Air India sees Pakistan airspace ban costing it $600 million over 12 months, seeks aid

By Aditya Kalra, Abhijith Ganapavaram

NEW DELHI (Reuters) -Air India expects to face around $600 million in additional costs if a ban from Pakistan's airspace lasts for a year, and has asked the federal government to compensate it for the hit, a company letter seen by Reuters shows.

Indian airlines are bracing for higher fuel costs and longer journey times after Pakistan shut its airspace to the country's carriers in a tit-for-tat retaliation following an attack on tourists in Kashmir last week.

Air India on April 27 asked the Indian government for a "subsidy model" proportionate to the economic hit, estimating a loss of more than 50 billion Indian rupees ($591 million) for each year the ban lasts, according to a letter sent by the airline to the Civil Aviation Ministry seen by Reuters.

"Subsidy for affected international flights is a good, verifiable and fair option ... the subsidy can be removed when the situation improves," the letter said.

"The impact on Air India is maximum due to airspace closure, due to additional fuel burn...additional crew."

Air India declined to comment. India's Civil Aviation Ministry did not immediately respond to a request for comment.

Air India's letter was sent after the government asked its executives to assess the impact of the airspace ban on Indian carriers, said a source with direct knowledge of the matter. 

The Tata Group-owned airline is in the midst of a multi-billion dollar turnaround after a period of government ownership, and growth is already constrained by jet delivery delays from Boeing and Airbus. It reported a net loss of $520 million in fiscal 2023-2024, on sales of $4.6 billion.

Air India, which has a 26.5% market share in India, flies to Europe, the United States and Canada, often crossing Pakistan's airspace. It operates many more long-haul routes than bigger domestic rival IndiGo.

Data from Cirium Ascend shows IndiGo, Air India and its budget unit Air India Express had roughly 1,200 flights combined from New Delhi scheduled for Europe, the Middle East and North America in April.

The Indian government is considering options to reduce the hit to the airline industry from the closure of Pakistan's airspace, three other people familiar with the matter said. 

One of the sources said Indian carriers met with the Civil Aviation Ministry to work on possible solutions, including flying over difficult terrain closer to China, and some tax exemptions.

In its letter, Air India asked the government to liaise with Chinese authorities for certain overflight clearances, without elaborating.

It also asked the government to approve the carrying of extra pilots on flights on the United States and Canada to account for longer travel times.

(Reporting by Aditya Kalra and Abhijith Ganapavaram; Editing by Kirsten Donovan)