Tourism and hospitality take a hit as the regional war drives up costs

Tourism inflows to India dropped by up to 20%, with leisure travel seeing the sharpest impact, as war in the Middle East disrupted flight networks and affected traveler sentiment, according to a PHD Chamber of Commerce and Industry report (pdf).

Why it matters: India’s long-haul air connectivity depends on Gulf carriers and transit hubs, which act as key gateways linking the country to major markets such as North America. Disruptions in these corridors are reducing seat availability and pushing up fares, creating access constraints for inbound travelers even while demand remains intact.

“The ongoing conflict in the Middle East has created immediate operational challenges for India’s aviation sector and the wider tourism ecosystem. Airspace restrictions, rising ATF prices, higher ins. premiums, and disruptions in transit routes through Middle Eastern hubs are beginning to impact international connectivity, travel costs, and tourism flows to India,” Indian Association of Tour Operators President Ravi Gosain said.

The disruption follows a V-shaped recovery for the sector in 2025. The tourism industry — which contributes nearly 8% to India’s GDP and supports over 40 mn jobs — saw its branded hotel inventory near 200k rooms and domestic aviation traffic cross 500k passengers daily before the war introduced fresh volatility earlier this year.

Aviation + hospitality bear the brunt

Airlines are taking the biggest hit: Flight cancellations, airspace closures, and the rerouting of international services have added two to four hours of flying time on routes through the Middle East. With aviation turbine fuel accounting for 35-40% of operating costs, airlines’ profitability is taking a significant hit amid reduced connectivity and surging airfares for consumers.

Margin squeeze hits hospitality and dining: Premium and business hotels that rely heavily on foreign travelers are seeing squeezed margins due to spiking energy and input prices. The dining sector is also under strain, with the National Restaurant Association of India tracking a 10-15% jump in input costs driven by pricier imported ingredients and elevated energy costs.

By the numbers: Around 10% of restaurants have been forced to shutter, resulting in estimated business losses of roughly INR 79 bn per month, the report noted.

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