Indian airlines are facing a 10-15% decline in operating profits this fiscal year as elevated aviation turbine fuel (ATF) prices, airspace restrictions, and rupee depreciation — all triggered or worsened by the Middle East conflict — squeeze margins, according to a Crisil report released Wednesday.
Key Profitability Forecast
The rating agency estimated that the combined operating profit of domestic airlines could fall to Rs 16,000–17,000 crore in the current fiscal, down from around Rs 19,000 crore recorded in the previous financial year. Crisil said the impact of higher costs, limited ability to raise fares, and capacity rationalisation would keep pressure on airline profitability despite a possible easing in fuel prices following a potential resolution of the conflict.
| Metric | Previous Fiscal | Current Fiscal (Estimate) | Change |
|---|---|---|---|
| Combined Operating Profit | ~Rs 19,000 crore | Rs 16,000–17,000 crore | -10% to -15% |
| ATF Price (Global) | ~$90/bbl average | >$125/bbl (currently declining from $145) | Elevated |
| Lease Rental Expenses | ~Rs 23,500–24,500 crore | Rs 27,000–28,000 crore | +15% |
Fuel Costs Remain the Biggest Challenge
Fuel costs are the most significant expense for airlines, with jet fuel accounting for nearly 40% of operating expenses under normal conditions. During extreme volatility, this share can rise to nearly 60%, Crisil noted. The Middle East conflict pushed global ATF prices more than 50% above pre-conflict levels, dramatically increasing operating expenses for carriers.
Although global ATF prices have started declining — from around $145 per barrel in the week ending June 5 to below $125 currently — they remain higher than the average of around $90 recorded in the previous fiscal, the report added.
"The surge in global fuel prices following the onset of the conflict has increased the operating cost of airlines significantly. Even with the expected moderation in fuel prices, they will remain above the levels of last fiscal," said Manish Gupta, deputy chief ratings officer at Crisil Ratings. The rating agency said any reopening of the Strait of Hormuz, a crucial global energy route, could provide further relief by easing fuel prices.
Lease Costs and Rupee Depreciation Add Pressure
While lower fuel prices could provide some relief, ongoing fleet expansion by airlines is expected to increase lease rentals, putting additional pressure on their finances. The report said lease rental expenses are expected to rise around 15% to Rs 27,000–28,000 crore this fiscal. The increase, coupled with moderating operating profits, could weaken airlines' ability to service leases through internal accruals.
The depreciation of the rupee has further intensified cost pressures, as a large portion of airline expenses — including fuel, aircraft leases, and maintenance costs — are paid in foreign currencies.
The report noted that the government's decision to cap domestic ATF price hikes at 25% from April 1, 2026, has provided some cushion against the immediate impact of the post-conflict fuel spike.
Global Aviation Sector Also Faces Turbulence
The challenges faced by Indian carriers come amid broader pressure on the global airline industry due to geopolitical disruptions and rising fuel costs. The International Air Transport Association (IATA) has lowered its global airline profit forecast for 2026, citing higher jet fuel prices and disruptions to flight routes due to the Middle East conflict.
IATA director general Willie Walsh said the combination of rising fuel costs and operational disruptions had significantly affected profitability expectations. "There are two major factors: one is the significant increase in jet fuel prices, which has gone way higher than I think anybody would have expected, and then the disruption to the airlines in the Gulf region," he said.
Despite pressure on margins, passenger demand globally remains resilient, with airlines expected to benefit from strong traffic growth. However, higher costs and capacity constraints are likely to keep fares elevated and profitability under strain.
Implications for Freight and Logistics Operations
For freight forwarders and logistics managers, the profit squeeze on passenger airlines has direct implications for belly cargo capacity and pricing. As airlines rationalize capacity to cut costs, the availability of cargo space on passenger flights — which accounts for a significant share of air freight capacity — may tighten. Elevated ATF costs also raise costs for dedicated freighter operators, potentially driving up air cargo rates across major Indian trade lanes. Shippers should monitor capacity announcements from carriers and consider forward booking to mitigate potential rate spikes. The government's ATF price cap provides some predictability, but broader geopolitical risks remain.
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