Indian airlines warn of operational collapse as fuel costs soar

Indian carriers are warning that another jump in jet fuel prices could force them to suspend operations as the Iran war feeds into fuel-market volatility and adds to already high operating costs, Bloomberg reports.

“The airline industry in India is under extreme stress and on the verge of closing down or of stopping its operations,” the Federation of Indian Airlines (FIA), which represents domestic airlines IndiGo, Air India, and SpiceJet, warned the Civil Aviation Ministry in a letter, as per the business news service.

What they’re asking for: The FIA has asked the aviation ministry to implement pandemic-era price caps and a tax relief to offset the rising costs, warning that a further hike in jet fuel could result in aircraft being grounded and flights being cancelled.

Current relief measures are falling short: While the government has capped monthly increases in domestic jet fuel prices at 25% and reduced landing and parking charges for a limited period, the airlines are exhausting their liquidity, given the disruptions in Gulf hubs such as Dubai.

War disruptions: Over 10k flights operated bythe Indian carriers were cancelled during the war, and full services have not resumed despite the ceasefire. Operating flights were forced to take longer routes during the war, adding to the cost pressures.

The pricing problem: While India produces enough jet fuel domestically, the prices are still calculated as if the fuel were imported from the Gulf region, with notional freight, ins., and customs levies factored in. The airlines are anticipating a further hike in jet fuel prices as crude prices remain elevated.

Tata Group-owned Air India is among the worst affected, recording a INR 220 bn (USD 2.4 bn) annual loss in FY 2026 (ending March 31). The airline has asked for a financial lifeline from its shareholders. India’s largest carrier, Indigo, also had a rough time recently after the aviation regulator forced the airline to cut 10% of its scheduled flights due to widespread cancellations.

Our take: Given the challenges faced by Indian airlines in recent months, their expansion in Gulf aviation hubs is likely to take a major hit. Both Air India and Indigo had benefited from India’s bilateral seat quotas with the GCC nations to expand their operations in the region at the expense of Gulf carriers. Mounting losses and higher input costs are likely to tame their ambitious plans to capture the market share along the India-Gulf aviation corridor.