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 shifts threatens to squeeze profit margins. 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 costs and external pressures.

The Growing Burden of Aviation Turbine Fuel (ATF)

Fuel costs remain the single most significant variable in airline profitability. Under normal operating conditions, jet fuel typically accounts for approximately 40% of an airline's total operating expenses; however, during periods of extreme market volatility, this share can surge to nearly 60%.

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

Lease Costs and Rupee Depreciation Tighten the Screws

Beyond fuel, Indian airlines are grappling with two other critical financial headwinds: rising lease rentals and a weakening rupee. As domestic carriers 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.

Furthermore, the depreciation of the Indian rupee has intensified the cost of doing business. Since a vast majority of aviation expenses—including fuel, aircraft maintenance, and lease payments—are denominated in foreign currencies, the weaker rupee directly inflates the cost of operations. This combination of rising outflows and moderating operating profits may weaken the ability of airlines to service their leases through internal accruals alone.

Global Turbulence and the Outlook for Profits

La lucha no es exclusiva de la India; la Asociación Internacional de Transporte Aéreo (IATA) también ha rebajado sus previsiones de beneficios globales para las aerolíneas para 2026. La IATA señala un "doble golpe" de precios de combustible para aviones significativamente más altos e interrupciones operativas en la región del Golfo.

A pesar de estos vientos en contra, la demanda de pasajeros sigue siendo notablemente resistente. Si bien es probable que las limitaciones de capacidad y los altos costes mantengan elevadas las tarifas aéreas para los viajeros, la principal preocupación de los actores del sector sigue siendo la estabilización de los beneficios netos. Para las aerolíneas indias, se estima ahora que el beneficio operativo combinado caerá hasta situarse entre los 16.000 y 17.000 crore de rupias, frente a los 19.000 crore de rupias registrados en el ejercicio anterior.

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