India’s aviation sector is in the midst of many discussions. Planes were full, international fares were rising by about 13% year on year (YoY), and passenger numbers had firmed after a weak second quarter. On the surface, it looked like the beginnings of a durable recovery. Yet JP Morgan’s latest aviation review pointed out that this recovery was built on fragile foundations. Domestic pricing remained flat, fuel costs had risen, and the rupee had weakened. The combination meant airlines were flying more passengers but generating little improvement in margin.
This assessment arrived at a point when investors were beginning to price in a stronger outlook JP Morgan explains why what looked like a healthy rebound was constrained by factors the industry could not control.
#1: JP Morgan on Aviation: Domestic fares remained flat even as traffic recovered
The brokerage said domestic pricing had shown no meaningful recovery. Across the 19 routes it tracked, representing about 32% of India’s domestic traffic, fares stayed essentially unchanged through recent months. Some key city pairs even posted sequential declines. This mattered because domestic operations still formed the backbone of the revenue mix for airlines such as IndiGo, Vistara and Akasa Air.
IndiGo, which held a 65.6% domestic share in October, remained the most exposed to this trend. JP Morgan’s weighted airfare tracker for IndiGo, which historically aligned with the airline’s reported yields, showed domestic pricing stuck in a narrow band. Air India and Vistara also faced limited traction on domestic network segments, despite high load factors. Smaller carriers such as Akasa Air, while benefiting from a young fleet, operated under the same pricing pressure.
The brokerage said the absence of domestic pricing power restricted the industry’s ability to translate improving demand into stronger revenue per seat. Load factors remained high, but without fare growth, the revenue line could not absorb rising costs.
#2: JP Morgan on Aviation: Stronger international fares did not lift blended yields enough
International pricing told a different story but not one strong enough to change the sector’s economics. JP Morgan said international fares in its 14-route basket, which covered roughly a fifth of India’s outbound traffic, rose about 13% year on year in the current quarter. Airlines with international exposure benefited. IndiGo saw firmer pricing on its Middle East network. Air India and Vistara gained from Europe, North America and Southeast Asia routes, where demand had returned strongly.
Yet the brokerage observed that the improvement in international fares had limited influence on blended yields. The network mix had shifted toward longer-haul flying, especially for Air India as it inducted wide-body capacity. Longer sectors generated higher revenue but also carried higher operating costs per seat. In practice, this dilutes the overall yields.
IndiGo, though still primarily a domestic operator, had also been expanding into longer regional sectors. JP Morgan said this meant that even sharp improvements on individual routes did not materially strengthen overall yields.
#3: JP Morgan on Aviation: Fuel inflation eroded the benefit of higher fares
The brokerage said fuel remained the most immediate pressure point. After easing earlier in the year, international jet fuel benchmarks had risen again. Domestic aviation turbine fuel prices followed the same pattern. JP Morgan calculated that a 1% increase in fuel price reduced sector profit before tax by about 3%. In a margin-thin industry, the sensitivity was sharp.
IndiGo, which operated India’s largest fleet and the largest number of daily departures, faced direct exposure to this trend. Air India, with an expanded long-haul network, carried even greater fuel risk because long flights consumed more uplift and left less room for cost absorption. Vistara and Akasa Air, despite efficient aircraft, operated within the same fuel-linked cost structure.
#4: JP Morgan on Aviation: Rupee depreciation created a larger swing factor
JP Morgan said the rupee had turned into an equally significant source of stress. The brokerage estimated that a 1% depreciation in the rupee cut profit before tax by 5–6%, making it a larger driver of earnings volatility than fuel. Airlines paid lease rentals, maintenance invoices, insurance, spare parts, engine overhauls and a significant portion of fuel bills in US dollar.
IndiGo, with its large leased fleet, felt the impact immediately. Air India, undergoing fleet transition and expansion, carried heavy dollar-linked liabilities. Even Vistara and Akasa Air, though smaller, could not escape these exposures. As the rupee weakened through the quarter, these outflows increased across the board.
#5: JP Morgan on Aviation: Traffic grew but not at a pace strong enough to lift pricing
The brokerage also pointed out that though traffic performance was stable, it lacked the momentum needed to trigger a yield cycle. Domestic traffic rose about 4% year on year in the current quarter. International traffic grew roughly 8%. These numbers marked an improvement over the previous quarter, when domestic traffic slowed sharply. But they were not high enough to push the industry toward firmer pricing.
IndiGo continued to operate at high load factors across its network. Air India and Vistara carried strong international loads as well. But the brokerage noted that high load factors did not automatically lead to higher fares, especially when airlines were adding capacity. Air India had expanded its wide-body operations. IndiGo continued to induct aircraft. Akasa Air was scaling its fleet. This supply growth, though rational, limited the opportunity to raise fares.
A recovery that looked stronger than it was
JP Morgan’s five factors aligned into a single conclusion. Though domestic fares stayed flat and International fares rose, the rupee’s weakness along with crude failed to help improve pricing. Each trend on its own might have been manageable. Together, they created a fragile margin structure that could weaken abruptly.
IndiGo’s scale gave it resilience, but not insulation. Air India’s long-haul expansion offered yield opportunities but also exposed it to higher operating costs and currency risk. Vistara and Akasa Air executed their strategies but faced the same challenges.