US‑Israel war with Iran: Crude spikes, rupee crashes, airspace shuts — Indian airlines stare at ₹180 bn losses

The escalating conflict involving Iran, Israel, and the United States has plunged India’s aviation sector into crisis, with airspace closures forcing massive flight cancellations and rerouting. While it is too early to peg losses, the combination of the sliding rupee, rising crude and diminishing air routes is putting pressure on the sector like never before.

The war intensified after US and Israeli strikes killed Iran’s Supreme Leader Ayatollah Ali Khamenei on 28 February, prompting Iran to launch missiles and drones at Israel and US bases in Gulf nations. Airspaces over Iran, Iraq, UAE, Saudi Arabia, Qatar, Bahrain, and Kuwait shut down, severing India’s key West Asia corridor that handles 50% of its international traffic.

Over 1,100 flights were cancelled from 28 February to 2 March, including 350-410 daily at Delhi’s Indira Gandhi International Airport alone, with disruptions rippling to Mumbai and other airports in the country. While aviation in the Gulf came to a standstill, Indian carriers adopted a wait-and-watch approach. Operations gradually resumed on routes to Europe by avoiding the conflict-ridden airspace.

The northern routes, closed due to Pakistan’s airspace closure, and the Middle Eastern routes, being risky for flights, have been a double whammy for airlines from India. The rerouting adds anywhere between 2-4 hours for flights to Europe and the United States.

While Air India could begin services, IndiGo, which currently operates the damp-leased Dreamliner aircraft from Norse Atlantic, a European carrier, had to be more judicious, as it was also bound by European regulators, with the aircraft registration being European.

Fuel bills will surge

Aviation Turbine Fuel (ATF) is the single largest expense for airlines in India, accounting for 30% to 40% of total expenditure. Crude prices are poised to jump 11% amid risks of a blockade of the Strait of Hormuz, despite OPEC+ pledges to ramp output.

ATF for March 2026 hit ₹96,638 per kilolitre, up 6% from February and far above the pre-COVID level of ₹64,715. This is expected to increase further. A $1/barrel ATF rise adds ₹300 crore annually to IndiGo’s bill, going by some estimates. Detours burn extra fuel on longer paths, while limited hedging leaves most Indian airlines vulnerable to spot prices.

Sliding rupee – equally painful

The INR crashed past 92/USD for the first time on 4 March, down 0.9% that day and over 2% year-to-date, fueled by war fears, oil import bills and foreign outflows. A 1% rupee drop erodes profits by 5-6%, hitting dollar-denominated fuel and leases harder.

Most, if not all, leases of airlines are dollar-denominated, and a slide in the rupee increases the leasing bill without additional aircraft being inducted. In fact, it puts strain on airlines with higher order books because they have to pay Pre-Delivery Payments (PDP) to aircraft manufacturers from the time they place an order until they take delivery of the planes. These are marked in foreign currency.

Credit rating agency ICRA projects the Indian aviation industry’s net loss to peak at ₹170–180 billion in FY2026, driven by high operating costs and operational disruptions. While this is a significant increase from the estimated ₹55 billion loss in FY2025, losses are expected to narrow to ₹110–120 billion in FY2027. However, these projections are now set for revision as they did not factor in the new war in the Middle East and increasing oil prices.

A significant chunk of capacity by SpiceJet, Air India Express and Akasa Air is deployed to the Middle East, unlike Air India, which has a far wider presence. However, the impact of airspace closure remains.

Stranded passengers – an eternal worry

The biggest worry has been passengers stranded mid-journey and those unable to take off for their return trips, risking expired visas and overstaying. The airspace closures over the Middle East led to limited operations, sold-out seats and a subsequent one-way hike in air fares. Although the ministry set up a passenger assistance control room, the lack of available airspace made it difficult to ask airlines to add flights or for the armed forces to plan a rescue.

As limited operations resume, Indian carriers, as well as foreign carriers, have to be content with limited airspace, and the possibility of the US-Israel war with Iran going out of control at a very short notice.

For Indian aviation, this is a crisis like no other, in a year already marked by setbacks. Recovery would hinge on an early resolution or ceasefire; until then, the industry’s resilience will be tested against multiple challenges.

(The author, Ameya Joshi, is an aviation analyst.)