India’s aviation sector is once again flying into severe turbulence. A combination of geopolitical shocks, rising fuel prices, a weakening rupee and persistent operational bottlenecks has exposed the fragility of an industry that, despite serving one of the world’s fastest-growing aviation markets, continues to struggle to generate sustainable profits.The numbers tell the story.Tata-owned Air India is expected to report its largest-ever annual loss in FY2027 after posting a massive loss of Rs 26,800 crore in FY 2026. IndiGo, the country’s largest carrier, surprised investors by reporting a standalone loss of Rs 383 crore in the first quarter of FY 2027 despite posting a 20% increase in revenue. Credit rating agency ICRA, which had expected the industry’s losses to narrow this year, has instead turned more cautious. It has revised its outlook on the Indian aviation industry from ‘Stable’ to ‘Negative’, warning that the Iran conflict, airspace disruptions due to the war on Iran and Pakistan airspace closure, higher aviation turbine fuel (ATF) prices and rupee depreciation have worsened the earnings outlook.Against this backdrop came reports that the government was considering relaxing aviation norms to allow airport operators to own airlines. The speculation was enough to trigger a frenzy. Investors immediately began betting that infrastructure giants such as the Adani Group or GMR Airports could launch airlines. Shares of financially distressed SpiceJet surged nearly 10% on hopes that it could become an acquisition target. Akasa Air was cited as another acquisition target.IndiGo promptly raised concerns about the conflict of interest that could arise if airport operators also owned airlines. Nowhere in the world are airports allowed to invest in airlines, Indigo founder Rahul Bhatia said. With IndiGo and Air India together controlling nearly 90% of the domestic market, any new entrant would inevitably reshape competitive dynamics.The Adani Group has since denied any plans to launch an airline.The denial should surprise no one.Launching an airline in India is not simply a question of capital. It requires extraordinary financial stamina, patience and the willingness to absorb years of losses before seeing meaningful returns. Even then, success is far from guaranteed.India’s aviation history is littered with failed experiments.Failures that beSince economic liberalisation in 1991, at least 10 airlines have ceased operations after burning billions of dollars of shareholder and lender capital. Their collapse imposed enormous costs not only on promoters but also on banks, employees, passengers and taxpayers.Vijay Mallya-owned Kingfisher Airlines remains perhaps the most spectacular failure. Once marketed as India’s premium airline, it collapsed under a mountain of debt, leaving employees unpaid for months and saddling banks with massive bad loans. Several investigations followed, while many employees faced severe financial hardship.Jet Airways, once India’s finest full-service carrier, also disappeared despite carrying millions of passengers annually. At the time of its collapse, passengers had advance bookings worth more than Rs 3,500 crore. Years after entering insolvency proceedings, creditors are still waiting for a meaningful resolution.Nusli Wadia-owned Go First became another casualty after Pratt & Whitney engine failures crippled its fleet. SpiceJet has repeatedly battled liquidity crises. Even Air India, despite being backed by one of India’s strongest business groups – the Tatas – continues to consume enormous amounts of capital in its turnaround journey. Tata group is worried about investing billions of additional dollars in the airline as it plans to add more aircrafts in the coming months.Few industries have destroyed wealth as consistently as aviation.Yet, India desperately needs a vibrant airline industry.Not a luxury anymoreCivil aviation is no longer a luxury. It is a critical economic infrastructure. Airlines connect businesses, facilitate tourism, support exports, integrate regional economies and enable labour mobility. India’s ambition of becoming a developed economy cannot be realised without a robust aviation ecosystem capable of supporting rapidly rising passenger demand.The paradox is striking.India is among the world’s fastest-growing aviation markets, yet its airlines remain among the least profitable.ICRA’s latest report highlights the scale of the challenge. It estimates that the Indian aviation industry will report a net loss of Rs 170-180 billion in FY2026. Before the escalation of the West Asia conflict, it expected losses to narrow to Rs 110-120 billion because of stronger passenger traffic. That optimism has now faded. The rating agency warns that the conflict has introduced a “downward bias” to those projections because of flight cancellations, rerouting of international services, higher fuel burn, increased airport charges, rising crude oil prices and rupee depreciation.The industry is fighting a battle on several fronts simultaneously.Fuel remains the biggest headache with Brent crude now hovering around US$100 a barrel for months.According to ICRA, fuel accounts for 30-40% of airlines’ operating expenses, while 35-50% of operating costs, including lease rentals, maintenance expenses and fuel-related payments, are denominated in US dollars. Every spike in crude oil prices and every decline in the rupee immediately erodes profitability as aircraft fuel is pegged to the dollar and is not subsidised by the government.The West Asia conflict has made matters worse. ICRA notes that average ATF prices increased by 5.7% sequentially in March 2026, while Brent crude surged to around US$105 a barrel at the beginning of the war from about US$72 following the geopolitical escalation.These are structural pressures, not temporary inconveniences.Operational challenges have compounded the problem.ICRA estimates that 117 aircraft, representing around 13-15% of the industry’s fleet, remained grounded because of engine failures and supply-chain bottlenecks. Airlines have been forced to lease replacement aircraft at elevated costs, operate older planes with lower fuel efficiency and absorb higher maintenance expenses. Half of the now-closed GoAir fleet was grounded due to faulty engines.The financial consequences are becoming increasingly visible.The rating agency expects the industry’s interest coverage ratio to weaken sharply before recovering only gradually, assuming geopolitical tensions do not worsen. That is hardly the profile of an industry attractive to fresh investors.This is precisely why speculation about new entrants into the sector should be viewed cautiously.Every few years, India witnesses excitement over a potential new airline. The narrative is familiar. Passenger traffic is growing rapidly. The middle class is expanding. Aircraft manufacturers project thousands of new aircraft deliveries. Investors begin believing that this time will be different.History suggests otherwise.Demand growth alone has never guaranteed profitability.For decades, India’s aviation policy has focused largely on increasing connectivity and passenger numbers. Far less attention has been paid to creating an economically sustainable business environment for airlines.If India genuinely wants more competition, it must first make the economics work.Combating the duopolyThe country certainly needs alternatives to the current duopoly. IndiGo and Air India together command almost 90% of domestic traffic. Greater competition would improve service standards, stimulate innovation and provide travellers with more premium choices. Regional connectivity would also benefit from financially stronger airlines capable of making long-term investments.But new entrants cannot survive if the underlying economics remains broken.The policy agenda therefore deserves as much attention as ownership rules.Taxes on aviation turbine fuel remain among the highest in the world. Airport charges continue to rise. Airlines face significant foreign currency exposure because aircraft leases, maintenance contracts and many operating expenses are dollar-denominated. Regulatory interventions often change with little notice, increasing business uncertainty.A stable long-term aviation policy would be far more valuable than merely allowing airport operators to own airlines.The government should examine rationalising ATF taxation, ensuring predictable airport tariffs, facilitating access to long-term financing, encouraging domestic aircraft leasing, simplifying bankruptcy resolution for airlines and providing greater regulatory certainty. These reforms may not attract headlines, but they would do far more to strengthen Indian aviation than another high-profile airline launch. Indian policy makers must try to understand why Air India is making such a huge loss while Etihad and Emirates of UAE are making huge profits with several flights from Indian cities.There is another reason policymakers should care.Airlines are not merely private businesses. They are strategic national assets. A resilient aviation sector supports tourism, trade, manufacturing, logistics and employment. Every successful global economy has built strong aviation networks backed by commercially sustainable carriers.India cannot afford an aviation sector that repeatedly destroys capital every economic cycle.Aircraft manufacturers such as Boeing and Airbus continue to predict explosive long-term growth in Indian air travel, and those projections are probably correct. Rising incomes, rapid urbanisation and improving infrastructure will ensure that millions more Indians choose to fly over the coming decades.The demand story is unquestionable. The business model is not.Until India addresses the structural weaknesses – volatile fuel costs, currency risks, supply-chain disruptions, operational bottlenecks and weak financial resilience – the country’s aviation industry will continue to lurch from one crisis to another.India unquestionably needs more airlines. It needs stronger competition. It needs greater connectivity and better services. It needs a vision with zero political interference and freeloaders. Allowing foreign airlines to own a majority stake will be a step in the right direction.But above all, it needs an aviation ecosystem where airlines can earn sustainable returns without repeatedly relying on bailouts, deep-pocketed promoters or endless financial restructuring.Only then will India’s aviation story truly take off.Dev Chatterjee is a senior journalist and co-author of The Meltdown and India Inc’s Greatest Turnarounds.