Air India, IndiGo Likely To Cut Domestic Flights Amid Fuel Cost Pressure

Air India and IndiGo are expected to reduce domestic flight capacity for nearly three months beginning June 1 as higher aviation turbine fuel (ATF) prices and slowing travel demand weigh on airline operations, according to a report by The New Indian Express citing people familiar with the matter.

The report said Air India may reduce domestic capacity by up to 15%, while IndiGo is likely to scale back services by around 5% to 7% during the period.

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The planned reduction comes amid a sharp rise in aviation fuel prices following escalating tensions in West Asia and disruptions linked to the ongoing Iran conflict. Airlines are also witnessing softer passenger demand after the end of the peak summer vacation season.

Flight Operations Decline Across Major Airlines

Data from aviation analytics firm Cirium showed that India’s four largest airlines recorded nearly a 6% decline in flight operations during March and April compared with the same period last year.

IndiGo, the country’s largest airline by market share, operated 4.5% fewer flights during the period. Air India reduced operations by 7.5%, while Air India Express reported a sharper 17.1% decline in flights.

India’s aviation market has become increasingly concentrated, with IndiGo and the Air India Group together accounting for nearly 90% of total domestic capacity.

On the other hand, Akasa Air is expanding its services despite having a small fleet size due to the company's efforts to capture greater market share in domestic air travel services.

West Asia Conflict Creates Challenges in Aircraft Services

The aviation industry is experiencing increasing pressure due to the rising tension in West Asia following the military strikes carried out by the U.S., Israel and Iran at the beginning of the year.

Indian air carriers have been compelled to reroute flights and avoid Iranian airspace, thereby raising fuel costs among others. Airlines have also been faced with increased costs due to restrictions on Pakistani airspace. Additionally, rising ATF prices are causing higher operating costs for airlines leading to price hikes on several international and domestic routes.

Airline Stocks Under Pressure

Stocks of listed airlines continue to be highly volatile due to apprehensions regarding higher fuel prices and decreased travel demand.

InterGlobe Aviation Ltd, the holding company for IndiGo, has faced some headwinds from investors' sentiments in recent weeks, owing to the increase in crude oil prices, and worries about margins. Aviation turbine fuel is among the biggest components of airline expenses.

Air India, which is a subsidiary of the Tata Group and an unlisted company, has been expanding its fleet and reorganizing operations in its overall turnaround plan.

The short-term cut in capacity will allow the airlines to control their operating costs at this time, when fuel prices are high, while maintaining efficient routes.