Beyond Air India’s losses: Why Indian airlines are struggling more than others, and sounding the alarm

analysis Asia

Beyond Air India’s losses: Why Indian airlines are struggling more than others, and sounding the alarm

Indian carriers are facing a sharper squeeze than many global peers as fuel costs, airspace disruptions, currency weakness and limited hedging leave them with little room to absorb shocks, say analysts.

SINGAPORE: The news last Thursday (May 14) of Air India’s losses doubling to more than US$2 billion in the latest financial year has raised questions over the mounting pressure on the sector, coming two weeks after India’s aviation trade body sounded an SOS to the government.

On Apr 26, the Federation of Indian Airlines (FIA), comprising Air India, IndiGo and SpiceJet, wrote to the government warning of severe financial stress driven by rising fuel costs and prolonged flight routes amid tensions in the Middle East. It sought a return to COVID-19 era cost caps on aviation turbine fuel (ATF) and a reduction or deferment in taxes.

Indian airlines are not the only carriers facing strain from the war in the Middle East. Southeast Asian low-cost carriers have cut roughly 20 per cent of flights compared to pre-crisis levels, or around 4 million fewer passengers per month, an analyst noted on May 18.

Yet apart from them, only the now-defunct Spirit Airlines, Frontier Airlines and Avelo Airlines in the United States and Nigerian airline operators have sought government intervention, according to Reuters and The Wall Street Journal reports.

Why are Indian airlines sounding an SOS when carriers across the world are dealing with the same war, the same fuel shock and the same uncertain skies?

IS INDIA MORE EXPOSED THAN GLOBAL PEERS?

Indian carriers have less room to absorb shocks, analysts said.

Fuel is the biggest pressure point. Indian airlines are more exposed to ATF costs than many global peers because jet fuel forms a larger share of their operating costs and is taxed more heavily in India, they said.

The FIA noted that ATF, after the Middle East shock, accounts for 55 to 60 per cent of operating expenses for Indian airlines, said Mayur Patel, regional commercial and industry affairs leader – Asia Pacific, Middle East and Africa, global travel data provider OAG.

That is structurally higher than many of its global peers, which is around 20 to 30 per cent of their expenses, said analysts.

Kinjal Shah, senior vice-president and co-group head at credit ratings agency ICRA, told CNA the Indian aviation industry is characterised by “high operating costs, intense competition and limited pricing power”, which constrains airlines’ ability to generate sustainable returns.

Those pressures have worsened with higher ATF prices, geopolitical disruptions and currency depreciation.

The disruptions include Pakistan’s ban on Indian carriers from its airspace since April 2025 and restrictions across the Middle East countries like Iran, Saudi Arabia, and other Gulf states, which have squeezed some of the busiest corridors linking India with Europe and North America.

At the same time, a weaker rupee has made dollar-linked costs such as fuel, aircraft leases and maintenance more expensive, even as most airline revenue is earned in rupees.

The Indian rupee has depreciated by about 6 per cent against the US dollar since the Middle East war began. The rupee has weakened as higher oil prices raised India’s import bill, while foreign investors pulled money from Indian stock markets amid global uncertainty and pressure from a stronger US dollar.

India’s airlines have asked state-run oil refiners to hold off jet-fuel price hikes for domestic flights until the Middle East conflict ends, Bloomberg reported on Tuesday (May 19), citing sources.

The refiners are reportedly considering the request.They have been selling jet fuel for domestic flights at about 105,000 rupees (US$1,086) per 1,000 litres, incurring a loss of 92,000 rupees for every 1,000 litres, sources told Bloomberg.

A recent ICRA report said ATF prices in India rose 18.2 per cent year-on-year and 9.2 per cent in April 2026 from a month earlier.

However, in comparison, the global average jet fuel price rose by almost 99 per cent, between the week ending Feb 27 and Apr 10, according to IATA-linked data cited by Cathay Pacific.

The reason for lower fuel jet fuel hikes in India is its Ministry of Civil Aviation capping domestic ATF price increases at 25 per cent per month.

However, while domestic fuel increases have been moderated by the government, there is no cap for international-route fuel for Indian carriers.

Despite the cushioning of domestic fuel prices, Indian airline companies have been feeling the pressure.

The fuel shock has exposed a gap in risk management by Indian carriers, analysts said. Many international carriers were able to absorb the initial jump in jet fuel prices because they had hedging programmes in place, said Patel.

Fuel hedging allows airlines to lock in future fuel purchases at pre-agreed prices, giving them some protection when market prices suddenly spike.

“(Hungarian carrier) Wizz Air, for example, had hedged 83 per cent of its jet fuel needs through March 2026 at between US$681 to US$749 per metric tonne, with 55 per cent coverage for the following year, giving it a meaningful buffer against the initial price spike. Singapore Airlines and Cathay Pacific operate a similarly disciplined multi-year rolling hedge programme,” said Patel.

Singapore’s low-cost carrier Scoot too had fuel hedges in place when the Middle East crisis hit, resulting in temporarily lower fuel costs.

Indian carriers, by contrast, absorbed most of the increase directly, Patel added.

He said it reflected a “lack of preparation”, though there were structural reasons why Indian airlines have historically not done such programmes.

They include overseas hedging instruments requiring regulatory approvals, and capital constraints as the airlines often lack the cash or treasury capacity to post as collateral and manage margin calls – a demand for additional fund