Flight Cuts Driven by Fuel Costs

Air India is significantly reducing its flight schedule, grounding around 100 flights daily. This move is a direct response to the sharp increase in jet fuel prices. The cuts, which represent nearly 10% of its daily schedule, will most affect services to Europe, North America, Australia, and Singapore starting in June. Airline management has stated that current operations are not covering costs, warning that sustained price hikes will force further reductions. Global average jet fuel prices have jumped dramatically, reaching $179.46 per barrel in the week ending April 24, an 80% increase from $99.40 at the end of February. Fuel costs now account for up to 40% of an airline's operating expenses, severely impacting profitability and leading to higher ticket prices. In Delhi, the cost of jet fuel has reportedly doubled since March.

Broader Pressures and Route Disruptions

The Federation of Indian Airlines (FIA), which includes major carriers like IndiGo, Air India, and SpiceJet, has issued strong warnings about potential service suspensions if the government does not intervene. While the Indian government reduced domestic jet fuel prices in early April, no similar relief was offered for international routes, increasing financial strain on airlines. Globally, the airline industry expects profitability to stabilize by 2026, with projected net profits of $41 billion on revenues near $1.1 trillion. However, this forecast also points to a static net profit margin of 3.9%, indicating that even record earnings provide thin returns for an industry facing significant challenges. These challenges include ongoing supply chain issues, geopolitical conflicts causing airspace closures, and increasing regulatory burdens. For example, the closure of Pakistani airspace has forced Air India and other airlines onto longer, more fuel-intensive routes to Europe and North America. These routes often require costly stopovers in cities like Vienna or Stockholm. This geopolitical situation alone can add up to four hours to flight times and greatly increase operational costs. In 2019, a similar airspace closure led to an estimated loss of ₹700 crore for Indian airlines due to higher fuel expenses and operational complexity. In contrast, IndiGo, the market leader with over 63% of the market share, maintained strong profitability with a profit before tax of ₹7,587.5 crore in fiscal year 2025. SpiceJet, however, reported a loss of ₹58.1 crore in the same period.

Long-Term Financial Challenges

Air India's current difficulties are compounded by a long history of financial distress. The airline accumulated losses exceeding ₹20,000 crore in fiscal year 2026. Before its acquisition, it faced billions of dollars in losses, including a debt of ₹426 billion by March 2011. The Tata Group acquired Air India in 2022, taking on ₹15,300 crore of its debt. Despite substantial capital infusions, including over ₹9,500 crore in fiscal year 2024-25 from Tata Sons and Singapore Airlines, the airline's losses continue to grow. Projections suggest a pre-tax loss of ₹9,568.4 crore for Tata Group carriers in fiscal year 2025. Tata Sons itself is facing increased financial pressure, with 31 subsidiaries operating at a loss and total debt rising to ₹3.46 lakh crore in fiscal year 2025. Air India and Tata Digital are the largest contributors to these unlisted subsidiary losses. The Federation of Indian Airlines has proposed immediate relief measures. These include a temporary suspension of the 11% excise duty on Aviation Turbine Fuel (ATF), reintroducing a 'crack band' pricing mechanism, and reducing VAT. However, these steps have not yet provided sufficient relief. India's current tax structure, with an 11% excise duty and high state VAT, makes ATF one of the most expensive globally, often 70-80% pricier than at hubs like Dubai and Singapore. The difference between domestic and international fuel pricing adds further complexity, with international routes seeing higher cost increases. Air India's extensive international operations, a strategic asset, now represent a significant vulnerability due to these high costs and geopolitical route disruptions.

Outlook for Indian Aviation

While the global airline industry is expected to see stable profits by 2026, the Indian aviation sector faces a more challenging outlook, with ICRA revising its industry forecast to negative. Rising fuel costs, a weakening rupee, and ongoing geopolitical disruptions are key concerns. Air India's projected losses exceeding ₹20,000 crore for fiscal year 2026 highlight the significant challenges ahead, even with recent capital infusions. Analysts remain cautious, watching how financially strong carriers like IndiGo navigate these difficult conditions compared to those with more debt. The industry's reliance on increased fares and surcharges, such as Air India's distance-based domestic charges and adjusted international rates, could also reduce passenger demand. The continued volatility in fuel prices and geopolitical tensions suggest that current operational cuts and financial pressures are likely to persist, requiring ongoing strategic adjustments and potentially more consolidation within the Indian aviation market.