Indian Airlines Face Profit Slump Amid Fuel and Forex Headwinds

The Indian aviation sector is bracing for a challenging fiscal year as geopolitical tensions and currency volatility squeeze margins. A recent report by Crisil suggests that domestic carriers could see a significant decline in operating profits due to a combination of rising fuel costs and external economic pressures.

Profitability Forecasts Under Pressure

According to a report released by rating agency Crisil, the combined operating profits of Indian domestic airlines are expected to fall by 10% to 15% this fiscal year. While the industry recorded operating profits of approximately Rs 19,000 crore in the previous financial year, that figure is now projected to drop to between Rs 16,000 crore and Rs 17,000 crore.

This decline is primarily driven by the inability of airlines to pass on the full extent of rising costs to passengers through higher fares, alongside necessary capacity rationalisation. Even if the Middle East conflict settles, the report suggests that the structural cost increases may linger.

The ATF and Forex Double Whammy

Aviation Turbine Fuel (ATF) remains the most significant variable expense for airlines. Under normal conditions, jet fuel accounts for roughly 40% of operating expenses, but during periods of extreme volatility, this share can skyrocket to nearly 60%. The Middle East conflict pushed global ATF prices more than 50% above pre-conflict levels. Although prices have moderated from a peak of $145 per barrel to below $125, they remain substantially higher than the $90 average seen in the previous fiscal year.

Adding to this burden is the depreciation of the Indian rupee. Since a vast majority of airline expenses—including aircraft leases, maintenance, and fuel—are denominated in foreign currencies, the weakening rupee significantly inflates the cost of operations for Indian carriers.

Rising Lease Costs and Fleet Expansion

While airlines are aggressively expanding their fleets to meet growing demand, this growth comes at a high price. Lease rental expenses are expected to rise by approximately 15% this fiscal, reaching an estimated Rs 27,000–28,000 crore.

Crisil warns that the combination of moderating operating profits and rising lease obligations could weaken the ability of airlines to service these leases through internal accruals alone. While the government’s decision to cap domestic ATF price hikes at 25% (effective from April 1, 2026) provides some long-term cushion, the immediate financial strain remains acute.

Global Context: A Sector in Turbulence

The struggle in India is mirrored globally. The International Air Transport Association (IATA) has also lowered its global airline profit forecasts for 2026. IATA Director General Willie Walsh highlighted that the simultaneous surge in jet fuel prices and flight route disruptions in the Gulf region have created a perfect storm for the industry. Despite these headwinds, passenger demand remains resilient, suggesting that while profitability is under strain, the underlying traffic growth remains strong.

Key Takeaways