Whalesbook
Capacity Cuts Expected to Raise Fares
Air India is reportedly considering a significant reduction in its flight schedule. This could mean cuts of 15-20% on its standalone operations, leading to over 100 daily flights being reduced across the Air India Group. This plan follows a significant Rs 22,000 crore loss for fiscal year 2026. The airline's finances have been hit hard by ongoing operational challenges, including high aviation fuel costs and disruptions from geopolitical issues, such as those in the Middle East and the closure of airspace over Pakistan.
Industry experts expect these planned reductions to lead to less available capacity, especially as the peak travel season nears. Domestic airfare caps were removed earlier in 2026. Combined with fewer flights—around 3,000 fewer domestic flights weekly are planned for the upcoming summer schedule, a 12% decrease—this is expected to cause significant fare increases. Domestic airfares have already risen sharply, up 43% in the first half of 2024 compared to 2019. Air India's planned cuts are likely to worsen this trend, making air travel harder to afford for more people.
International Routes to See Biggest Reductions
International services are expected to face the biggest reductions. Airlines are struggling with lower profitability on routes due to rising fuel expenses, longer flight times, and increased crew costs for long-haul trips to Europe and North America. These longer flight durations have reduced efficiency and hurt financial results. Although the airline calls this "network optimization," it signals a scaling back of ambitious expansion plans due to unsustainable cost pressures. A final decision on these cuts is expected after a board meeting in early May.
Competitors May Benefit from Air India's Struggles
These operational cutbacks by Air India come as the Indian aviation sector faces a difficult market. ICRA has issued a cautionary outlook for the industry, pointing to geopolitical issues, falling currency values, and rising fuel costs as major concerns. The dominant airline, IndiGo, holds a large market share of over 60% and has a stronger financial position, with a price-to-earnings ratio between 39.6 and 55.92 as of April 2026. As a low-cost carrier with strong operational efficiency and significant capacity, IndiGo is well-placed to benefit from any gap in capacity left by struggling airlines. Meanwhile, SpiceJet is in serious financial trouble, showing negative equity, a negative P/E ratio, and significant debt. Akasa Air, though growing fast, is still in its growth stage, focusing on building its operational and financial strength. The difficulties faced by Air India, which has had massive losses despite large investments from the Tata Group and Singapore Airlines since its acquisition, highlight industry-wide cost pressures and a competitive disadvantage against more efficient operators.
Persistent Losses and Structural Issues for Air India
Air India's capability to achieve steady profits is a major concern, even with the Tata Group in charge. The record losses for FY26, almost double the previous year's, point to long-standing operational problems and the severe effect of external events, including airspace closures and a fatal Boeing 787 Dreamliner crash in June 2025. Uncertainty around leadership, with CEO Campbell Wilson announcing his departure, further complicates the airline's turnaround efforts. The airline has also received poor ratings in recent safety audits. Despite plans for fleet expansion, Air India has struggled to improve customer experience or increase ticket revenue, vital for long-term financial health. The ongoing need for funding from its shareholders, Tata Group and Singapore Airlines, shows its balance sheet still depends heavily on outside support rather than profit from operations. This reliance on funding, alongside possible shortfalls in planned investments, raises questions about the long-term success of its turnaround plan when competing against more flexible competitors.
Outlook: Navigating High Costs and Market Challenges
The Indian aviation market is expected to grow, potentially reaching USD 45.59 billion by 2034. However, the current market faces many challenges. High jet fuel prices, driven by global conflicts, and weakening currencies continue to squeeze airline profits. While government action has partially protected domestic airlines from the full impact of fuel price increases, international routes and charter operations will face the full brunt of rising costs. Air India's upcoming board meeting will be important for deciding the airline's future path, including the scale of capacity adjustments needed for a carrier that remains a major loss-maker despite its strategic value.