Operating profits of Indian airlines are expected to decline by 10 to 15 percent in the current fiscal year, according to a Crisil report released on Wednesday. The rating agency attributed this dip to elevated aviation turbine fuel (ATF) prices, airspace restrictions, and the depreciation of the rupee, all exacerbated by the ongoing Middle East conflict.
Profit Estimates and Key Challenges
Crisil estimated that the combined operating profit of domestic airlines could fall to between Rs 16,000 crore and Rs 17,000 crore in the current fiscal, down from approximately Rs 19,000 crore recorded in the previous financial year. The agency highlighted that higher costs, limited ability to raise fares, and capacity rationalization would continue to pressure airline profitability, even if fuel prices ease following a potential resolution of the Middle East conflict.
Fuel Costs Remain a Major Concern
Fuel costs are the biggest challenge for airlines, with jet fuel typically accounting for nearly 40 percent of operating expenses. During periods of extreme volatility, this share can rise to nearly 60 percent. The Middle East conflict pushed global ATF prices more than 50 percent above pre-conflict levels, significantly increasing operating expenses. Although global ATF prices have declined from around $145 per barrel in early June to below $125 currently, they remain higher than the average of about $90 recorded in the previous fiscal.
Manish Gupta, deputy chief ratings officer at Crisil Ratings, said, "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." The rating agency noted that 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 offer some relief, ongoing fleet expansion by airlines is expected to increase lease rentals, putting additional pressure on finances. The report said lease rental expenses are expected to rise around 15 percent to Rs 27,000-28,000 crore this fiscal. This 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 percent 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. He noted two major factors: the significant increase in jet fuel prices, which went higher than expected, and the disruption to airlines in the Gulf region.
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.
