Why Indian Airlines Fail?

28th November 2025, Gaurav Kumar Singh

Have you ever sat on a plane, perhaps sipping a tiny cup of tea somewhere over the vast Indian landscape, and thought, “Wow, this is amazing! With so many people flying, these airlines must be making a killing, right?” You wouldn’t be alone.

On the surface, it seems like a no-brainer: India has a massive, rapidly growing middle class eager to travel, beautiful destinations, and a sprawling country that makes flying a highly attractive option. Yet, scratch beneath the surface, and you’ll discover a truth that might genuinely surprise you: running a profitable airline in India is one of the most brutally difficult business propositions imaginable.

It’s a paradox, really. Like a perfectly baked cake that tastes bitter, the sweet promise of India’s aviation market often turns sour for its players. Why? Well, let’s embark on a journey through the often-turbulent skies of Indian airline profitability, exploring the hidden currents and structural storms that make success so elusive.

The Unseen Anchor: Why Indian Airlines Carry More Weight

Imagine trying to win a footrace, but your competitors all get to wear lightweight sneakers while you’re stuck in heavy, lead-soled boots. That’s a bit like what Indian airlines face when it comes to their operating costs. There are fundamental, almost baked-in, expenses that are simply higher in India than almost anywhere else in the world, starting with the very fuel that lifts the planes into the sky.

Aviation Turbine Fuel (ATF): The Elephant in the Hangar

Globally, jet fuel typically accounts for about 20% to 25% of an airline’s total operating costs. In India? Brace yourself: it’s a staggering 40% to 50%. Think of it like this: if you’re running a restaurant, and suddenly the cost of your main ingredient doubles compared to your rivals, how do you stay competitive? This isn’t just a random fluctuation; it’s a structural issue.

ATF in India is deliberately kept outside the Goods and Services Tax (GST) regime. This allows individual states to slap on their own hefty Value Added Taxes (VAT), sometimes as high as 20% to 30%, in addition to central excise duties. The result? Indian airlines pay anywhere from 30% to 50% more for their fuel than many of their international counterparts. And to add insult to injury, they can’t even claim input tax credits on this expense. It’s like paying full price for your ingredients, and then being told you can’t deduct that cost from your final tax bill. Ouch.

The Currency Conundrum: A Rupee Rollercoaster

Beyond fuel, another massive cost burden for Indian carriers comes down to simple economics: almost all major expenses are paid in US Dollars. We’re talking about aircraft leases, crucial maintenance, spare parts, and those complex engine overhauls. While their revenues come in Indian Rupees, their biggest bills arrive in greenbacks. So, what happens when the Indian Rupee weakens against the US Dollar?

Suddenly, those fixed dollar costs become astronomically more expensive in Rupee terms. Imagine you’ve budgeted for your monthly rent, and overnight, your landlord decides you have to pay 10% more, even though your income hasn’t changed. A depreciating Rupee can quickly turn a thin profit margin into a gaping loss, almost regardless of how efficiently an airline operates.

The Dog-Eat-Dog Skies: Fierce Competition and Flat Fares

If high costs were the only challenge, perhaps airlines could simply raise their ticket prices to compensate. But this brings us to the second major hurdle: the cutthroat competition and the unique behavior of the Indian consumer.

The Price-Sensitive Passenger: A Double-Edged Sword

Indian passengers are famously, and understandably, price-sensitive. A difference of even a few hundred rupees can sway a traveler from one airline to another, or even away from flying altogether, opting for trains or buses instead. This intense price sensitivity creates an environment where airlines are constantly under pressure to offer the lowest possible fares. It’s a race to the bottom, where everyone knows they’re losing money, but no one dares to raise prices because a competitor will immediately swoop in and steal market share. Think of it like a crowded street market where vendors are selling almost identical goods. If one vendor tries to charge a little more, customers simply walk a few feet to the next stall.

The Great Fares Stagnation: Costs Up, Prices Flat

Here’s the kicker: despite the dramatic increases in operating costs since, say, 2015, average domestic airfares in India have barely moved in real terms. While your fuel costs and dollar-denominated expenses have skyrocketed, the price you can charge for a seat has remained stubbornly flat. It’s like running a small business where your rent, electricity, and supplier costs keep climbing, but you can’t charge your customers a single penny more for your products. This disparity creates a constant squeeze on profit margins, making it incredibly difficult to build a sustainable business.

The Capacity Conundrum: Too Many Planes, Too Few Profits

Even as some players have exited the market (remember Kingfisher, Jet Airways, or more recently, Go First?), the capacity vacuum is filled almost immediately. Indian airlines have ambitious orders for new aircraft – we’re talking about an astounding 1,500 planes on order! While this signals growth, it also means that the “supply discipline” needed to allow airfares to rise naturally just isn’t there. As soon as one airline falters, another is ready to launch new routes or add more flights, ensuring that the market remains saturated and ticket prices stay low. It’s a continuous cycle where demand grows, but supply grows even faster, preventing any meaningful improvement in yields (the revenue earned per passenger).

The Regulatory Maze and Infrastructure Hurdles

Beyond the direct economic pressures, Indian airlines also navigate a unique landscape of regulatory involvement and infrastructure challenges that add to their woes.

Government’s Hand: Fare Caps and UDAN

While aiming for passenger welfare, government intervention can sometimes inadvertently hurt airline profitability. During crises, there have been instances of the government imposing fare bands or caps, limiting how much airlines can charge. Moreover, schemes like UDAN (Ude Desh ka Aam Naagrik), which aim to make flying accessible to common citizens by connecting regional airports, often require airlines to operate on routes that are not economically viable. It’s a bit like a city council mandating that a bus company run routes to very sparsely populated areas, even if those routes consistently lose money, all in the name of public service. While noble, it burdens the airlines.

Airport Costs and Congestion: Time is Money

While India is rapidly building and upgrading airports, charges at major metro airports remain extremely high. Every take-off and landing, every minute spent on the ground, incurs a cost. Add to this the perennial issue of congestion at popular airports, leading to delays, longer turnaround times for aircraft, and lower utilization rates. An aircraft makes money only when it’s flying. If it’s sitting on the tarmac waiting for a slot, or if its schedule is constantly disrupted, that’s lost revenue and increased operational costs.

The Elusive Capital: A Scarce Resource

Finally, the cumulative effect of these challenges makes it incredibly difficult for Indian airlines to attract the capital they desperately need to grow and innovate.

The “Risk Premium”: A Heavy Price for Investment

After high-profile failures like Kingfisher Airlines, Jet Airways, and Go First, domestic lenders have become extremely cautious about investing in the aviation sector. Lessors (companies that lease aircraft to airlines) now demand higher security deposits and stricter payment schedules. Furthermore, the legal environment surrounding aircraft repossession in India has, at times, created uncertainty, pushing up the “risk premium” for foreign lessors and investors. It’s like trying to get a loan for a business that has a long history of bankruptcies in its sector – lenders will either refuse or charge an exorbitant interest rate.

The Scale Struggle: A Catch-22

This capital scarcity creates a kind of “double bind” for smaller or newer airlines. They can’t raise enough capital to achieve the scale necessary to become truly cost-efficient (e.g., negotiating better fuel prices, getting volume discounts on maintenance). But without that scale and efficiency, their cost base remains too high, making them unattractive to potential investors. It’s a classic chicken-and-egg problem where the pathway to profitability seems blocked in both directions.

The Future of Flight: A Glimmer of Hope?

So, is it all doom and gloom? Not necessarily. The story of Indian airline profitability is one of incredible resilience in the face of daunting challenges. The sheer size and potential of the Indian market mean that airlines will continue to strive, innovate, and find ways to operate. Consolidation, with major players like IndiGo and the Tata-owned Air India group dominating, might eventually lead to better pricing discipline. And perhaps, just perhaps, policy changes around ATF and the Rupee’s stability could offer some much-needed tailwinds.

For now, though, the next time you board a flight in India, take a moment to appreciate the complex ballet of economics, logistics, and sheer determination that allows that aircraft to take to the skies. It’s not just a journey from point A to point B; it’s a testament to a business fighting against the odds.

What are your thoughts on India’s aviation market? Have you noticed the price fluctuations, or perhaps wondered about the cost of a plane ticket? Share your insights in the comments below, or tell us if you’d like us to delve into another fascinating economic mystery!

If you found this article valuable, please don’t forget to Like and Subscribe to my blog for more expert insights and updates.