The Crude Shock and Why It Lands Hard in India

Brent crude has had a turbulent eight weeks. Following the closure of the Strait of Hormuz on 4 March 2026 in the Iran conflict, Brent surged past USD 120 per barrel, hit a post-war peak of USD 126 in April, and has since settled in the USD 95–100 band as ceasefires hold and Iranian supply begins to return. Even at that lower level, the price sits 25–30 percent above the average through calendar 2025.

India imports more than 85 percent of its crude. ATF is sold at airport benchmarks set monthly by the public-sector oil marketing companies (IOCL, BPCL, HPCL) and tracks the global product spread, rupee-dollar parity, and central and state taxes. With every USD 10 move in Brent, Indian ATF moves by approximately INR 6,000–7,000 per kilolitre at the metro airports, before tax. Layer on the rupee, which has weakened past INR 95 to the dollar through May, and the local-currency impact compounds.

Where ATF Sits Today

ATF for international carriers at Delhi rose 5.33 percent on 1 May 2026 to USD 1,511.86 per kilolitre. ATF for domestic airlines was held flat in the May revision after a 25 percent hike on 1 April that took the Delhi domestic rate to INR 1,04,927.18 per kilolitre. The government’s decision to freeze the domestic price for May appears deliberate — a signal that summer-season connectivity and demand stability are being prioritised over full pass-through of the global price. Nomura’s analyst note from 2 April 2026 highlights that OMCs (IOCL, BPCL, HPCL) are absorbing approximately INR 64 per litre on domestic ATF sales at current levels, translating to a marketing loss of roughly USD 109 per barrel and annualised P&L exposure of approximately INR 23,600 crore at IOCL, INR 9,500 crore at BPCL, and INR 5,300 crore at HPCL.

The state-tax picture has begun to move in airlines’ favour. Delhi cut VAT on ATF from 25 percent to 7 percent for an initial six-month window. Maharashtra cut Mumbai’s VAT from 18 percent to 7 percent. Together those cuts shave roughly INR 8,000–12,000 per kilolitre off the effective price at the two largest hubs — a meaningful offset, but not enough to absorb the underlying crude move. Other states have not followed. Kolkata, Chennai, Bengaluru, and Hyderabad continue to levy ATF VAT in the 16–25 percent range, which keeps fuel costs on regional and tier-2 routes structurally higher.

The Impact on the Airline P&L

Fuel accounts for nearly 40 percent of total operating costs for Indian carriers, the highest share in any major airline market. Leading into the West Asia crisis, the two airlines enter the current crude cycle from different positions of operational strength.

IndiGo. Q1 FY26 results from a calmer fuel environment delivered a sharp 21.9% reduction in fuel CASK to INR 1.38, driven by lower global fuel prices and tighter operations. That dividend has now reversed. The most recent reported quarter, Q3 FY26 (October–December 2025), showed net profit crashing 77.5 percent year-on-year to INR 549.8 crore on revenue of INR 24,540.6 crore. The headline number is heavily distorted by INR 1,546.5 crore in exceptional items driven primarily by the implementation of revised Flight Duty Time Limitation norms and the December 2025 crew-shortage cancellations. Stripped of one-offs, underlying net profit was INR 2,096.3 crore, still down 14 percent year-on-year. Fuel CASK was INR 1.53, down only 2.8 percent year-on-year.

Q4 FY26 results, released on 28 April 2026, are tracking analyst expectations in the INR 1,800–2,200 crore PAT range. The critical point: Q4 still predates the April ATF hike, the May international ATF hike, and the West Asia crude spike that pushed Brent to USD 126. Those will hit Q1 FY27 (April–June 2026). IndiGo’s effective fuel CASK is set to push above INR 1.65 in our estimate before the Delhi and Mumbai VAT cuts provide any offset. The airline remains profitable, but the margin runway is now visibly thinner.

Air India. The story is markedly worse. Soaring jet fuel costs are consuming an estimated 35–40 percent of operating expense. The airline is now expected to post a record loss of over INR 26,000 crore for FY26 — the largest in its modern history — and has begun trimming selected long-haul routes in response. The combination of an older long-haul fleet (lower fuel efficiency per ASK), USD-denominated lease and maintenance exposure, and unfavourable rupee movement has multiplied the impact of the crude shock at Air India relative to IndiGo. Singapore Airlines, which owns 25.1 percent of the merged Air India–Vistara entity, has flagged a USD 2.8 billion impact on its share of the partnership’s FY26 results.

Air Fares: Pass-Through and the Demand Question

IATA has warned that ticket prices on major Asian routes will rise 8–15 percent during peak summer as carriers pass through the fuel surge. Domestic Indian fares are already moving. Air India’s published surcharge raises domestic fares by INR 299–988 per ticket depending on sector distance, and travel-industry coverage cites summer-season fare hikes of around 20 percent on key Indian routes across Air India and IndiGo.

The demand response is the open question. AAI traffic data shows India’s air passenger traffic reached 218 million in H2 FY26 (October–March 2026), up just 1.4 percent year-on-year with domestic traffic growing only 1.2 percent and international 2.5 percent. The slowdown predates the crude shock. Layering an 8–15 percent fare hike onto a market already running at 1–2 percent domestic growth compresses the trajectory further. Earlier published FY27 forecasts of 6–8 percent domestic growth, formulated before the West Asia conflict, now carry explicit downward bias. Our working view at Avinia is that the FY27 base case settles in the 4–6 percent band once the ATF, fare, and rupee impacts are fully absorbed — well below the 8–10 percent CAGR historically.

IndiGo and Air India will both moderate the rate of capacity addition through H1 FY27 (April–September 2026) and likely into the second half, deferring growth on the most price-sensitive routes. The 1.2 percent H2 FY26 domestic-growth print already signalled that the previous capacity-led expansion model was running out of demand absorption; the fuel shock now removes the question. Regional connectivity strain is compounding this: UDAN routes operating on already-thin margins are exposed to ATF moves they cannot pass through, and several operators are quietly exiting routes.

Avinia’s View

We see three things for the rest of the calendar year. ATF will not return to 2024 averages in 2026 — even a complete West Asia normalisation will leave a lingering effect on the global product spread given refinery throughput discipline. Domestic ATF will be unfrozen progressively over June–August; the April hike will look in retrospect like a partial pass-through, with another 10–15 percent to follow before September. Indian carriers cannot wait for tax relief or hedging to absorb this — they will pass through. The carriers that do this with route-level discipline — raising fares hardest where demand is least elastic and protecting load factors on the volume trunks — will keep margins. The carriers that pass through uniformly will lose share on the elastic routes and revenue on the inelastic ones. Air India’s restructuring task just got harder, and the calendar for it just got shorter.

For airport operators and infrastructure investors, the implication is simpler: stress-test your FY27–FY29 traffic and aeronautical revenue forecasts at 5–7 percent CAGR, not 10. The economics of the asset still work at that growth rate — but the project-finance terms, equity returns, and concession waterfalls do not, unless they were structured for it from the start. The next twelve months will sort the operators that planned for volatility from those that planned for the trendline.