Can IndiGo recover from cost headwinds? Analysts predict key things to watch for aviation stocks

After a major impact from external disruption, rupee depreciation, and rising jet fuel costs around the world, airline companies like InterGlobe Aviation (IndiGo) are expected to recover and benefit in the upcoming period from the higher airfares and rising demand for domestic air travel, analysts said.

Indian aviation sector has been witnessing a tough time since December 2025, which started as IndiGo’s network disruption due to the updated flight duty norms and later ended up being impacted by higher fuel cost resulting from the US-Iran conflict in West Asia.

Although the ratings agency, ICRA, estimates the overall Indian aviation industry to incur higher losses at the end of the financial year 2026-27, the passenger traffic, higher passenger load factor, heightened prices, capacity expansion and government support are set to aid the sectoral recovery.

Experts predict that the higher prices are set to stabilise at an elevated level as people are willing to pay the higher value for the increased demand for air travel in the domestic market.

Several airlines operating in India have also revamped their operational strategy to reduce international flights and operate more domestic connections.

Key risk for aviation companies

Key risks for aviation companies remain as airlines try to recover from the impact of the West Asia conflict. Concerns like elevated expenses, potential demand reversal, flight operational disruptions, and higher crude oil prices are among other key factors which can impact the financial performance of airline companies.

ICRA cited a favourable base as the factor behind the rise in domestic travel, as in May 2025, air travel was impacted due to the attacks in Pahalgam and the conflict between India and Pakistan.

On the domestic demand front, data showed that the domestic air passenger traffic for May 2026 was at 156.4 lakh, marking an 11.3% YoY rise from 140.5 lakh and a 13.2% sequential rise from 138.1 lakh passengers when compared to the April 2026 data.

Looking ahead, ICRA experts shared a conservative estimate that the domestic air passenger traffic growth may slow down in the range of 3-6% in FY27, from earlier prediction of 6-8% due to geopolitical crisis.

“These revisions reflect the impact of the West Asian conflict, which has resulted in a hike in fares due to the cost escalations for the airlines and the anticipated curtailment of discretionary spending because of increased inflation,” said ICRA analysts in a report.

The central government has been supporting the aviation sector, reducing the landing and parking charges for domestic airlines by 25% starting April 2026. The reduced prices were effective for April to June quarter of the current fiscal year.

In a medium-to-long-term perspective, experts predict that the airlines are expected to benefit from rising discretionary spending and improving connectivity in India, as cost normalisation remains a focus for investors.

“In the medium and long term, domestic air travel continues to benefit from rising discretionary spending and improving connectivity. While geopolitical uncertainties could moderate international travel in the near term, domestic demand should remain resilient, making cost normalisation the key catalyst for earnings improvement,” said Aparna Shanker, CIO-Equity, The Wealth Company Mutual Fund.

ATF price at $149/barrel

International Air Transport Association (IATA) jet fuel monitor price data showed that the cost of aviation turbine fuel (ATF) or jet fuel rates have risen by 17.6% to $149.40 per barrel (bbl) for the week ended July 17, 2026, when compared to the previous week’s average data.

The Jet Fuel Monitor data, collected from the provider Platts, shows the average prices paid at the refinery level for ATF for the reported week.

The data further showed that the jet fuel prices gained nearly 7% to the weekly average of $127.06 per bbl in the second week of the month, in the week ended July 3, 2026.

The rise in fuel prices was primarily due to the conflict in West Asia, which increased overall crude oil prices due to supply chain disruption fears.

With a major chunk of expenses for an airline company tied up in fuel costs, any changes in global energy prices, in turn weighs down the overall financial performance in a particular period.

What’s the near-term outlook?

Independent capital markets analyst Ambareesh Baliga said that the recovery phase for aviation companies is expected to pan out in the upcoming period with the help of heightened airfares and steady growth in passenger traffic.

“The recovery phase for aviation companies should pan out decently well in the upcoming period because one is the fares are in no way coming down. Now we have gone to another level of airfares after the increase, where I think they will stabilise,” said the expert.

Baliga explained that if the oil prices hold anywhere close to the $70 range or below, barring the movement in the last few days, the airline company's operating margins are expected to start improving with the help of improved utilisation of fleets and passenger traffic growth.

However, the analysts from ICRA estimate that the Indian aviation industry is expected to report a net loss in the range of ₹36,000-38,000 crore in FY2027, significantly higher than its earlier forecasts of ₹11,000-12,000 crore in the same period.

The ratings agency’s conservative estimates are due to the impact of the escalation of the West Asian conflict, the Indian rupee depreciation and the higher cost of aviation turbine fuel (ATF) in the market.

Baliga also highlighted that although the costs for the airlines are elevated, the increased airfares appear to be the new normal of the aviation industry.

“People have got used to these slightly higher fares, and when the customer is willing to pay, the prices are staying stable at a higher level. So, I think the airline companies are set to gain from this move,” he said.

Key focus will remain on the Q1 earnings reports and management commentary of these airlines and other aviation sector companies, which include airport operators and other service providers, whose business is impacted due to the performance and demand for air travel.

Aviation sector stocks in focus

*Note: Data related to the current market price, 1-month returns, YTD returns, and 1-year returns have been collected from the NSE & BSE websites.