Soaring Fuel Costs Hit Air India

Air India is cutting international flights sharply due to soaring global oil prices and rising Aviation Turbine Fuel (ATF) costs. Brent crude oil has approached $128 a barrel in early May 2026, levels not seen since 2022, fueled by Middle East tensions and transit route disruptions. This surge has pushed ATF prices in India up 9.2% in April 2026 compared to the previous month and 18.2% year-on-year, greatly increasing operating expenses. Worldwide, fuel makes up 30-40% of airline costs, but for Indian carriers, it can reach 55-60%. This significant cost pressure is leading airlines globally, including Lufthansa, Delta, and Air France-KLM, to reduce capacity, raise fares, and add fuel surcharges.

International Flights Scaled Back

Data shows Air India's international flights dropped by 22% in April 2026 compared to the previous year. The airline expects capacity to decrease by about 20% in May and an additional 7% in June. The deepest cuts are on long-haul routes to North America and Europe. Services from Delhi and Mumbai to Newark and New York are reduced, and flights from Delhi to San Francisco have been cut in half. European routes to Paris, Milan, and Zurich will see 15-20% fewer flights, though London services remain unchanged. CEO Campbell Wilson informed staff that these cuts, extending through July, are necessary because routes are no longer profitable due to airspace issues and high jet fuel prices.

Wider Sector Faces Losses

These changes at Air India mirror a wider crisis in the Indian aviation industry. Ratings agency ICRA has shifted its sector outlook to 'negative' from 'stable,' predicting total net losses of Rs 170-180 billion for FY2026. Losses are growing due to higher fuel costs, geopolitical issues, and a weaker rupee, which raises expenses paid in dollars like aircraft leases. Indian consumers are sensitive to price increases, making it hard for airlines to fully pass on fuel cost hikes. In contrast, Air India Express, another Tata Group airline, is expected to report its first profit since being privatized, thanks to fleet growth and cost management in its low-cost operations.

Expansion Plans Challenged by Costs

These capacity reductions raise questions about the long-term viability of Air India's ambitious expansion plans since its privatization. High fuel costs and geopolitical disruptions, including longer flight paths due to airspace closures, are severely impacting profitability. An internal official stated the airline is "not recovering even the operating cost on most flights." The Federation of Indian Airlines (FIA) has cautioned that service suspensions could occur if cost pressures persist without government support. These financial pressures have led Air India to consider significant cost-saving steps, such as making meals and lounge access optional for business class travelers.

Outlook: Balancing Growth and Costs

Higher airfares, passed on from fuel costs, risk reducing demand, especially from budget-conscious leisure travelers and on less popular routes. Although global oil prices may ease slightly, disruptions are likely to keep prices high through late 2026. Air India is continuing its long-term plans for fleet upgrades and adopting a hub-and-spoke system to improve operations. However, the airline must carefully balance its growth goals with immediate financial stability, meaning more network adjustments and cost controls are expected.