Inside the supply squeeze, the fuel shock, and the two-airline stranglehold reshaping Indian aviation in 2026
Here’s a question worth sitting with for a second: if fewer people are booking flights, shouldn’t tickets get cheaper?
That’s what basic economics would tell you. High demand pushes prices up. Low demand pulls them down. It’s the first thing you learn in any Econ 101 class, and it’s intuitive enough that most of us never question it.
Except right now, in Indian aviation, it isn’t playing out that way.
Domestic air travel grew by just 0.64% year-on-year between January and July 2026, the slowest pace in five years. In July alone, the number of people flying actually fell 5% compared to the year before. And yet, average ticket prices climbed 20.5% between March 2025 and June 2026. A one-way domestic ticket that cost you ₹5,000–5,500 a year ago is now setting you back ₹7,000–7,500 for the exact same route.
So what’s going on? Why is a slowing market producing rising prices?
The answer isn’t demand at all, it’s supply. And once you follow that thread, it opens up a much bigger story about fuel costs, grounded aircraft, geopolitics, and a market so concentrated that almost nobody is left to compete on price.
Let’s unpack it, one layer at a time.
1. The real culprit, a shrinking sky, not a growing crowd
2. Why airlines are choosing to fly less
3. Full planes, empty incentive to discount
4. Two airlines, one market, where did the competition go?
5. The ripple effect, airports feel it too
1. The Real Culprit: A Shrinking Sky, Not a Growing Crowd
Ticket prices don’t just respond to how many people want to fly. They respond just as much, arguably more, to how many seats are actually available.
Think of it like a crowded local train. If the number of passengers stays roughly the same but you suddenly remove two coaches, the remaining coaches get packed, even though “demand” for the train hasn’t grown at all. That’s essentially what’s happening in Indian skies.
In July 2026, passenger demand fell about 5% year-on-year. But airline seat capacity fell almost twice as fast, down nearly 9%. In other words, supply shrank faster than demand did. What looks like “artificial demand” pushing prices up is really just fewer seats chasing a roughly steady number of travellers.
This is visible in the raw departure numbers too. Domestic departures peaked at 92,066 flights in July 2024. They fell to 89,217 in 2025, and further to 82,258 in July 2026, nearly 10,000 fewer flights than the 2024 peak, an 11% drop. SpiceJet cut departures by 38%, Air India by 19%, Akasa Air by 7%, and even market leader IndiGo trimmed capacity by another 3%.
Here’s a useful way to think about it: demand didn’t spike. The pipe carrying passengers just got narrower.
2. Why Airlines Are Choosing to Fly Less
Fair question, why would airlines voluntarily shrink their own business? Three forces are colliding here, and each one is doing real damage on its own.
First, fleets are grounded. IndiGo has grounded dozens of aircraft due to an engine defect, while SpiceJet is dealing with financial strain and fleet-availability issues of its own. Industry-wide, about 99 aircraft remained grounded across major Indian airlines as of March-end 2026, according to reporting on GMR’s financial disclosures. That’s not a rounding error, that’s a meaningful chunk of the country’s total flying capacity sitting idle on the tarmac.
Second, fuel costs have exploded. Aviation Turbine Fuel (ATF) is normally 30–40% of an airline’s total operating cost. It’s now climbed to 55–60%. In April 2026, ATF prices in India crossed record levels, touching above ₹2 lakh per kilolitre in some reports. The trigger traces back to global geopolitics, tensions around the Strait of Hormuz, a critical oil transit route, disrupted supply chains and pushed crude oil, and therefore jet fuel, higher. When your single biggest cost item spikes like that, the easiest lever to pull is fewer flights, not just higher fares.
Third, routes have gotten longer and pricier. Airspace restrictions over Pakistan, combined with ongoing turmoil in West Asia, are forcing airlines onto longer, more expensive flight paths. A route that used to take a certain amount of fuel and time now costs more of both, squeezing margins on international and some domestic sectors alike.
Put together: grounded planes, a fuel bill that’s nearly doubled as a share of costs, and routes that cost more to fly. Airlines aren’t cutting capacity because they want to, they’re doing it because they’re boxed in.
3. Full Planes, Empty Incentive to Discount
Here’s where it gets interesting. Fewer flights mean the ones that are still flying are closer to full than ever. India’s Passenger Load Factor (PLF), the share of seats actually occupied, climbed from 70.5% in July 2022 to 85.3% in July 2026. Planes are already nearly full. So why would an airline discount a seat it’s likely to sell anyway?
There’s actually a revenue logic behind this that goes beyond intuition. Airline pricing data shows that when fares are lowered, load factor does go up, by roughly 10.3%, but those lower-fare bookings contribute only about 21.3% of incremental revenue. When fares are raised instead, load factor dips only slightly, around 3.4%, yet those higher-fare bookings contribute nearly 42% of incremental revenue, almost double.
In plain terms: cutting prices fills a few more seats, but it doesn’t move the revenue needle much. Raising prices barely costs any occupancy, but it moves the revenue needle a lot. For an airline juggling a fuel bill that’s swallowing 60% of its costs, that math isn’t close. There’s very little financial reason to blink first and drop fares, even with planes already close to capacity.
Ixigo Group CEO Aloke Bajpai put a number on this from the traveller’s side: domestic ticket spend rose 22% year-on-year in Q1 2026, while international spend jumped 38% in the same period, even as industry-wide passenger growth stayed largely flat and the international market actually contracted after regional conflict disruptions.
4. Two Airlines, One Market, Where Did the Competition Go?
In a healthy, competitive market, a squeeze like this should invite a rival airline to step in, add capacity, and undercut prices to grab market share. That’s supposed to be the self-correcting mechanism. It isn’t happening in India, because the market is too concentrated for that mechanism to kick in.
By June 2026, IndiGo alone carried 66.3% of India’s domestic passengers. The Air India group, Air India plus Air India Express, added another 23.9%. Together, that’s over 90% of the entire domestic market sitting with essentially two players. Akasa Air held 6.4%, SpiceJet just 0.4%, with Alliance Air and others making up the rest.
When two players control nine out of every ten seats sold, there’s no real third or fourth competitor with the scale to meaningfully undercut fares. The “someone will step in and lower prices” safety valve that usually protects consumers simply doesn’t exist right now.
And here’s a twist worth sitting with: all of this pricing power is happening in a market that’s still relatively small globally. India accounted for just 4.2% of the world’s air travellers in 2024, well behind the US (18.1%) and China (16.7%), even though it ranks as the third-largest single aviation market in absolute terms, with 174.1 million passengers. It’s a market with real scale and real growth potential, currently being run by a duopoly with little competitive pressure to keep prices in check.
5. The Ripple Effect: Airports Feel It Too
This isn’t just an airline story anymore, it’s spilling into airport economics as well. IndiGo and the Air India group together reported combined losses of over ₹22,000 crore and nearly ₹2,400 crore respectively in FY26, even while controlling over 90% of the domestic market.
GMR-operated airports handled 121.6 million passengers in FY26, barely 1% higher than 120.6 million the year before, despite India’s aviation sector supposedly being in growth mode. Bengaluru’s airport operator, BIAL, has said the sector’s “aftershocks will likely spill over into FY27.” Zurich Airport’s CEO, whose company operates Noida’s new airport, said the ramp-up there has been “more gradual than originally anticipated” because of the current geopolitical environment.
Perhaps the most telling line from GMR’s own reporting: underlying passenger demand is intact, it’s airline capacity that’s now the bottleneck determining how many passengers airports can actually capture. That single sentence sums up the entire story. This was never really about people losing interest in flying. It was always about the industry’s ability to fly them.
Conclusion
Let’s zoom out and connect the dots. Passengers are barely growing. Seats are shrinking twice as fast as demand is falling. Planes that do fly are fuller than they’ve ever been. Two airlines control the skies with little competitive pressure to lower fares. And all of this is unfolding in a market that’s still a modest slice of global aviation, meaning there’s real room to grow once the current constraints ease.
For travellers, the practical takeaway is simple: book early, avoid peak travel windows where possible, and don’t expect a return to older price points anytime soon. This isn’t a temporary blip driven by a festival season or a one-off event, it’s structural, tied to grounded fleets, a fuel bill still absorbing over half of airline costs, and a market with almost no competitive check on pricing.
For investors and market-watchers, the picture is genuinely two-sided. Airline stocks may stay under margin pressure as long as fuel costs remain elevated and fleets remain constrained. Meanwhile, oil marketing companies and infrastructure players tied to aviation could see the flip side of that same pressure. Zooming out further, real domestic fares in 2024 were still roughly 21% cheaper than they were back in 2011, a reminder that even sharp short-term spikes sit within a much longer story of aviation becoming more accessible in India over the past decade, not less.
So, will prices come down, or is this tighter, more concentrated market the new normal for a while? The honest answer is that it depends on three things easing together: aircraft coming back into service, fuel costs cooling off, and airspace routes normalising. Until then, expect the sky to stay a little more expensive, and a little more crowded, than the passenger numbers alone would suggest.
Disclamer- This content is for informational and educational purposes only and does not constitute investment, legal, or tax advice. Please consult qualified professionals before making any financial decisions. MintWit Financial Services LLP is an AMFI-registered Mutual Fund Distributor (ARN-283168); however, all investments are subject to market risks and returns are not assured.
