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. According to a recent report by Crisil, domestic carriers are expected to see their operating profits decline by 10-15 per cent due to rising operational costs.

The Heavy Burden of Aviation Turbine Fuel (ATF)

Fuel remains the single largest variable expense for Indian airlines, typically accounting for 40% of operating costs under stable conditions. However, during periods of extreme market volatility, this share can skyrocket to nearly 60%.

The ongoing conflict in the Middle East has pushed global ATF prices more than 50% above pre-conflict levels. While prices have moderated from a peak of approximately $145 per barrel in early June to below $125, they remain significantly higher than the previous fiscal year's average of $90 per barrel. Manish Gupta, Deputy Chief Ratings Officer at Crisil Ratings, noted that even with expected moderation, fuel costs will remain elevated compared to last year, keeping margins under constant pressure.

Forex Depreciation and Rising Lease Rentals

Beyond fuel, Indian carriers are fighting a two-front battle against currency depreciation and fleet expansion costs. Because a vast majority of airline expenses—including aircraft maintenance, fuel, and leasing—are denominated in foreign currencies, the weakening of the Indian rupee has intensified cost pressures.

Simultaneously, the aggressive fleet expansion strategies adopted by domestic players are driving up lease expenses. Crisil estimates that lease rental expenses will rise by approximately 15%, reaching between Rs 27,000 crore and Rs 28,000 crore this fiscal year. This surge in fixed costs, combined with moderating operating profits, could potentially weaken the ability of airlines to service their leases through internal accruals.

A Global Trend of Sectoral Turbulence

The struggle for Indian airlines mirrors a broader global trend. The International Air Transport Association (IATA) has also lowered its global airline profit forecast for 2026, citing similar disruptions in the Gulf region and unpredictable jet fuel costs.

While passenger demand remains resilient globally, providing a silver lining through strong traffic growth, the industry is caught in a squeeze. The combination of higher operational expenses and capacity constraints is likely to keep airfares elevated, even as airlines struggle to maintain profitability.

Key Takeaways