Escalating tensions in the Middle East and airspace restrictions in the region could weigh on international travel demand and airline profitability in the near term, with India’s largest carrier IndiGo, among the most exposed, according to a report by Jefferies.
In fact, in a recent exchange filing, the largest domestic airline company by market share, Indigo, stated that more than 500 flights to the Middle East and certain international destinations between 28 February and 3 March 2026, have been cancelled, citing the evolving airspace restrictions over Iran and parts of the Middle East.
The brokerage noted that disruptions in the region could affect several parts of India’s travel ecosystem, from airlines and airports to online travel platforms and hotels, given the Middle East’s importance to international aviation traffic.
IndiGo faces the highest exposure
The report highlighted that the Middle East accounts for about 35–40% of IndiGo’s international available seat kilometre (ASK) capacity and around 10–12% of its overall capacity, making the airline particularly sensitive to disruptions in the region.
Any sustained curbs on airspace or geopolitical escalation could dampen demand for international travel on these routes and weigh on airline margins, Jefferies said.
Furthermore, the report also noted the higher fuel costs as a risk. A spike in crude oil prices, which are triggered by these geopolitical tensions, could push up the cost of aviation turbine fuel, thereby affecting airline profitability.
Impact could extend beyond airlines
Jefferies also noted that airport operators such as GMR could see lower passenger traffic if international travel demand weakens. The report further noted that online travel agencies and travel platforms could also face pressure if the bookings decline.
Hotels may also experience a slowdown since the foreign tourists visiting the country may be less if the geopolitical tensions persist.
Domestic aviation growth remains steady
Despite global uncertainties, India’s domestic aviation market continues to expand, though growth has moderated.
According to the report, domestic air passenger traffic grew 4.4% year-on-year in January 2026, while growth for the December quarter stood at around 2%. IndiGo’s domestic traffic growth was slower at 2% year-on-year, partly due to limited capacity expansion linked to a regulatory cap on departures, the report added.
Market share trends show IndiGo maintaining its leadership position, with 63.6% share in January 2026, while the Air India group held about 26.5% of the market. Akasa Air and SpiceJet accounted for 4.8% and 3.9%, respectively.
Capacity expansion plans
Looking ahead, IndiGo is seeking regulatory approval to increase flight departures for the summer 2026 schedule to about 2,175 daily flights, which would imply around 8% growth in domestic capacity compared with the previous summer schedule, the report said.
When combined with strong growth in international capacity, overall capacity expansion for the airline could reach double-digit growth in FY26, the report said.
Policy changes may affect airline economics
Regulatory changes could also influence airline profitability. From 26 March, the Directorate General of Civil Aviation (DGCA) will introduce a 48-hour “look-in” window, allowing passengers to cancel or modify bookings without penalty within two days of making the reservation, provided the travel date is sufficiently far away.
Because cancellation charges typically contribute to airline margins, this change could have some profitability implications for carriers, the report noted.
To add onto this, domestic ATF prices rose about 6% month-on-month in March to Rs 96,000–97,000 per kilolitre, according to the report. However, average prices for the fourth quarter of FY26 remain flat year-on-year and about 3% lower sequentially.