Indian Airlines Face Profit Slump Amid Fuel Spikes and Forex Volatility

The Indian aviation sector is bracing for a challenging fiscal year as a combination of geopolitical tensions and macroeconomic headwinds threatens bottom lines. A recent report by Crisil suggests that domestic carriers may see their operating profits decline by 10-15 per cent due to rising costs and external pressures.

Rising ATF Costs Weigh Heavily on Margins

Aviation Turbine Fuel (ATF) remains the single most significant variable expense for airlines. Under normal market conditions, jet fuel typically accounts for approximately 40 per cent of an airline's operating expenses; however, during periods of extreme volatility, this share can surge to nearly 60 per cent.

The ongoing Middle East conflict has pushed global ATF prices more than 50 per cent above pre-conflict levels. While prices have moderated from a peak of $145 per barrel in early June to below $125, they remain significantly higher than the $90 average recorded in the previous fiscal year. Crisil estimates that the combined operating profit of domestic airlines could fall to between Rs 16,000–17,000 crore this year, down from the Rs 19,000 crore recorded in the previous financial year.

The Double Blow of Lease Rentals and Rupee Depreciation

Beyond fuel, Indian carriers are grappling with rising capital costs and currency fluctuations. As airlines aggressively pursue fleet expansion to meet growing demand, lease rental expenses are projected to rise by approximately 15 per cent, reaching an estimated Rs 27,000–28,000 crore this fiscal. This increase, coupled with shrinking operating profits, may weaken the ability of airlines to service these leases using only internal accruals.

Compounding these issues is the depreciation of the Indian rupee. Since a massive portion of airline expenditures—including aircraft leases, maintenance, and fuel—is denominated in foreign currencies, the weaker rupee has intensified the cost burden on domestic operators.

Global Turbulence and Resilience in Demand

The struggle is not unique to India; the International Air Transport Association (IATA) has also lowered its global airline profit forecasts for 2026. IATA Director General Willie Walsh pointed to the significant increase in jet fuel prices and operational disruptions in the Gulf region as primary drivers of this global slowdown.

Despite these financial strains, there is a silver lining in passenger behavior. Global and domestic demand for air travel remains resilient, with strong traffic growth expected to continue. While high costs and capacity constraints may keep ticket fares elevated, the primary challenge for airlines will be managing the squeeze between rising operational costs and the limited ability to pass those costs entirely onto the consumer.

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