Indian Airlines Face Profit Slump Amid Fuel Volatility and Forex Pressures

The Indian aviation sector is bracing for a challenging fiscal year, with operating profits expected to contract by 10% to 15%. A recent report by Crisil highlights how a combination of geopolitical tensions, rising fuel costs, and currency depreciation is squeezing the margins of domestic carriers.

The ATF Factor: Fuel Costs Surge Amid Middle East Conflict

Aviation Turbine Fuel (ATF) remains the single largest variable expense for airlines, typically accounting for 40% of operating costs. However, during periods of extreme market volatility, this share can escalate to nearly 60%. The ongoing conflict in the Middle East has pushed global ATF prices more than 50% above pre-conflict levels, significantly inflating the cost of flying.

While global ATF prices have moderated from a peak of approximately $145 per barrel in early June to below $125 currently, 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 drop to between Rs 16,000 crore and Rs 17,000 crore this year, down from the Rs 19,000 crore recorded in the previous financial year.

Rising Lease Rentals and Rupee Depreciation

Beyond fuel, Indian carriers are grappling with two other major financial headwinds: rising lease costs and a weakening rupee. As airlines aggressively expand their fleets to meet growing demand, lease rental expenses are projected to rise by approximately 15%, reaching an estimated Rs 27,000–28,000 crore this fiscal.

The depreciation of the Indian rupee further exacerbates the situation. Because essential expenses—including fuel, aircraft leases, and maintenance—are largely denominated in foreign currencies, a weaker rupee directly inflates the cost of operations. The convergence of moderating operating profits and rising lease obligations may weaken the ability of airlines to service these leases through internal accruals alone.

Global Turbulence and Capacity Constraints

The struggles of Indian domestic carriers are not isolated; they mirror a broader trend in the global aviation industry. The International Air Transport Association (IATA) has also lowered its global airline profit forecast for 2026, citing flight route disruptions in the Gulf region and unexpected spikes in jet fuel prices.

While passenger demand remains resilient across the globe, airlines face a difficult balancing act. Higher operating costs and capacity constraints are likely to keep airfares elevated, which may help offset some costs but could also limit the ability of carriers to aggressively capture market share without further straining profitability.

Key Takeaways

• Profit Contraction: Domestic airline operating profits are projected to fall by 10-15%, potentially landing between Rs 16,000-17,000 crore this fiscal.
• Triple Threat: Airlines are facing a simultaneous squeeze from high ATF prices, a 15% rise in lease rental expenses, and the impact of rupee depreciation on foreign-denominated costs.
• Fuel Volatility: Although global fuel prices are cooling from their recent peaks, they remain well above the $90 per barrel average seen in the previous financial year.