THE operating profit of domestic airlines is estimated to decline 10-15 per cent this fiscal due to elevated aviation turbine fuel (ATF) prices, airspace restrictions and rupee depreciation amid the West Asia conflict, a CRISIL report said on Wednesday. Rating agency CRISIL also said that the combined impact of higher costs, constrained pricing power and capacity rationalisation is expected to reduce the aggregate operating profit of the airlines to Rs 16,000-17,000 crore this fiscal from around Rs 19,000 crore in the preceding financial year. Any respite from lower jet fuel prices, driven by a potential resolution of the conflict in West Asia, will contain further escalation in fuel costs for airlines, it said. However, ongoing fleet expansion will push up lease rentals, and that, coupled with moderating operating profits, could weaken lease serviceability through internal accruals, the report noted, adding that the upshot is expected to be around a 15 per cent increase in rental costs to Rs 27,000-28,000 crore this fiscal. Jet fuel accounts for nearly 40 pc of an airline's operating costs under normal circumstances and can go to as much as 60 pc of total operating expenditure during periods of extreme fuel price volatility. Such fluctuations can significantly impact airline operations, route planning and fare stability.

 

The West Asia conflict has led to a sharp average increase of over 50 per cent in global ATF prices versus the pre-conflict levels. This has significantly increased airlines' operating costs as fuel accounts for 40-50 per cent of the costs, CRISIL said. Although global ATF prices have begun to ease from around USD 145 per barrel (week ending June 5) to below around USD 125 currently, they remain significantly above the average of USD 90 in the preceding fiscal, the report outlined. The evolving geopolitical situation points to a potential resolution of the conflict, including the reopening of the Strait of Hormuz, a primary global energy supply route, in the near term, which could further ease fuel prices, the rating agency observed.

 

However, since the first quarter of this fiscal has borne the brunt of the ATF price surge, overall fuel costs for the full fiscal will remain high. Central Government’s measure of a 25 per cent cap on domestic ATF price hikes starting April 1, 2026, has partially cushioned airlines from the immediate post-conflict spike in fuel cost. The cost pressure has been exacerbated by depreciation of rupee because majority of domestic airlines expenses, including fuel, lease rentals, and maintenance costs, are paid in foreign currency, the report added. “The surge in global fuel prices following the onset of the conflict has increased the operating cost of airlines significantly. Even with the expected moderation in fuel prices, they will remain above the levels of last fiscal,” said Manish Gupta, Deputy Chief Ratings Officer at Crisil Ratings.