Diverging Energy Costs in India: Airlines Face Pressure as Restaurants Grapple with LPG Hikes

India's energy market has entered a period of stark divergence in 2025–2026, with the airline sector contending with surging aviation turbine fuel (ATF) prices and the restaurant industry reeling from a sharp increase in commercial LPG costs. These divergent trends are reshaping capital allocation strategies and testing the margin resilience of both sectors, offering critical insights for investors navigating a fragmented economic landscape.

Restaurant Sector: LPG Hikes Threaten Thin Margins

The restaurant and hospitality industry, already burdened by inflationary pressures on food and raw materials, faces a new challenge as commercial LPG prices surged by ₹111 per 19-kg cylinder in January 2026. Prices in major cities like Delhi (₹1,691.50), Mumbai (₹1,642.50), and Chennai (₹1,849.50) reached six-month highs, driven by global winter heating demand. For small and medium eateries, where fuel costs can constitute a significant portion of operating expenses, this hike threatens to erode already narrow profit margins.

Industry experts warn that the burden is likely to be passed to consumers through higher menu prices, particularly for establishments with limited pricing power. The timing of the increase-occurring on January 1, 2026-has compounded concerns, as businesses struggle to absorb costs amid seasonal demand fluctuations according to market analysis. While domestic LPG prices remain stable, shielding households from inflation, the commercial sector's exposure to global energy markets highlights its vulnerability to external shocks as reported in industry analysis.

Airlines: ATF Price Surge and Currency Depreciation Create Turbulence

In contrast, the airline sector is grappling with a different but equally severe energy cost challenge. ATF prices in New Delhi rose by ₹5,133.75 per kilolitre in late 2025 to ₹99,676.77, marking the third consecutive monthly increase. Fuel now accounts for 30–40% of operating expenses, with J P Morgan estimating that a 1% depreciation in the rupee cuts pre-tax profits by 5–6%. This dual pressure-rising fuel costs and a weaker currency-is forcing airlines to reassess capital allocation strategies, including delaying fleet expansions or accelerating fuel hedging programs.

Domestic airfares remain stagnant, limiting yield improvements despite rising demand. While international routes have seen a 13% year-on-year fare increase, the shift toward longer-haul operations has offset gains with higher per-seat costs as market data shows. Analysts project net losses for the sector to widen to ₹95–105 billion in FY2026, up from ₹55 billion in FY2025. This financial strain is prompting airlines to prioritize liquidity management over aggressive growth, with some deferring investments in new aircraft or technology upgrades.

Divergent Trajectories and Investment Implications

The contrasting energy cost dynamics underscore divergent capital allocation priorities. Restaurants, constrained by fixed fuel costs and limited pricing flexibility, are likely to focus on operational efficiency and menu optimization to preserve margins according to industry analysis. Airlines, meanwhile, face a more complex challenge: balancing fuel cost volatility with currency risks while maintaining service quality to retain market share as market reports indicate.

For investors, the key lies in sector-specific risk mitigation. The restaurant sector's resilience will depend on its ability to pass costs to consumers without triggering demand erosion-a test for small businesses with limited brand equity. Airlines, on the other hand, must navigate a fragile balance between fuel hedging, route optimization, and currency exposure management. Both sectors highlight the importance of monitoring global energy markets and domestic policy responses, such as subsidies or tax adjustments, which could alter their trajectories.

As India's economy navigates these divergent pressures, the interplay between energy costs and sectoral performance will remain a critical determinant of capital allocation decisions and long-term profitability.