Middle East Conflict Impact on Airline Profits: Report Predicts 10-15% Decline Due to Rising ATF Costs and Rupee Pressure
Operating profits for Indian airlines are projected to decline by 10-15% in the current fiscal year, according to a report by Crisil. The report attributes this downturn to rising aviation turbine fuel (ATF) prices, airspace restrictions, and the depreciation of the rupee amid ongoing conflicts in the Middle East. Crisil estimates that the combined operating profit for domestic airlines could fall to between Rs 16,000 and Rs 17,000 crore, down from approximately Rs 19,000 crore in the previous financial year.
ATF Prices Remain Key Challenge for Airlines
Fuel costs are the primary concern for airlines, with jet fuel typically accounting for nearly 40% of operating expenses. During periods of volatility, this figure can escalate to 60%. The ongoing Middle East conflict has pushed global ATF prices over 50% higher than pre-conflict levels, significantly increasing operational costs for airlines. Although global ATF prices have recently declined from around $145 per barrel to below $125, they still exceed the average of approximately $90 recorded in the previous fiscal year. Manish Gupta, deputy chief ratings officer at Crisil Ratings, noted that even with a potential easing in fuel prices, they will remain elevated compared to last fiscal year.
Lease Costs, Rupee Depreciation Add Pressure
While a decrease in fuel prices could offer some relief, airlines are facing rising lease costs due to ongoing fleet expansions. Crisil forecasts that lease rental expenses will increase by about 15%, reaching Rs 27,000-28,000 crore this fiscal year. This rise, combined with declining operating profits, may hinder airlines’ ability to meet lease obligations through internal accruals. Additionally, the depreciation of the rupee exacerbates cost pressures, as many airline expenses, including fuel and aircraft leases, are denominated in foreign currencies. The government’s decision to cap domestic ATF price hikes at 25% from April 1, 2026, has provided some buffer against the immediate impact of rising fuel costs.
Global Aviation Sector Also Faces Turbulence
The challenges confronting Indian airlines are mirrored in the global aviation sector, which is also grappling with geopolitical disruptions and escalating fuel costs. The International Air Transport Association (IATA) has revised its global airline profit forecast for 2026, citing higher jet fuel prices and disruptions to flight routes stemming from the Middle East conflict. IATA director general Willie Walsh emphasized that the combination of soaring fuel prices and operational disruptions has significantly impacted profitability expectations. Despite these challenges, global passenger demand remains robust, with airlines anticipated to benefit from strong traffic growth. However, elevated costs and capacity constraints are likely to keep fares high and profitability under pressure.
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