Air India Loses Market Share Amid Iran Conflict and Pakistan Airspace Ban

The ongoing Iran war and continuing restrictions on Pakistani airspace are severely affecting Air India, creating new opportunities for foreign airlines such as Lufthansa and Cathay Pacific to expand their presence in one of the world’s fastest-growing aviation markets.

According to industry data cited by Reuters, Air India has reduced thousands of international flights due to soaring fuel costs, longer flight routes, and regional airspace closures linked to the Iran conflict. The situation has been worsened by Pakistan’s ongoing ban on Indian airlines using its airspace, forcing Indian carriers to take longer and more expensive routes.

The disruption has opened the door for foreign airlines to increase services between India, Europe, and North America. Lufthansa Group, Cathay Pacific, KLM, and Swiss are among carriers expanding operations to capture rising passenger demand and higher ticket prices. Foreign airlines’ share of India-origin international flights reportedly rose to 58.4% between March and May 2026, compared to 51.2% during the same period last year.

Air India’s long-haul operations have been especially affected. Data from aviation analytics firm Cirium showed that the airline’s scheduled US flights from India plunged by more than 77% year-on-year during the March-to-May period, while services to Europe also declined.

The Tata Group-owned carrier recently announced major cuts to international operations between June and August, including suspensions on routes such as Delhi-Chicago and Mumbai-New York, alongside reduced services to European cities including Paris, Milan, and Rome.

Industry experts say the Iran conflict has reshaped global aviation by increasing jet fuel prices and forcing airlines to avoid key Middle Eastern air corridors. The resulting operational challenges have raised airfare prices globally and disrupted travel schedules across Europe, Asia, and the Gulf region.

In an internal memo quoted by Reuters, outgoing Air India CEO Campbell Wilson reportedly said the “massive rise” in fuel prices and longer flying routes had rendered many international services unprofitable. Air India is now expected to post losses exceeding $2 billion for the 2025–26 financial year.

Despite the difficulties, analysts say India remains an attractive aviation market because of rapidly growing demand for international travel. However, bilateral flight caps and limited airport capacity could restrict how aggressively foreign airlines expand in the country.