Flying Low
ICRA lowers outlook on aviation companies, sees financial strain from West Asia crisis
This story was originally published at 13:14 IST on 27 March 2026
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NEW DELHI – Ratings agency ICRA Friday changed its outlook for the Indian aviation industry to negative from stable following the disruptions caused by the military conflict in West Asia. The conflict, which broke out when the US and Israel attacked Iran on Feb. 28, has also led to a sharp depreciation of the rupee against the dollar alongside a hardening of aviation turbine fuel prices, ICRA said in a release. In all, the agency expects earnings pressure on airlines to rise "significantly".
Movement in yields of airlines will be monitored closely by the rating agency as it is linked with jet fuel prices and the rupee-dollar exchange rate, both of which have a significant bearing on the cost structures of airlines, ICRA said. The average jet fuel price rose nearly 6% on quarter and 1.7% on year as of Mar. 1, ICRA said.
"Flight cancellations amid airspace closures and increase in air fares in view of the levy of fuel surcharge (to the extent of 5-6% of the average air fares) will weigh on passenger traffic growth," ICRA said. Fuel costs form 30-40% of the operating expenses of airlines.
Civil aviation regulator Directorate General of Civil Aviation removed price caps on air fares last week after airlines warned of financial stress due to rising fuel costs and operational disruptions. ICRA expects this move to create additional pressure for the sector as passenger traffic growth is expected to take a hit if fares rise significantly.
The sharp depreciation of the rupee against the dollar is also expected to play spoilsport for airlines as around 35-50% of the operating charges, which include fuel expenses, lease payments, and a substantial share of aircraft and engine maintenance costs, are denominated in dollars, ICRA said.
"While some airlines have adequate liquidity and/or financial assistance from strong parent companies, supporting their credit profiles, the credit metrics and liquidity profiles of others continue to remain under pressure, despite some improvement in recent years," ICRA said. End
Reported by Anand JC
Edited by Rajeev Pai
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