Detours and danger zones: Indian airlines pay the price for West Asia turmoil

The volatile triangle of Iran, Israel, and the US has cast a long shadow over Indian aviation, forcing airlines to adapt to a new era of longer flight paths and rising fuel costs. As the conflict escalated, Indian carriers Air India, IndiGo, SpiceJet, and Akasa Air found themselves rerouting flights, recalculating costs, and rethinking international expansion.

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The partial closure of Iranian airspace in June, following Israeli military actions, has compounded the ongoing shutdown of Pakistani airspace since April. Iran has not formally "closed" its airspace to all carriers as of June, but what has occurred is a selective denial of overflight rights to certain airlines (mostly those perceived as Israeli-linked or Western-aligned) and rerouting due to risk. While there is no indication that Indian flights have met with such a denial, sources said, Indian carriers avoiding Iran is more a precaution or insurer-driven rerouting.

Diversions, flight suspensions

The result: Indian carriers had to add hundreds of kilometres to Europe- and US-bound flights. Air India, with its extensive long-haul network, was forced to divert over a dozen flights to alternate airports in Europe, adding up to two hours to some journeys. IndiGo, India’s largest airline, suspended flights to Almaty and Tashkent, citing that these were now “outside the operational range” of its narrow-body fleet.

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Jal Irani and Tanay Kotecha, analysts at Nuvama Research, highlight the strategic disadvantage: “Airspace restrictions put Indian airlines at a strategic disadvantage wherein they are forced to accept a lower margin or risk losing out on passengers.”

The conflict’s most immediate economic impact is on fuel. The Strait of Hormuz, a chokepoint for 15 per cent of global oil supply, faces the risk of closure. According to Irani and Kotecha, “The Israel-Iran tensions threaten to drive oil prices to USD 100/bbl due to the potential closure of the Strait of Hormuz… Even if the market sees only a 30 per cent risk of closure, that can still be enough to fuel prices towards USD 85/bbl in the near-term.”

IndiGo's EDITDAR margin falling

For Indian carriers, fuel is the single largest cost item. Nuvama’s sensitivity analysis is stark: “For every $10/bbl increase in oil prices, we expect a 17 per cent hit on IndiGo’s FY26E EBITDAR (Earnings before interest, taxes, depreciation, amortization, and rent costs).”

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IndiGo, which has historically struggled to pass on fuel cost spikes to passengers, remains particularly exposed. “IndiGo has been unable to fully pass on past oil spikes… EBITDAR margin has been usually falling, wherein an increase in fuel cost sustained for successive quarters,” the analysts note.

Air India has leaned on its wide-body fleet to maintain connectivity, but payload restrictions and higher crew costs are unavoidable on longer routes. The airline has offered refunds and free rescheduling to affected passengers, but the operational headaches remain.

IndiGo continues to expand, with Q1 FY26 scheduled flights up 11 per cent year-on-year, in line with industry growth. Its international passenger numbers jumped 31 per cent in April, outpacing the sector’s 17 per cent growth. Yet, the pain is evident in route suspensions and the implicit costs of lost international momentum. As Irani and Kotecha put it, “The implicit cost is much higher as the fast-growing and relatively more lucrative international segment has been affected. IndiGo has been focusing on expanding its international operations as it targets a 40 per cent share in its available seat kilometres (ASKM) mix by 2030 (from 30 per cent currently).”

SpiceJet and Akasa Air face even tighter margins. SpiceJet’s ASKM (available seat kilometres) dropped 35 per cent year-on-year in April 2025, and while Akasa’s growth remains positive, its narrow-body fleet limits its ability to absorb longer routes. Neither airline has announced major international cancellations, but both are under pressure from higher costs and scheduling challenges.

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Prolonged period of higher costs

The financial toll is mounting. Nuvama Research estimates the direct impact of Pakistan’s airspace closure alone at 1–3 per cent of FY26 EBITDAR for IndiGo, with the true cost likely higher due to lost growth opportunities and competitive pressure. Industry-wide, the additional fuel burn and crew costs from rerouted flights are estimated to be in the range of Rs 77 crore per week, or over Rs 300 crore per month, according to industry sources.

Meanwhile, the sector’s overall capacity (ASKM) grew 11 per cent year-on-year in April, but passenger growth lagged at 10 per cent, leading to a dip in load factors. IndiGo’s domestic market share climbed to 64 per cent in April, even as it faces new headwinds on international routes.

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For now, airlines are optimising flight paths, hedging fuel, and managing schedules. But the long-term risk is clear: if Indian carriers are forced to accept lower margins or cede market share to foreign rivals, the country’s aviation ambitions may face a forced descent.