptions and rising fuel costs. The International Air Transport Association (IATA) has lowered its global airline profit forecast for 2026, citing higher jet fuel prices and disruptions to flight routes due to the Middle East conflict. IATA director general Willie Walsh noted that the combination of rising fuel costs and operational disruptions has significantly affected profitability expectations, with the significant increase in jet fuel prices going higher than anyone would have expected. Despite pressure on margins, passenger demand globally remains resilient, with airlines expected to benefit from strong traffic growth. However, higher costs and capacity constraints are likely to keep fares elevated and profitability under strain.
