Iran Conflict Spurs International Airlines to Capitalize on Air India's Reduced Global Presence

India's Aviation Market Booms as Air India Struggles

New Delhi: The ongoing Iran war and Pakistan's airspace ban have dealt a significant blow to Air India's operations, causing the airline to cut thousands of flights. However, this development has created an opportunity for foreign carriers to capitalize on India's growing aviation market.

According to data from OAG, foreign airlines' share of India-origin international scheduled flights rose to 58.4% in March-May, from 51.2% a year earlier. This shift has been driven by the strong demand for flights from South Asia to Europe and North America, resulting in higher airfares. Air India, on the other hand, has scheduled 6,404 international flights from India in March-May, down 17.5% year-on-year.

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The flight cuts and encroachment from foreign rivals represent a significant blow to Air India's ambitions of becoming a credible global airline. The airline has never reported a profit since being sold by the government in 2022 and is set to post record losses of over $2.12 billion for fiscal 2025-26.

Air India's international operations contribute more than 60% of the group's revenue, making it vulnerable to fluctuations in the market. The airline's outgoing CEO, Campbell Wilson, attributed the decline in profitability to the "massive rise" in jet fuel prices, airspace closures, and longer flying routes.

Pakistan's ban on Indian airlines from using its airspace since April 2025 has forced Air India to reroute its flights, adding to the airline's costs. Foreign airlines, on the other hand, are seeing an opportunity to expand their services in India.

Lufthansa Group and Cathay Pacific are among the airlines that have added services to India, capitalizing on the strong demand for flights from South Asia to Europe and North America. Swiss, owned by Lufthansa, has scheduled 247 flights from India during March-May, up 39% from a year earlier, while KLM has scheduled 294 flights, up 19.5%.

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The Middle East crisis has also led to an increase in Indian passengers on flights to Hong Kong via Cathay Pacific's hub. However, further flight additions by foreign airlines could be limited by bilateral caps that have also curbed Gulf carriers' growth in India.

The restrictions on Air India's Middle East routes have worsened its position on U.S. routes, where some journey times have increased by nearly five hours due to airspace restrictions. The airline has suspended its Delhi-Chicago flights and reduced several other U.S. services for June-August.

While Air India can still attract bookings with lower fares, passengers tend to prefer foreign carriers when their fares are similar and routings are longer. As the Indian aviation market continues to grow, it remains to be seen how Air India will navigate this challenging environment.