The ongoing conflict involving Iran, Israel and the United States has created a major crisis for India’s aviation sector. Airspace closures across West Asia have forced airlines to cancel flights and take longer routes, increasing costs and disruptions. While it is still early to estimate the full financial damage, the combination of rising crude oil prices, a weakening rupee and limited flight routes is putting unprecedented pressure on Indian airlines.
The war escalated after US and Israeli strikes killed Iran’s Supreme Leader Ayatollah Ali Khamenei on 28 February. In response, Iran launched missiles and drones targeting Israel and US bases in Gulf countries. Following the escalation, several countries shut their airspace, including Iran, Iraq, the UAE, Saudi Arabia, Qatar, Bahrain and Kuwait. This has severely affected India’s key aviation corridor through West Asia, which handles nearly 50% of the country’s international flight traffic.
Flight disruptions and longer routes
Between 28 February and 2 March, more than 1,100 flights were cancelled due to the crisis. At Delhi’s Indira Gandhi International Airport alone, around 350–410 flights were cancelled daily. The disruptions also affected airports in Mumbai and other cities.
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Aviation operations across the Gulf slowed significantly, forcing airlines to adopt a cautious wait-and-watch strategy. Some services to Europe have gradually resumed by avoiding the conflict-affected airspace. However, airlines are now dealing with a double challenge. The northern routes remain unavailable because Pakistan’s airspace is closed, while Middle Eastern routes are considered risky due to the war. As a result, flights to Europe and the United States now take an additional two to four hours because of detours.
Air India has been able to restart some operations. IndiGo, however, has had to be more careful because it operates damp-leased Dreamliner aircraft from European carrier Norse Atlantic, which are subject to European regulatory restrictions.
Rising costs and financial pressure
The crisis is also driving up operating costs for airlines. Aviation Turbine Fuel (ATF), which already accounts for 30–40% of airline expenses in India, is expected to become even more expensive.
Crude oil prices could rise by 11% amid fears of a blockade of the Strait of Hormuz, despite OPEC+ promising to increase output.
ATF prices for March 2026 reached ₹96,638 per kilolitre, up 6% from February and much higher than the pre-COVID level of ₹64,715. Prices are expected to increase further.
Even small price changes have a major impact. According to estimates, a $1 per barrel rise in ATF increases IndiGo’s annual fuel bill by around ₹300 crore. Longer routes also mean higher fuel consumption, and most Indian airlines have limited fuel hedging, leaving them exposed to market prices.
The falling rupee is adding to the pressure. On 4 March, the rupee crossed 92 per US dollar for the first time, dropping 0.9% in a single day and more than 2% since the start of the year. The decline is driven by war fears, rising oil import costs and foreign investor outflows.
A 1% fall in the rupee can reduce airline profits by 5–6%, as key expenses such as fuel and aircraft leases are paid in dollars.
Most aircraft leases are denominated in dollars, so a weaker rupee increases leasing costs even if airlines do not add new aircraft. Airlines also have to make Pre-Delivery Payments (PDP) to aircraft manufacturers from the time they place an order until they receive the planes, and these payments are also made in foreign currency
According to ICRA (Investment Information and Credit Rating Agency), the Indian aviation industry’s net loss could reach ₹170–180 billion in FY2026 because of rising costs and operational disruptions. This is much higher than the estimated ₹55 billion loss in FY2025. Losses are expected to reduce to ₹110–120 billion in FY2027.
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However, these projections may need revision as they did not account for the new war in West Asia and the resulting increase in oil prices.
Several airlines, such as SpiceJet, Air India Express and Akasa Air, have a large share of their capacity deployed on Middle East routes, unlike Air India, which has a wider global network. Despite this, all carriers are being affected by the ongoing airspace closures.
Passengers stranded and fares rising
Another major concern has been passengers stranded mid-journey or unable to return home. Many travellers now risk visa expiry and overstaying because of flight disruptions.
With airspace across the Middle East closed, airlines are operating limited flights. Seats are selling out quickly, and one-way airfares have increased sharply.
The government has set up a passenger assistance control room to help travellers, but the lack of available airspace has made it difficult to add more flights or organise evacuation missions using the armed forces.
Even as some routes gradually reopen, airlines-both Indian and foreign- must operate through limited airspace and remain alert to sudden escalations in the conflict.
For India’s aviation industry, the crisis comes during an already difficult year. Recovery will largely depend on how quickly the conflict de-escalates or a ceasefire is reached. Until then, airlines will continue facing multiple operational and financial challenges.
