Airspace Restrictions Push Costs Up, IndiGo and Air India Ask Govt for Tax Relief

IndiGo, India’s largest airline, has asked the government to cut fuel taxes and, along with rival Air India, is pushing New Delhi to urge private airports to lower some charges, three sources told Reuters, as escalating tensions in the Middle East add to the airlines’ financial strain.

Both carriers are facing a double challenge. The conflict involving Iran has made large parts of Middle East airspace difficult to use, while Indian airlines remain barred from flying through Pakistan’s airspace due to diplomatic tensions with India.

The restrictions have forced airlines to take longer routes on several international sectors, raising fuel consumption and operating costs. IndiGo has been routing some flights to the United Kingdom via Africa, while Air India has added refuelling stops on certain services to North America.

According to the sources, both airlines are lobbying the government for financial relief, particularly through reductions in aviation-related taxes and airport charges. IndiGo is seeking relief on aviation turbine fuel (ATF), which typically accounts for 30–40% of an airline’s operating expenses. ATF currently attracts a federal tax of around 11%, along with additional state levies that can go as high as 29%, two of the sources said.

IndiGo, Air India and India’s civil aviation ministry did not respond to requests for comment.

As of January, IndiGo held a domestic market share of 63.6%, while the Air India Group controlled 26.5%.

Rising Cost Pressures

The two airlines have also sought rationalisation of charges at privately run airports. According to the sources, they argue that certain passenger-related fees at private airports are higher than those at state-run facilities and should be reduced.

Data from aviation analytics firm Cirium shows that Indian airlines did not operate 64% of their 1,230 scheduled flights to the Middle East, Europe and North America between February 28 — when the United States and Israel launched military operations against Iran — and March 9.

Analysts say the situation could weigh heavily on airline finances. Last week, HSBC warned that the current Middle East crisis could place a “significant burden” on the costs and profitability of Indian carriers. Air India has also asked the government to cut the tax on premium economy tickets to 5% from the current 18%, one of the sources said.

The airline, owned by the Tata Group and Singapore Airlines, has estimated that the Pakistan airspace ban imposed in April 2025 could cost it around $600 million annually. Air India, which was privatised in 2022, reported a loss of $433 million last year.