India’s aviation sector, once hailed as a symbol of the country’s economic ascent, is now confronting significant challenges amid safety concerns and financial pressures. The difficulties come primarily from the country’s two dominant carriers, Air India and IndiGo, which together account for 90% of domestic airline seats, highlighting limited competition in the domestic market.

In early 2026, an Air India flight traveling from Phuket, Thailand, to New Delhi experienced a sudden midair plunge of approximately 90 meters, injuring 24 passengers. The incident drew intensified scrutiny after reports surfaced that the flight’s captain tested positive for marijuana upon landing. In response, Air India mandated a one-time drug screening for all its pilots. An investigation into the event is ongoing, with preliminary findings expected soon.

This latest episode has added to scrutiny of Air India’s safety culture, already under the spotlight following last year’s crash of a Boeing 787 Dreamliner bound for London that resulted in 241 fatalities. A parliamentary panel report revealed roughly 100 safety violations in an unrelated audit of the carrier, including several requiring urgent corrective actions and recurring training deficiencies among pilots operating Boeing 787 and 777 aircraft. Industry insiders describe the airline's safety culture as complacent, citing a lack of genuine commitment to safety protocols.

Former Air India executives and aviation safety experts have raised concerns about management oversight, questioning how such issues, including drug use, could occur without detection within the pilot community. Requests for comment from Air India and IndiGo were not immediately answered.

Beyond safety, Indian airlines are facing mounting financial difficulties influenced by geopolitical factors and operational constraints. The closure of Pakistani airspace — a consequence of escalating tensions between New Delhi and Islamabad — has forced carriers to operate longer, more costly routes. Additionally, soaring jet fuel prices driven by conflict in the Middle East have further strained profitability. Industry analysts estimate the combined losses for Indian airlines could reach nearly $4 billion in the current fiscal year.

Air India reported losses exceeding $2.3 billion in its latest fiscal year, while IndiGo has posted losses for two consecutive quarters. Financial distress has led to strategic setbacks, with IndiGo discontinuing its widebody fleet and Air India contemplating delays in deliveries of up to 500 aircraft.

Despite rapid growth—passenger numbers more than doubled to approximately 167 million over the past decade, and over 70 new operators have entered the market—the sector’s development appears uneven. Experts point to systemic regulatory weaknesses, exemplified last year when IndiGo was forced to cancel flights due to inadequate preparation for new pilot fatigue rules. Critics argue that the Directorate General of Civil Aviation (DGCA) has played a more facilitative than regulatory role, complicating oversight.

The duopoly of Air India and IndiGo has been cited as a challenge to competitive balance and regulatory enforcement. Over the past two decades, seven major Indian airlines have ceased operations or been sold, leaving limited options to hold the dominant carriers accountable. Observers suggest that the sector’s current structure resembles fragmented rivalries rather than mature competition.

In recognition of these issues, the government has advocated for the emergence of at least five large airlines and approved licenses for two new carriers. Discussions are underway to relax restrictions on airport operators owning airlines, potentially enabling conglomerates like the Adani Group to enter the market.

However, analysts caution that these measures alone may not resolve core challenges. High operating costs remain a barrier for new entrants, contributing to difficulties in sustaining profitability despite strong market growth. Industry veterans note that while the sector is often described as a “sunshine industry,” ongoing financial and operational problems hinder its long-term sustainability.