Amit Kapoor and Pradeep Puri and inputs from Meenakshi Ajith
India’s Aviation Crisis Is a Systemic Signal, Not an Operational Accident
The latest disruption in India’s aviation sector has been unsettling not merely because of its scale, but because of its source. When operational stress emerges from the airline hailed as the country’s largest and most efficient, the episode cannot be merely understood as a firm-level failure. It becomes a system-level signal. Historically, airline crises in India followed a familiar arc: prolonged financial deterioration, missed lease payments, regulatory intervention, and eventual exit. Kingfisher, Jet Airways and Go First failed slowly, giving the system time to absorb the shock. The present episode is different. Market concentration means that stress at the core now propagates instantly across the network. This is not an indictment of any single airline. It is an indictment of an industry architecture that has produced impressive traffic growth while consistently failing to generate durable profitability.
India’s aviation paradox is by now well established. Since liberalisation, passenger volumes have expanded rapidly, particularly after the advent of low-cost carriers in the early 2000s. Traffic growth accelerated sharply post-2004, peaked just before the pandemic, and collapsed during COVID-19 mirroring global trends. What distinguishes India is not volatility of demand, but chronic financial fragility.
In the United States, repeated bankruptcies and a merger wave (Delta–Northwest; United–Continental; American–US Airways) produced a “Big Four” system in which four carriers account for roughly three-quarters to four-fifths of domestic capacity, reinforcing capacity discipline and stronger unit economics. Europe has converged on a different equilibrium: intense competition led by large low-cost groups (notably Ryanair, easyJet and Wizz Air) keeps short-haul pricing highly competitive, while airline exits have remained a recurring feature of the market.
Empirical evidence from Indian airlines confirms that the problem at home is structural rather than episodic. Using size-neutral performance measures such as unit revenue and unit expenditure per kilometre, Indian airline data over the period 2007–2022 show that the average carrier spends slightly more per kilometre than it earns. Inflation-adjusted figures indicate mean unit revenue of roughly ₹24.9 billion per kilometre, compared with mean unit expenditure of ₹25.1 billion per kilometre. The gap is small in absolute terms but persistent over time, implying chronic margin pressure rather than isolated managerial failure. Crucially, this relationship holds even before major shocks such as the Global Financial Crisis and COVID-19, suggesting that Indian aviation’s fragility is embedded in its revenue structure, not merely the product of adverse cycles. India’s aviation challenge is therefore its structurally weak revenue generation in a price-constrained market.
Indian domestic aviation is among the most price-sensitive markets globally. Political scrutiny of fares, public hostility to price increases, and periodic intervention through fare caps have combined to anchor ticket prices well below global averages. By contrast, fuel, aircraft leases and maintenance remain dollar-linked, exposing airlines to currency depreciation without commensurate pricing flexibility.
Aviation turbine fuel in India is benchmarked to international price indices such as the Mean of Platts Arab Gulf (MoPAG) but layered with additional fiscal burdens. Central excise duties of roughly 11%, combined with state-level value-added taxes that average about 13–14% on a blended basis, raise effective ATF prices by around 24% above benchmark levels. Unlike in many international markets where fuel taxation is minimal or embedded within integrated aviation ecosystems this structure amplifies price volatility rather than merely raising costs. Given the political sensitivity of fares and limited pricing power, airlines are rarely able to pass these fluctuations through to passengers.
This asymmetry has predictable consequences. Airlines expand aggressively to achieve scale, only to discover that scale without yield amplifies losses. Prior to its collapse, Jet Airways’ international operations where margins were higher were cross-subsidised by a domestic network that consistently underperformed. Kingfisher’s premium aspirations collapsed under a cost base unsupported by domestic revenue. Go First entered with thin capital buffers and failed at the first serious shock.
Such outcomes are not uniquely Indian, but India magnifies them. In the Gulf, airlines such as Emirates and Qatar Airways operate within ecosystems explicitly designed to support long-haul profitability: fuel pricing, airport infrastructure, labour flexibility and bilateral access reinforce each other. In Singapore, the state plays an enabling rather than extractive role. Singapore Airlines is commercially governed, capitalised for cyclicality, and anchored at a globally efficient hub. These airlines are not immune to losses but they are rarely existentially fragile. India’s ecosystem, by contrast, has encouraged growth while systematically underpricing sustainability.
IndiGo’s success is often invoked as proof that Indian aviation works. A more precise reading is that IndiGo represents the most efficient adaptation to a constrained system.
Its operating model: high aircraft utilisation, standardised fleets, disciplined cost control and strong load factors was not revolutionary in global terms. It was appropriate. IndiGo aligned itself tightly with India’s low-yield environment and executed with unusual consistency. When competitors exited, IndiGo absorbed demand because it had the operational capacity and financial discipline to do so.
Yet the balance-sheet structure underpinning this efficiency is itself revealing. Indian airlines rely heavily on operating leases: at IndiGo, for instance, around 80% of the fleet is operated under operating leases, with aircraft ultimately returned to lessors rather than retained as balance-sheet assets. By contrast, airlines such as Southwest and Ryanair have historically owned between 80% and nearly 100% of their fleets, giving them tangible assets that can be monetised through sales or sale–leasebacks during downturns. During the COVID-19 shock, this distinction mattered. Efficiency in India’s case delivered scale and speed, but it did not deliver resilience.
The revenue consequences of this structure are visible in unit metrics. IndiGo’s revenue per available seat kilometre (RASK) is approximately ₹4.9. Comparable figures are materially higher elsewhere: around ₹8.2 at Southwest Airlines, ₹8.9 at Qantas, ₹11.2 at Delta Air Lines, and roughly ₹6.9 at Singapore Airlines. Even airlines known for operational efficiency rather than yield maximisation operate within far wider revenue envelopes. IndiGo’s performance, by contrast, reflects the narrow monetisation space imposed by India’s fare-sensitive, price-constrained market.
The global lesson is not that India should replicate Singapore or the Gulf. Geography, income levels and state capacity differ materially. The lesson is more subtle: successful aviation systems align revenue potential, cost structures and policy objectives.
In the United States, consolidation raised yields and restored profitability. In Europe, persistent yield compression has led to chronic airline churn. In the Gulf and Singapore, aviation is treated as strategic infrastructure, with policy coherence across fuel, airports, labour and capital. India sits uneasily between these models. It has liberalised entry but not revenue. It has expanded access but not resilience. It has celebrated passenger growth while tolerating balance-sheet weakness.
The present disruption should be read as a warning, not an anomaly. It signals that India’s aviation system is operating close to its structural limits. Productivity gains alone however impressive cannot indefinitely compensate for weak revenue fundamentals. If India wishes to move beyond its airline graveyard reputation, it must recalibrate its priorities. Until that recalibration occurs, crises will recur not because airlines are careless, but because the system leaves them little room to be anything else.
The article was published with Economic Times on December 15, 2025.
(Amit Kapoor is chair, Institute for Competitiveness. Pradeep is a former civil servant and fellow, Institute for Competitiveness. With inputs from Meenakshi Ajith).
