The Indian aviation industry, often labelled as the lifeblood of the nation’s connectivity and financial development, is facing a turbulent phase. As the Indian rupee continues to denigrate against the U.S. dollar, the impact on smaller airlines has been chiefly severe.
The Denigrating Rupee: A Rising Challenge
As of early 2025, the Indian rupee has tumbled to about 86 per U.S. dollar, marking an important devaluation over the past few years. For an industry like aviation, where a considerable portion of expenditures is designated in U.S. dollars, this is more than a slight troublesomeness—it’s a monetary storm. Smaller airlines, especially, are stressed to manage soaring prices that are squeezing their already thin margins.
Airplane Lease Rentals: A Swelling Expense
Aircraft lease rentals signify a substantial expenditure for airlines, often accounting for 15-20% of their total costs. These expenditures are nearly always made in U.S. dollars, which means any devaluation in the rupee straightaway inflates these costs. For smaller carriers such as FLY91, Akasa Air, and JettWings Airways, which characteristically lease most of their fleet, the impact has been instant and severe.
The recent 6-8% rise in lease rental costs due to the rupee’s weakening has involuntary these airlines to reconsider their monetary plans. Unlike larger carriers such as IndiGo and Air India, which have important cash assets and expanded revenue streams, smaller airlines operate with snugger finances and limited capital, leaving little room for manoeuvre.
Vendor Payments and Upkeep Costs
Beyond lease rentals, other important expenses are also dollar-denominated, including vendor payments for spare parts, maintenance services, and IT systems. The cost of importing spare parts has increased abruptly, additionally compelling smaller airlines. Maintenance, Repair, and Overhaul (MRO) services—vital for safeguarding safety and operational competence—are frequently subcontracted to foreign firms, meaning the rupee’s devaluation inflates these costs too.
Smaller airlines, which lack the frugality of scale enjoyed by larger carriers, find it progressively problematic to engross these extra expenses. For new entrants in the market, such as JettWings Airways, these increasing costs loom to disrupt growth plans and even everyday operations.
Fuel Costs: Additional Coating of Difficulty
Aviation turbine fuel (ATF) constitutes nearly 40% of an airline’s operational costs. Although ATF prices are set domestically, the majority of the crude oil required to produce it is imported, making it susceptible to money fluctuations. Even though ATF prices have watered down somewhat by 6.8% year-on-year to ₹96,192 per kiloliter in FY2025—they remain considerably higher than pre-pandemic levels.
For smaller airlines with limited bargaining power, the higher cost of ATF eats into already thin margins. Unlike larger airlines that can negotiate bulk discounts or hedge fuel costs, smaller carriers face the full effect of these price increases.
Impact on Ticket Prices and Profit Margins
In an effort to counterbalance rising costs, airlines may reflect increasing ticket prices. However, the extremely competitive nature of the Indian aviation market, where price-sensitive consumers dominate, makes this a dangerous proposal. Smaller airlines are chiefly susceptible because they lack the brand loyalty or market share to pass on costs to passengers without risking a significant drop in demand.
This makes a spiteful cycle: higher costs lead to increased ticket prices, which can decrease passenger load factors, more worsen financial strain. Analysts estimate that the aviation sector could account for net losses of ₹20-30 billion in FY2025 and FY2026, with smaller airlines bearing the effect of these losses.
Hedging and Risk Management: Limited Options
Larger carriers often alleviate currency risks through hedging strategies, such as forward contracts and natural hedges from international operations. E.g., IndiGo and Air India earn considerable revenue in foreign currencies from international routes, which can offset some of the augmented expenses. However, smaller domestic carriers lack such buffers. Most of their revenue is generated in rupees, leaving them fully exposed to the whims of exchange rates.
While hedging instruments are available, they come with their costs and difficulties, making them less accessible for monetarily constrained smaller airlines. The absence of robust risk management frameworks further compounds the issue, leaving these airlines more susceptible to currency shocks.
Government and Industry Responses
Knowing the challenges faced by the aviation industry, the Indian government has taken some steps to accommodate the load. These include reducing excise duty on ATF and offering incentives for MRO services within India. However, these measures fall short of addressing the systemic vulnerabilities exposed by the rupee’s depreciation.
Industry stakeholders have called for extra support, such as direct financial assistance for smaller carriers, streamlined taxation policies, and the establishment of a rupee-based leasing ecosystem. Such initiatives could provide much-needed respite and reinforce the industry’s pliability to future currency fluctuations.
The Road Ahead: Navigating Through Turbulence
The current crisis underlines the essential for a healthier and harder financial framework within the Indian aviation industry. Smaller airlines must explore strategies to improve operational efficiency, renegotiate contracts, and expand revenue streams. Partnerships and alliances, such as codeshare agreements with larger carriers, could also provide some relief.
For policymakers, the focus should be on creating a more favourable environment for smaller airlines to flourish. This includes easing access to hedging instruments, promoting domestic MRO services, and addressing structural challenges that make Indian carriers more susceptible to currency fluctuations.
The depreciation of the Indian rupee has brought into sharp focus the vulnerabilities of smaller airlines, which operate on thin margins and face intense competitive pressures. Rising costs for lease rentals, maintenance, fuel, and vendor payments have pushed these carriers into a financial tailspin, threatening their survival in a rapidly evolving industry.
While larger airlines may have the resources to weather this storm, the future of smaller carriers hinges on their ability to adapt, innovate, and secure support from policymakers and industry stakeholders. The coming years will be a test of resilience for India’s aviation sector, as it navigates through the turbulence of a weakening rupee and rising operational challenges.
~ Sudeepa Ghosh