Aviation sector makes cautious moves as fuel prices spiral

While LPG price hikes and the slow climb in fuel prices have garnered much of the media attention and also emerged as handy political weapons for both the ruling party and the Opposition, yet another zone, which has necessitated a closer look, is the aviation sector, which is no more the preserve of a select few, as it was a few decades ago. The Indian aviation market is undergoing one of the fastest infrastructure expansions in global history. Powered by massive multi-billion-dollar investments, the country is actively building physical capacity to handle a projected historic surge in air traffic over the coming decades.

However, with the current crisis showing no signs of an immediate end, discussions have been generated about how the air passenger traffic globally seems to be under pressure and what impact the surging aviation turbine fuel prices would have on the airlines, keeping passenger traffic also in mind. Agencies report that airlines will try to hike fares to an extent that they can cover the costs, but depending on which population one is looking at, there will be people who will be priced out of flying as relative price differences will impact choices, a senior IATA executive has said.

The remarks come against the backdrop of airfares rising as airlines seek to recoup some of the costs of the oil price shock due to the West Asia disruptions. Jet fuel prices are expected to be 70 per cent higher in 2026 compared to last year. The International Air Transport Association (IATA) represents over 370 airlines that account for around 85 per cent of the global air traffic. IATA’s senior Vice-president for sustainability, Marie Owens Thomsen, said airlines would obviously try to do their best to hike the fares to such an extent that they can cover the costs.

“If they can’t raise fares, they become loss-making and could become bankrupt…,” she said responding to a query on how long airlines can hike fares without resulting in demand destruction, wherein passengers might decide not to travel due to high ticket prices. Amid the steep rise in jet fuel prices and relatively softer travel demand, some of the Indian carriers have temporarily curtailed their flights. Air India, Air India Express, IndiGo, SpiceJet and Akasa Air are all part of IATA.

Going a little behind in time, the introduction of Low-Cost Carriers (LCCs) had revolutionised the Indian aviation sector, democratizing air travel and transforming it into the world’s third-largest civil aviation market.

This shift dramatically reduced fares, increased tier-2 and tier-3 city connectivity and caused passenger traffic to skyrocket from just a few million to over 240 million annual passengers. LCCs now command approximately 65-69 per cent of the total aviation capacity in India. By the end of 2024, India had overtaken Japan, handling a record 241 million passengers to become the third largest aviation market worldwide.

Driven by a rapidly growing middle class and fleet expansions, passenger volume is scaling exponentially: Following a record 412 million passengers handled at Indian airports, the market continues to expand rapidly. By 2030–2031, the overall traffic is projected to touch 665 million annual passengers by FY31. Domestic flyers alone are expected to make up roughly 300 million by 2030. The industry obviously is caught between managing a surging demand in air traffic and grappling with wavy fuel prices, a delicate tightrope walk presently.