Iran-Israel war makes jet fuel 6% more expensive in March:Rupee depreciation impacts Indian airlines’ profits

The Indian aviation industry is once again going through a difficult phase. The surge in Aviation Turbine Fuel (ATF) prices, falling rupee against the dollar, and ongoing tension in the Middle East have increased pressure on airlines’ profitability. Although there has been relief from the reduction in the number of grounded aircraft, flight cancellations on international routes and route changes have increased airline expenses. Jet fuel became 6% more expensive in March, operating costs increased Fuel is the biggest expense for airlines. It accounts for 30% to 40% of total operating costs. The average price of ATF in 11 months until February 2026 was Rs 91,173 per kiloliter (KL), but in March 2026 it increased by 6% to reach Rs 96,638 per KL. If we compare with pre-COVID levels (FY 2020), the price was Rs 64,715 per KL. This means prices are still maintaining at quite high levels. Due to tensions in the Middle East and the Iran-Israel war, crude oil prices remain volatile, which is a major risk for airlines. Rupee weakened by 9% in FY 2026 In FY 2026, the Indian Rupee has weakened by about 9%. Meanwhile, the Indian Rupee has fallen to a record low of 92.05 against the US Dollar today. Many major expenses of airlines are in dollars, such as the following: The falling rupee has increased the burden of all these expenses. Experts say this is like a double blow for airlines operating in losses amid low margins. Costs increased due to Iran-Israel war and Pakistan airspace closure Due to tensions in the Middle East and continuous closure of Pakistan airspace, Indian airlines are having to change their international routes. According to MK Global’s report, route changes have increased flight times and this is also resulting in higher fuel consumption. Although airlines will try to recover some of this increased cost from passengers, it will be difficult to significantly increase fares due to growing competition in the domestic market. Impact on Air India and IndiGo’s capacity According to HSBC’s report, Air India, SpiceJet and IndiGo’s international flights are being most affected by the Middle East crisis: Flights on many routes to Europe and Middle East had to be cancelled, causing decline in airlines’ revenue. Reduction in number of grounded aircraft One good news for the industry is that the situation of grounded aircraft is improving. According to ICRA’s Senior Vice President Kinjal Shah, 20-22% aircraft were grounded in September 2023 due to engine issues and supply chain problems. By February 2026, it has reduced to 13-15%. Currently, only about 117 aircraft are grounded in the country. As new aircraft join the fleet, the balance between supply and demand will improve.