KOCHI: There is something deeply paradoxical about India's airline business.
More Indians are flying, aircraft are often well occupied and air travel has become a mass-market habit. Yet the industry remains financially fragile.
ICRA now expects India's airlines to post a combined Rs36,000-38,000 crore net loss in FY27, after estimated losses of Rs28,000-30,000 crore in FY26. It has also cut its forecast for domestic passenger growth to just 3-6 per cent.
Air India is seeking about $1.5 billion in fresh capital from its owners after reporting massive losses. SpiceJet is struggling with its finances. Even IndiGo, by far India's strongest airline, has had to contend with rising costs and weaker economics.
So perhaps the bigger question is not simply why airfares are high.
What is wrong with the airline business model in India?
It’s an indisputable fact that airlines cannot keep selling cheaply. A seat that goes unsold today cannot be stored and sold tomorrow. But the aircraft, lease, crew, maintenance and other costs continue regardless.
The airline therefore has to fill as many seats as possible without selling them so cheaply that the flight itself becomes uneconomic. And many of its costs are beyond its control.
Profitability crisis
Aviation turbine fuel (ATF) prices are high, and more so after rupee weakened against the dollar. Aircraft leases and maintenance costs are heavily dollar-linked. Aircraft grounding caused by engine and maintenance problems adds another burden.
ICRA says these cost increases may not be fully passed on through higher fares — precisely the problem at the heart of the industry's profitability crisis.
So airlines face a difficult equation: Raise fares and risk losing passengers — or keep fares low and lose money.
But can India afford higher fares? This is where the argument becomes uncomfortable.
Passengers understandably want cheaper tickets. When fares suddenly rise, political pressure follows. Governments are expected to intervene and protect consumers.
But if airlines are already losing money, how much further can fares be pushed down?
At some point somebody has to pay the difference between what it costs to operate the flight and what passengers are willing to pay.
If passengers won't pay more and airlines cannot reduce costs enough, what is the business supposed to do?
Two-thirds market with IndiGo
There is another danger. India's airline market is already becoming heavily concentrated. IndiGo alone has roughly two-thirds of the domestic market, while the Air India group accounts for most of the remainder among the major carriers.
If financially weak airlines disappear because they cannot earn enough from their fares, passengers may enjoy cheaper tickets for a while — but they will have fewer choices.
And less competition can eventually mean less pricing pressure, fewer routes and higher fares. And, that is the paradox.
“The cheapest ticket today may not necessarily produce the cheapest aviation market tomorrow,” noted an aviation expert while talking to businessbenchmark.news
What's the way out?
There are only a few obvious possibilities. Airlines can raise fares — but will enough passengers accept them?
They can cut costs — but how much more can they cut when a large part of the cost structure is structural?
They can seek greater scale and aircraft utilisation — which is essentially the model that has made IndiGo so much stronger than its rivals.
They can earn more from each passenger through ancillary services, premium seating, loyalty programmes and cargo.
Or the industry could become more consolidated, with fewer but financially stronger airlines. None of these is particularly comfortable.
Perhaps, therefore, India needs to ask a question it has largely avoided: Is the problem that Indian airlines are badly managed — or that the industry simply cannot support the number of airlines, the fares and the cost structure we currently expect?
The answer matters, because if airlines cannot make sustainable returns at fares passengers are willing to pay, the business model itself may not be sustainable in its present form.
And if that is the case, constantly squeezing fares may not solve the problem.
It may only postpone it — until the passenger has fewer airlines left to choose from.
