Surge in oil prices amid middle east tensions poses fresh challenges for Indian airlines: Report

New Delhi [India], Jun 19 (ANI): Indian airlines are facing renewed pressure on profitability as escalating tensions in the Middle East threaten to push global crude oil prices to USD 100 per barrel, according to a report by Nuvama.

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The report highlighted that the geopolitical rift, particularly the Israel-Iran standoff, could potentially lead to a closure of the Strait of Hormuz, a key global oil supply route responsible for about 15 per cent of total oil shipments.

Even a perceived 30 per cent risk of closure has already nudged oil prices closer to USD 85 per barrel, and further escalation could push it to USD 100.

It stated, "Geopolitical headwind for Indian carriers... The Israel-Iran tensions could cause oil prices to spike USD100/bbl due to the potential closure of the Strait of Hormuz"

For Indian carriers, which operate on tight margins, the report stated that this development is especially concerning.

The report highlighted that historical data reveal that IndiGo, India's largest airline by market share, has struggled to pass on the burden of higher fuel costs to passengers.

Its EBITDAR margin has typically dropped during prolonged oil price spikes. As per the sensitivity analysis in the report, a USD 10 per barrel rise in oil prices could dent IndiGo's estimated FY26 EBITDAR by 17 per cent.

In addition to the crude oil impact, ongoing airspace restrictions due to tensions between India and Pakistan are compounding challenges for Indian airlines.

Since the end of April, both nations have restricted access to each other's airspace. These restrictions disproportionately affect Indian carriers, as foreign airlines continue to operate through the region without rerouting, thereby placing domestic operators at a competitive disadvantage.

The report added "The issue is further exacerbated at a time where Indian carriers have been consistently gaining market share from foreign carriers in recent years".

Overall, the backdrop of rising oil prices and regional instability may weigh on future profitability and expansion plans of Indian airlines. (ANI)

(The story has come from a syndicated feed and has not been edited by the Tribune Staff.)