Aviation Stocks Crash Up to 9% as War Fears Ignite Oil Spike; JM Financial Issues Warning

Aviation stocks witnessed a sharp sell-off on Monday, plunging up to 9% as a spike in global crude oil prices and widespread airspace disruptions rattled investor sentiment.

Shares of InterGlobe Aviation, which operates IndiGo, fell as much as 7.58% intraday to ₹4,460.90, after hitting a day low of ₹4,267.55. Meanwhile, SpiceJet slumped 8.46% to ₹14.72, touching an intraday low of ₹14.60.

The sell-off follows a 10–13% surge in Brent crude, which crossed $82 per barrel after military strikes in Iran over the weekend intensified geopolitical tensions in West Asia.

The aviation pack emerged as one of the worst-performing themes on the NSE, with investors pricing in margin compression, rising fuel costs, and operational disruptions.

Oil Shock Triggers Sector-Wide Sell-Off

The surge in crude prices has immediate implications for airlines, where Aviation Turbine Fuel (ATF) is the single largest expense component.

Brent crude’s move above $82 per barrel marks a sharp escalation from recent averages, threatening to disrupt cost assumptions built into FY26 earnings estimates. For Indian carriers, which operate on tight margins and intense fare competition, even small increases in fuel prices can significantly impact profitability.

The market reaction was swift, with heavy volumes recorded in aviation counters through the morning session.

JM Financial Flags Earnings Risk

Adding to the pressure, JM Financial Institutional Securities released a note cautioning about significant headwinds for the sector leader, IndiGo.

The brokerage highlighted three major concerns:

Fuel Sensitivity: ATF accounts for nearly 40% of total operating expenses for airlines. According to JM Financial’s estimates, every $5 per barrel increase in Brent crude could result in an approximate 13% decline in Earnings Per Share (EPS) for IndiGo, assuming no immediate increase in ticket prices.

Capacity Risks: While IndiGo reported resilient Q3 FY26 revenue of ₹23,472 crore, the brokerage warned that the ongoing geopolitical situation could disrupt the projected 10% capacity growth in Q4, particularly on international routes.

Currency Exposure: With the rupee sliding toward 91.35 against the US dollar, dollar-denominated lease rentals and maintenance costs are expected to rise. JM Financial noted that currency volatility has historically had a material impact, recalling previous quarters where forex movements resulted in a ₹10,350 crore financial impact industry-wide.

The brokerage maintained a cautious stance, citing limited near-term pricing power amid rising input costs.

Airspace Closures Disrupt Operations

Beyond fuel costs, operational disruptions have compounded investor anxiety.

Following safety advisories, the Directorate General of Civil Aviation (DGCA) has asked carriers to avoid airspace over 11 countries in the conflict zone.

The immediate fallout includes:

• Indian carriers had canceled 179 flights as of midnight; by midday, cancellations had crossed 350 international services.
• Rerouting flights to Europe and North America via Central Asia is adding 2–3 hours to flight times, increasing fuel consumption and crew expenses.
• The temporary closure of Gulf corridors, historically high-yield routes for Indian airlines, is expected to weigh on international passenger yields during the current quarter.

Operational inefficiencies combined with higher fuel burn could significantly impact quarterly margins if the situation persists.

“The sharp decline in IndiGo and SpiceJet shares following the spike in crude oil prices reflects the aviation sector’s structural sensitivity to fuel costs,” said Karan Rijhsinghani, Director & Head, Product & Advisory, Atom Privé Financial Services. He added, "Aviation turbine fuel typically accounts for 35–45% of an airline’s operating expenses, which means even a sustained $5–10 per barrel rise in crude can materially compress margins. Markets tend to react quickly to such developments, especially when geopolitical tensions raise the risk of prolonged supply disruptions and elevated oil prices.
The outlook for aviation stocks will depend on the trajectory of crude prices and currency stability. If oil remains elevated and the rupee weakens further, profitability concerns may persist. However, if tensions ease and crude retraces, these corrections could stabilise. For now, volatility is likely to remain high across oil-sensitive sectors."

Despite the turbulence, IndiGo retains structural advantages, including a dominant domestic market share and a reported cash balance exceeding ₹50,000 crore. However, the sudden “war premium” embedded in oil prices is testing the limits of its low-cost carrier model.

SpiceJet appears more vulnerable, with thinner balance sheet buffers and heightened sensitivity to input costs. Its stock’s drop to ₹14.60 intraday reflects concerns over sustained profitability at current crude levels. Unless there is a swift geopolitical de-escalation, airlines may be compelled to introduce fuel surcharges. Such measures, however, could dampen passenger demand just as the summer travel season approaches, a critical revenue period for carriers.

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