Following a major reduction in international services, the carrier announces a temporary capacity rationalisation on domestic routes between June and August 2026.

In a major move reflecting the deepening financial stress on the Indian aviation sector, Air India announced on Wednesday that it will cut its domestic flight operations by up to 22% between June and August 2026. The decision comes on the heels of the airline already scaling back its international network by nearly 27%, as soaring aviation turbine fuel (ATF) prices continue to pressure operational margins.

The Tata Group-owned carrier, which currently operates around 4,400 weekly flights, will see roughly 800 of its 3,600 domestic frequencies affected by this schedule revision.

Escalating operational costs hit network

In an official statement released on Wednesday afternoon, an Air India spokesperson confirmed the development, highlighting that the airline had “temporarily rationalised operations on certain domestic routes” for the upcoming summer-monsoon window.

“In continuation of our previously announced adjustments to select international services between June and August 2026, we have temporarily rationalised operations on certain domestic routes during the same period, with a reduction in frequencies on select routes,” the airline statement noted. “These adjustments are driven by the sustained impact of high fuel prices on overall operations.”

Company sources familiar with the matter indicated that while no specific domestic routes would be completely suspended, frequencies on multiple high-density sectors operating out of major hubs like Delhi and Mumbai are being trimmed down.

Jet fuel price spike changes equations

The primary catalyst behind this aggressive capacity reduction is the steep rise in global crude oil prices, heavily influenced by ongoing geopolitical tensions in West Asia and the closure of key shipping lanes like the Strait of Hormuz. For Indian carriers, jet fuel typically accounts for nearly 40% of total operating expenditures.

According to senior airline officials, Air India's ATF procurement costs have surged from an average of ₹80,000 per kilolitre to well over ₹1 lakh per kilolitre in multiple cities, heavily skewed by varying state-level value-added taxes (VAT). Operating a full domestic schedule under these pricing structures has become commercially unviable, particularly at a time when the carrier is looking to aggressively manage its bottom line after reporting a heavy net loss last fiscal.

Furthermore, the recent suspension of 145 weekly international flights has created a cascading effect, lowering the passenger demand for connecting domestic legs that funnel travellers into metropolitan hubs for overseas departures.

Relieving pressure for affected passengers

With hundreds of weekly flights set to be pulled from the system, passengers booked on the affected flights face imminent disruptions. Addressing these concerns, Air India stated that it has initiated proactive measures to minimise customer inconvenience.

The carrier has committed to offering full refunds, complimentary date modifications, or re-accommodation on alternative flights for those hit by the sudden rationalisation. Ground teams and digital customer service channels are reportedly being scaled up to handle the influx of rebooking requests before the June rollout.

Broader industry faces a tough summer

The capacity cuts at Air India are not an isolated event in the domestic skies. Industry reports indicate that India’s largest carrier, IndiGo, is also contemplating a 5% to 7% reduction in its domestic operations over the same three-month period to counter the fuel price shock.

Aviation analysts warn that this combined reduction in seat capacity by the country's top operators during the peak travel months could inevitably lead to higher ticket pricing across popular domestic circuits, leaving flyers with fewer choices and costlier bookings. Air India maintained that it will continue to closely monitor demand trends and volatile operating conditions, with an intention to restore its normal flight frequencies as soon as the global energy market stabilizes.

Airlines Seek ATF Relief, Warn of Possible Ops Shutdown

Major carriers including Air India, IndiGo and SpiceJet have flagged rising ATF costs and airspace curbs as key risks, urging government intervention to keep operations viable.

Mounting Cost Pressure

India’s leading carriers — Air India, IndiGo and SpiceJet — have sounded a sharp warning to the Centre, saying the industry is under “extreme stress” and could be pushed towards operational disruption if fuel costs continue to rise unchecked.

According to inputs shared with the civil aviation ministry and reported by PTI, airlines have sought an urgent revision in Aviation Turbine Fuel (ATF) pricing, alongside financial relief measures. The communication underscores that the current cost structure is becoming increasingly difficult to sustain.

Fuel Prices Surge

At the heart of the crisis is the sharp spike in global oil prices, triggered in part by geopolitical tensions in West Asia. Airlines say this has directly inflated ATF costs, which already account for nearly 40 per cent of an airline’s operating expenses.

Compounding the issue are higher “crack spreads” — the differential between crude oil and refined jet fuel — which have widened significantly in recent weeks. This has made jet fuel disproportionately expensive compared to underlying crude prices.

Industry representatives say the combined effect has led to steep increases in operating costs, particularly on international routes.

Airspace Curbs Add Strain

Airspace restrictions linked to regional conflicts have also forced airlines to reroute flights, adding to fuel burn and flight duration. Long-haul operations have been hit the hardest, with carriers reporting increased turnaround times and operational complexity.

Sources familiar with the matter said some routes are now operating with significantly thinner margins, while others are nearing break-even or slipping into losses.

Call for Tax Relief

Among the immediate demands, airlines have sought a temporary deferment of excise duty on ATF, currently at 11 per cent. They argue that easing the tax burden, even for a limited period, could provide breathing room as the sector navigates volatility.

There is also renewed focus on state-level taxes. High value-added tax (VAT) rates continue to weigh on fuel costs. For instance, Delhi levies around 25 per cent VAT on jet fuel, among the highest globally for a major aviation hub, while Tamil Nadu tops the chart at 29 per cent.

FIA Flags Pricing Imbalance

The Federation of Indian Airlines (FIA), representing major carriers, has separately written to the ministry seeking a return to a more predictable fuel pricing mechanism.

The body has recommended reintroducing a “crack band” framework — a system designed to cap extreme variations between crude oil and ATF prices. This model, implemented in October 2022, was seen as offering a balanced margin for oil marketing companies while keeping airline costs manageable.

FIA said the current ad hoc pricing approach has created a “severe imbalance” between domestic and international operations, making airline networks increasingly unviable.

Domestic vs International Gap

Airlines have pointed to the widening gap in fuel pricing between domestic and international operations. While the government capped ATF price hikes for domestic routes at ₹15 per litre last month, international operations saw increases of up to ₹73 per litre.

This disparity, industry executives say, has skewed route economics and intensified losses on overseas sectors. “The situation has practically made several international operations unviable,” a source indicated.

Sector on Edge

April has already seen significant financial strain across the aviation sector, with airlines reporting elevated input costs and pressure on yields. Passenger demand has remained relatively stable, but fare hikes have not fully offset the cost escalation.

Officials are understood to be reviewing the representations, though no formal announcement has been made yet. Any decision on ATF pricing or tax relief is likely to involve coordination between multiple ministries and state governments.

For now, airlines maintain that without timely intervention, the industry could face deeper financial stress — and in a worst-case scenario, operational disruptions. The ATF pricing issue, they say, has reached a point where immediate policy support is critical to maintain stability.