Whalesbook
Rising Costs Force Flight Reductions
Air India's decision to cut at least 100 international flights weekly until July 2026 highlights its severe financial strain. Key long-haul routes, such as Mumbai to New York, are no longer profitable. Jet fuel costs have jumped dramatically, with Brent crude nearing $162 per barrel in early May 2026. Fuel now makes up 40-60% of an airline's total operating expenses.
Adding to the problem, the Indian rupee has weakened to about 95.64 against the US dollar. This increases costs for expenses paid in dollars, like aircraft leases and maintenance. Geopolitical conflicts in West Asia have also closed airspace, leading to longer flights, more fuel use, and higher crew costs. The airline operates around 1,200 flights daily, making it very sensitive to these rising expenses.
Turnaround Faces Major Setback
These flight reductions reflect a dire financial situation. Air India reportedly ended FY26 with losses exceeding ₹22,000 crore, far surpassing earlier forecasts and straining the Tata Group's investment. This comes despite significant spending on fleet modernization and network expansion since the 2022 acquisition.
The crisis adds to the struggles of India's aviation sector, which ICRA predicts will lose ₹17,000-18,000 crore in FY26, leading to a negative industry outlook. Prime Minister Modi's recent call for public frugality and reduced international travel indirectly aligns with the airline's necessity to cut unprofitable routes. The projected loss highlights significant weaknesses in Air India's turnaround strategy, with reliance on volatile fuel prices and the weakening rupee exposing a structural risk.
Competitive Landscape: IndiGo's Challenges
Air India's main domestic rival, IndiGo (InterGlobe Aviation Ltd.), also faces challenges, although its low-cost model provides some advantage. IndiGo's market value is around ₹1.6-1.8 trillion as of May 2026. Its stock trades at a Price-to-Earnings (P/E) ratio of approximately 54.53, much higher than its 10-year average, suggesting a high valuation dependent on future growth.
IndiGo's stock has fallen over 20% in the last year. Its earnings per share (EPS) for FY25 decreased year-on-year, and its net profit in Q3 FY26 also dropped significantly year-on-year, reflecting broader industry pressures from higher costs and operational disruptions. While IndiGo focuses mainly on domestic routes, it also deals with elevated fuel surcharges and operational issues.
Outlook and Path Forward
With fewer international flights, Air India will likely shift its focus to improving domestic operations and controlling costs. This implies prioritizing profitable segments and pausing expansion plans. The airline's success will depend on its ability to navigate sustained high fuel prices, currency fluctuations, and ongoing geopolitical instability.
The broader Indian aviation sector, projected to lose ₹17,000-18,000 crore in FY26, faces a similar uphill battle with subdued traffic growth. Air India's ability to stabilize its finances and regain operational efficiency in this challenging environment will be crucial for the Tata Group's ambitious revival project.