Higher Fuel Surcharges Threaten to Deepen Air Traffic Slump

27 Oct 2026 CW Team

Kinjal Shah, senior vice-president and co-group head of corporate ratings at ICRA, said higher surcharges and airfares were likely to keep the passenger traffic trajectory under pressure as overall demand remained subdued. ICRA expects domestic passenger traffic to grow by 3 to 6 per cent in FY2027, while international traffic carried by Indian airlines could decline by 3 to 6 per cent year on year.

Airline yields rose by around 18 per cent year on year in Q1 FY2027, while aviation turbine fuel prices increased by 22.8 per cent during the period, indicating that carriers had passed on part of the higher fuel costs through fares. Domestic ATF prices rose 18.0 per cent year on year in July, 24.7 per cent in August and 33.4 per cent in September 2026.

Domestic ATF prices increased from Rs. 115 per litre in June to Rs. 137 per litre from October 1, after briefly declining to Rs. 110 in July. The global average jet fuel price rose to $192.44 per barrel last week, compared with around $85 to $90 before the war began on February 28. ATF accounts for around 30 to 40 per cent of airline operating costs, and recent increases could raise total operating costs by 8 to 10 per cent.

Airspace restrictions, rupee depreciation, higher lease rentals and dollar-denominated expenses are adding to the strain. ICRA forecasts that the aviation industry could post a net loss of Rs. 360 bn to Rs. 380 bn in FY2027, compared with Rs. 280 bn to Rs. 300 bn in FY2026. Travel companies said interest in winter holidays remained intact, although travellers were increasingly seeking flexibility and reassurance as fares rose.

Fuel surcharges imposed by IndiGo, Air India and Air India Express are expected to put further pressure on air passenger demand as jet fuel prices rise amid continuing geopolitical tensions in the Middle East. IndiGo’s surcharge ranges from Rs. 375 to Rs. 10,000, depending on the route and sector, while the charges levied by Air India and Air India Express range from Rs. 400 to Rs. 20,855. Kinjal Shah, senior vice-president and co-group head of corporate ratings at ICRA, said higher surcharges and airfares were likely to keep the passenger traffic trajectory under pressure as overall demand remained subdued. ICRA expects domestic passenger traffic to grow by 3 to 6 per cent in FY2027, while international traffic carried by Indian airlines could decline by 3 to 6 per cent year on year. Airline yields rose by around 18 per cent year on year in Q1 FY2027, while aviation turbine fuel prices increased by 22.8 per cent during the period, indicating that carriers had passed on part of the higher fuel costs through fares. Domestic ATF prices rose 18.0 per cent year on year in July, 24.7 per cent in August and 33.4 per cent in September 2026. Domestic ATF prices increased from Rs. 115 per litre in June to Rs. 137 per litre from October 1, after briefly declining to Rs. 110 in July. The global average jet fuel price rose to $192.44 per barrel last week, compared with around $85 to $90 before the war began on February 28. ATF accounts for around 30 to 40 per cent of airline operating costs, and recent increases could raise total operating costs by 8 to 10 per cent. Airspace restrictions, rupee depreciation, higher lease rentals and dollar-denominated expenses are adding to the strain. ICRA forecasts that the aviation industry could post a net loss of Rs. 360 bn to Rs. 380 bn in FY2027, compared with Rs. 280 bn to Rs. 300 bn in FY2026. Travel companies said interest in winter holidays remained intact, although travellers were increasingly seeking flexibility and reassurance as fares rose.

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