Indian Airlines Face Profit Slump Amid Fuel Costs and Geopolitical Tensions

The Indian aviation sector is bracing for a challenging fiscal year as a combination of volatile fuel prices, currency depreciation, and geopolitical instability threatens margins. According to a recent report by Crisil, domestic carriers are expected to see their operating profits decline by 10-15% due to several mounting macroeconomic pressures.

Declining Operating Profits Amidst ATF Volatility

Crisil estimates that the combined operating profit of domestic airlines could drop to between Rs 16,000 crore and Rs 17,000 crore this fiscal year. This marks a significant contraction from the approximately Rs 19,000 crore recorded in the previous financial year.

Aviation Turbine Fuel (ATF) remains the primary culprit behind this squeeze. Under normal circumstances, jet fuel accounts for nearly 40% of an airline's operating expenses, but during periods of extreme market volatility, this share can surge to 60%. The Middle East conflict pushed global ATF prices more than 50% above pre-conflict levels. While prices have moderated from a peak of $145 per barrel to below $125, they remain substantially higher than the $90 average seen in the previous fiscal year.

The Double Whammy: Lease Rentals and Rupee Depreciation

While fuel remains a massive concern, airlines are facing a secondary wave of financial pressure from lease costs and forex fluctuations. As Indian carriers aggressively expand their fleets to meet rising 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 is adding another layer of complexity. Since a major portion of airline expenditures—including aircraft leases, maintenance, and fuel—is denominated in foreign currencies, a weaker rupee directly inflates the cost of operations. This combination of rising lease obligations and moderating profits may weaken the ability of airlines to service their debt through internal accruals.

Global Turbulence and Capacity Constraints

The struggle is not unique to India; the entire global aviation industry is navigating turbulent waters. The International Air Transport Association (IATA) has also lowered its global airline profit forecasts for 2026, citing disrupted flight routes in the Gulf region and unexpectedly high jet fuel costs.

Despite these headwinds, a silver lining exists in the form of resilient passenger demand. While high costs and capacity constraints are expected to keep airfares elevated, the underlying strength in passenger traffic growth offers a potential cushion. Additionally, the Indian government's decision to cap domestic ATF price hikes at 25% starting April 1, 2026, may provide much-needed stability for domestic carriers in the medium term.

Key Takeaways