There is nothing certain but the uncertain. This pithy saying currently sums up the state India’s aviation sector finds itself in the early months of 2026. Rating agency ICRA had estimated that the domestic air passenger traffic would grow by 6-8% and touch 175-179 million passengers in 2026-27.
Even as the country awaits the opening of the new Noida International Airport in Uttar Pradesh, a brand new competitor for Delhi International Airport Limited (DIAL), air traffic has taken a beating with escalating tensions in West Asia and airlines in the country find themselves in fire-fighting mode.
2025 wasn’t the best year for the industry, to put it mildly. As a recent ICRA report pointed out the year witnessed a period of modest domestic air passenger traffic growth due to cross-border escalations, weather-related disruptions, travel hesitancy following the June 2025 aircraft accident, the impact on business travel owing to the headwinds stemming from elevated US tariffs and operational disruptions at IndiGo in December 2025. Through most of the year however aviation turbine fuel (ATF) prices and the falling rupees were not predominant worries for the sector.
Now, we can unfortunately add both to the list of woes. At the start of this year, many had hoped that 2026 would be a year of recovery for the sector. Rating agency ICRA had estimated that the domestic air passenger traffic would grow by 6-8% and touch 175-179 million passengers in 2026-27. It had further predicted that international air passenger traffic would grow by 8-10% for the year. Based on those estimates, it had projected that the net loss of the Indian aviation industry would reduce in this year as compared with the previous.
But a more recent update from the agency points out that the closure of the air space over West Asia has already led to a cancellation of 1770 flights in a short period, almost 50 percent of the total international flights for the Indian carriers, which have a higher capacity deployment and hence a bigger dependence on this market. 15-20 percent of the revenue of the larger two airlines (IndiGo and Air India) come from this segment, which is likely to take a sharp knock. A senior management official in Air India Express said that while it was hard to assess the full impact on the bottomline as yet, the crisis had already shaved off 25 per cent from the topline revenue for the carrier in one shot.
A large number of flights are having to take alternative and longer routes, resulting in higher fuel burn (this also implies less cargo and passengers to maintain aircraft weight) and at times refuelling stops, all of which adds to the increased costs. Predictably, the uncertainty over the future oil supply and the present disruptions have led to a spike in crude oil and therefore ATF prices. As this piece went to press, all the airlines had introduced a phased fuel surcharge on domestic and international flights, to mitigate the spiralling rise in oil prices. It is the two bigger carriers that will bear the direct brunt since Akasa has a limited number of flights to the region and SpiceJet in its present dwindled state has none. However, the cost escalations will impact all.
Meanwhile, the authorities in India have swung into action, in a more proactive manner than anticipated. Airlines, particularly in India, are urging the government to reduce excise duty or Goods and Services Tax (GST) on Aviation Turbine Fuel (ATF) to combat rising costs, since fuel accounts for almost 25 percent of total costs. As things stand, the excise duty on fuel varies between 1 to 28 per cent across states, averaging around 11-12% and this can be rationalised. The falling rupee has worsened matters and the airlines are now seeking a closer look at airport, ground handling charges and various royalties which they have to pay. Airline sources say that refinery margins have skyrocketed and that taxes on fuels need to be fixed instead of ad valorem. Ideally, ATF needs to be brought under GST is the consensus view. Tax rationalisation must also be accompanied by withdrawal of the recently introduced surcharge. “This primarily amounts to whether the passenger bears the brunt or the government”, says a senior MOCA official.
The Directorate General of Civil Aviation (DGCA) in India is working with operators to allow extra, non-scheduled, and, in some cases, additional arrival and departure slots. Active airspace rerouting - an alternative route which involves flying over China needs to be prioritised and the government is seized of this. Passengers remain fearful about aircraft safety in the war zones since incidents involving civilian aircraft have been known to occur in the past. Rerouting by managing airspace restrictions and helping carriers, such as permitting the use of alternative airports like Muscat for flights to destinations like Dubai, Abu Dhabi, and Jeddah are already in motion. After facing the music in December post the IndiGo disruption due to flight duty timing limitations, the ministry is also now keeping a close tab on the situation to ensure airfares remain within reasonable limits.
Even as the government looks at ways to mitigate this latest blow to the carriers, many in the sector were of the view that a semi permanent empowered committee under the chairmanship of a Union Cabinet minister, the PM’s Economic Advisory council or the Cabinet secretary was required to be constituted which can at any point deep dive into crisis or external event led situations and suggest quick, temporary and case to case basis solutions. With wars, closure of airspaces and a host of unseen crises looming large every few weeks, running a scheduled airline is becoming less and less of a party. The assurance that such a committee might offer may well be the only comfort that airlines might enjoy in an increasingly uncertain and unstable environment.