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 bottom lines. A recent report by Crisil suggests that domestic carriers are set to witness a significant contraction in operating profits due to rising costs and currency depreciation.

Profitability Outlook: A 15% Projected Decline

Domestic airlines are expected to see their combined operating profits drop by 10% to 15% in the current fiscal year. According to Crisil, the sector's total operating profit is projected to fall to between ₹16,000 crore and ₹17,000 crore, down from the approximately ₹19,000 crore recorded in the previous financial year.

This downward trend is driven by a "perfect storm" of high Aviation Turbine Fuel (ATF) prices, airspace restrictions caused by regional conflicts, and the weakening of the Indian rupee. While a resolution to the Middle East conflict might offer some relief, the report suggests that the ability to raise passenger fares to offset these costs remains limited.

The ATF Burden and Geopolitical Impact

Fuel remains the single most significant variable in airline economics. Under normal circumstances, jet fuel accounts for nearly 40% of an airline's operating expenses; however, during periods of extreme market volatility, this share can surge to as high as 60%.

The conflict in the Middle East pushed global ATF prices more than 50% above pre-conflict levels. Although prices have moderated from a peak of roughly $145 per barrel seen in early June to below $125, they remain significantly higher than the $90 per barrel average recorded last fiscal year. Manish Gupta, Deputy Chief Ratings Officer at Crisil Ratings, noted that even with moderation, fuel costs will remain elevated compared to previous periods.

Rising Lease Costs and Rupee Depreciation

Beyond fuel, Indian carriers are facing intensified pressure from two other financial fronts: lease rentals and foreign exchange volatility.

As airlines aggressively expand their fleets to meet growing demand, lease rental expenses are expected to climb by approximately 15%, reaching an estimated ₹27,000–₹28,000 crore this fiscal. This rise in fixed costs, coupled with shrinking margins, may weaken the ability of airlines to service their leases through internal accruals.

Furthermore, the depreciation of the rupee has added a layer of complexity. Since a massive portion of airline expenditures—including fuel, aircraft maintenance, and lease payments—are denominated in foreign currencies, the weakening rupee directly inflates the cost of operations for Indian carriers.

Global Context and Resilience

The struggle is not unique to India. The International Air Transport Association (IATA) has also lowered its global airline profit forecasts for 2026, citing the same dual pressures of high jet fuel prices and flight route disruptions in the Gulf region. Despite these headwinds, passenger demand remains remarkably resilient, providing a silver lining of strong traffic growth even as profitability remains under strain.

Key Takeaways