'High Fuel Costs and Weak Rupee Are Squeezing Airline Profits': Aviation Expert

Aviation expert Harsh Vardhan said that India's aviation industry may incur losses in FY25-FY26 due to high fuel costs.

By Surabhi Gupta

New Delhi: The Indian aviation industry is bracing for financial difficulties over the next two years, with projected net losses estimated between Rs 2,000 crore and Rs 3,000 crore for both FY25 and FY26, as highlighted in a recent ICRA report. This follows a net profit of Rs 1,600 crore in FY24, indicating a notable transition from profitability to financial challenges.

Why Are Airlines Facing Losses?

A primary factor contributing to these anticipated losses is the pressure on ticket pricing. Airlines are striving to maintain a high passenger load factor (PLF), aiming for full flights. However, the persistent high prices of aviation turbine fuel (ATF) are driving up operational costs. Fuel expenses represent a substantial portion of an airline's overall costs, and any rise in fuel prices has a direct effect on their earnings.

Another significant hurdle is the increasing cost of borrowing. As airlines expand their fleets, they need to lease new aircraft, resulting in higher lease payments and elevated interest expenses, which complicates their ability to remain profitable.

Expert Weighs In

Aviation expert Harsh Vardhan shared his insights with ETV Bharat, highlighting the major financial hurdles faced by airlines. "The Indian aviation industry suffers from high operational costs, making profitability difficult. Fuel costs in India are the highest in the world. Even when global fuel prices drop, Indian airlines do not see a similar reduction in fuel expenses. Another big challenge is the rising value of the dollar against the Indian rupee. Almost 40% of an airline's expenses are dollar-denominated, which includes fuel, aircraft leasing, and maintenance costs. The weakening rupee increases costs significantly, and since the industry operates on thin margins, any increase in costs directly impacts profitability," Vardhan said.

He further explained the struggles with ticket pricing, saying "Airlines are in a tough spot. If they increase ticket prices, fewer people will book flights, reducing overall passenger traffic. However, keeping fares low to attract passengers means airlines struggle to cover their rising costs. This leaves the industry on shaky financial ground."

He emphasised the need for government intervention, saying, "The government must take steps to link fuel prices for the aviation sector with international rates. Currently, fuel prices rise immediately when global prices go up, but airlines do not benefit when global prices fall. Unless the government reduces fuel costs, the aviation industry will continue to suffer."

Comparison With Previous Years

While the aviation sector is projected to incur losses in FY25 and FY26, the financial outlook is an improvement compared to prior years.

• In FY22, the industry faced staggering losses of Rs 23,500 crore.
• In FY23, losses amounted to Rs 17,400 crore.
• The anticipated losses of Rs 2,000-3,000 crore in the upcoming years are considerably lower in comparison.

Debt Situation & Industry Stability

Despite these financial pressures, the aviation sector is expected to keep its debt levels stable. The ICRA report suggests that the interest coverage ratio (which assesses how easily airlines can meet interest payments on their debt) is likely to remain between 1.5 and 2.0 times in FY25. This implies that airlines should still be capable of managing their debt repayments, even if the recovery of profits is gradual.

A Positive Sign: Rising Passenger Traffic

One bright spot for the aviation industry is the strong growth in domestic air passenger traffic. In January 2025, passenger numbers increased by 14.5% year-on-year. Air travel demand also surpassed pre-COVID levels by nearly 17.9%. This shows that despite rising ticket prices and economic challenges, more people are choosing to fly. A steady increase in air travel demand could help airlines stabilise their finances in the future.

What Lies Ahead?

The short-term outlook for Indian airlines remains challenging, but there are signs of hope. While airlines will struggle with high fuel costs, weak currency exchange rates, and rising expenses, the growing number of air travellers offers some relief. Experts suggest that if airlines manage ticket pricing, fuel expenses, and debt carefully, they may gradually recover financial stability in the coming years.