Indian Airlines Face Profit Slump Amid Rising Fuel and Forex Pressures

The Indian aviation sector is bracing for a challenging fiscal year as geopolitical tensions and currency fluctuations squeeze profit margins. According to a recent report by Crisil, domestic carriers are expected to see a significant decline in operating profits due to a perfect storm of high fuel costs and rising operational expenses.

Operating Profits Set to Decline by 15%

The domestic aviation industry is navigating a period of intense financial pressure. Crisil estimates that the combined operating profit of Indian airlines could drop to between ₹16,000 crore and ₹17,000 crore in the current fiscal year. This represents a notable decline from the approximately ₹19,000 crore recorded in the previous financial year.

While passenger demand remains resilient, airlines are finding it difficult to pass on these rising costs to consumers, leading to a contraction in margins. This trend mirrors global challenges, with the International Air Transport Association (IATA) also lowering its global airline profit forecasts due to similar geopolitical disruptions.

The Heavy Burden of Aviation Turbine Fuel (ATF)

Fuel costs remain the single largest variable in an airline's cost structure. Under normal circumstances, jet fuel accounts for roughly 40% of operating expenses; however, during periods of extreme volatility, this share can surge to nearly 60%.

The conflict in the Middle East has played a decisive role in this volatility, pushing global ATF prices more than 50% above pre-conflict levels. Although prices have moderated from a peak of around $145 per barrel in early June to below $125 currently, they remain significantly higher than the $90 average seen in the previous fiscal year. While a potential resolution to the conflict or the reopening of the Strait of Hormuz could ease these costs, the "new normal" for fuel prices is expected to stay elevated.

Forex Depreciation and Rising Lease Rentals

Beyond fuel, two other major factors are weighing heavily on airline balance sheets: the depreciation of the Indian rupee and rising lease costs.

Because a significant portion of airline expenditures—including aircraft maintenance, fuel, and lease payments—is denominated in foreign currencies, the weakening rupee has intensified cost pressures. Simultaneously, as Indian carriers aggressively expand their fleets to meet growing demand, lease rental expenses are projected to rise by approximately 15%, reaching an estimated ₹27,000–₹28,000 crore this fiscal year. This combination of rising costs and moderating profits may weaken the ability of airlines to service their leases through internal accruals alone.

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