Domestic airlines are expected to see their operating profit decline by 10–15 per cent in FY2026-27 as higher aviation turbine fuel (ATF) prices, airspace restrictions and rupee depreciation increase operating costs, according to a report by Crisil Ratings.
The ratings agency estimates that the aggregate operating profit of domestic airlines will moderate to INR 16,000–17,000 crore this fiscal, compared with approximately INR 19,000 crore in the previous financial year.
The pressure on profitability follows a sharp increase in global ATF prices after the outbreak of the West Asia conflict. According to Crisil, average ATF prices rose by more than 50 per cent compared with pre-conflict levels. While prices have eased from around USD 145 per barrel in early June to below USD 125 per barrel currently, they remain significantly higher than the average of approximately USD 90 per barrel recorded last fiscal.
Fuel remains the single largest operating expense for airlines, accounting for nearly 40–50 per cent of total operating costs. Although the Government of India’s decision to cap domestic ATF price increases at 25 per cent from April 2026 has provided some relief, fuel costs are expected to remain elevated through the fiscal year.
The situation has been compounded by the depreciation of the Indian rupee, as major airline expenses, including fuel, aircraft lease rentals and maintenance costs, are largely denominated in foreign currencies.
Manish Gupta, Deputy Chief Ratings Officer, Crisil Ratings Limited, said: “The surge in global fuel prices following the onset of the conflict has increased the operating cost of airlines significantly. Even with the expected moderation in fuel prices, they will remain above the levels of last fiscal. Coupled with currency-related pressures, this will push up the overall cost per available seat kilometre (CASK, excluding forex) to INR 4.8–5.0 per km this fiscal from INR 4.3 per km last fiscal, thereby weighing on overall profitability.”
To offset rising costs, airlines have introduced fuel surcharges, which are expected to increase revenue per available seat kilometre (RASK) to INR 5.2–5.4 per km this fiscal, compared with INR 4.9 per km last year. However, Crisil noted that the pass-through remains limited due to price-sensitive demand.
Airlines are also expected to rationalise routes and moderate capacity growth, particularly on international sectors affected by airspace restrictions and longer flying times.
At the same time, the sector continues to pursue fleet expansion. Crisil estimates that domestic carriers will add 90–100 aircraft this fiscal, resulting in a nearly 15 per cent increase in lease rental expenses to INR 27,000–28,000 crore.
Gautam Shahi, Senior Director, Crisil Ratings Limited, said: “Domestic airlines are facing cost pressures while pursuing significant fleet expansion. Along with lower operating profitability, this can weaken coverage of lease service obligations. Strong parentage, liquidity buffers, availability of credit under ECLGS 5.0 and the recent launch of the ATF price stabilisation fund by the Government of India should, however, help them navigate the current turbulence.”
Crisil noted that a quicker resolution of the West Asia conflict and a sharper decline in fuel prices could support profitability, while prolonged geopolitical disruptions and elevated crude prices may create additional pressure on airline earnings
