India's airlines are cutting fares to lure back passengers after higher ticket prices and capacity constraints slowed travel demand in one of the world's fastest-growing aviation markets.

Major scheduled carriers have responded with discounted fare categories that remove bundled services and lower ticket prices by as much as 8%, betting that cheaper entry-level fares will encourage price-sensitive travellers to return.

Air India introduced a new 'Basic' fare option in Economy Class on select domestic routes from June 16, aimed at price-conscious travellers who prefer unbundled services. The ticket includes 15kg checked baggage, 7kg cabin allowance and complimentary tea or coffee but excludes meals, which can be pre-purchased up to 24 hours before departure.

Within days, IndiGo followed with 'IndiGo Lite' fares for Economy Class customers across direct domestic and international flights from July 15.

The category offers a lower base price, an auto-assigned seat at no extra cost and a 7 kg cabin allowance. Optional add-ons, including checked baggage, preferred seats, meals and priority services, can be purchased up to one hour before departure.

The cheaper options are available only through the airlines' website, mobile app and contact centre.

The move comes after domestic passenger traffic weakened earlier this year as higher airfares and reduced capacity weighed on demand. The move marks a return to demand stimulation after months in which capacity shortages and higher costs dictated pricing.

India, which has added 88 airports since 2014, reported a dip in passenger traffic in April when domestic passengers fell 4% to 13.82 million from 14.32 million a year earlier. Newly redeveloped airports such as Prayagraj, Shirdi, Kalaburagi, Kushinagar and Pakyong have even reported no-flight days after several years.

As aviation expert Sanjay Lazar said in an interview with The Core, "The way to revive demand has got to be lower fares because fares have gone through the roof now, and they are really unaffordable." Airlines are responding with tactical fare structures that strip out bundled services, allowing passengers to pay only for what they use.

This model is not new. European and Southeast Asian carriers have long offered hand-baggage-only or no-meal fares to stimulate demand during lean periods.

Lazar said, "I have just travelled on full-service carriers like British Airways, Air France, and KLM within Europe and all of them have similar no-meal, no-check-in baggage fares."

US carriers, too, have adopted comparable schemes, with economy class tickets that exclude seat selection and checked baggage, to keep aircraft full during periods of slower growth.

Seasonality has also added to the pressure.

Jyoti Mayal, director at the New Delhi-based travel services provider, New Airways Travels, said, "July to September is always a lean season, so airlines are stimulating demand. Discounted fares today are less about generosity and more about strategy."

Higher Costs Hit Capacity

The slowdown followed disruptions triggered by the conflict in West Asia, which drove up aviation turbine fuel prices, disrupted oil supply chains and forced airlines to suspend flights on domestic and international routes.

A sharp rise in aviation turbine fuel (ATF) prices in April led Air India to cut international flights by as much as 22% on select routes, while IndiGo reduced international capacity by 17%.

Before announcing suspensions in April and May 2026, IndiGo was operating around 4,000 international flights monthly, while Air India and Air India Express together ran about 3,000.

Flights to West Asia were among the hardest hit as the region accounts for nearly 34 to 35% of international operations from India.

Per DGCA and industry estimates, domestic capacity was affected by around 13 to 15% in April and May 2026, with reduced seat availability driving fares up by as much as 50% on key metro routes.

Mayal said, "High fares and capacity constraints have slowed domestic traffic growth to just 1.4 % this year. Airlines are walking a tightrope; they must stimulate demand with discounts while battling cost pressures and fleet shortages."

ATF accounts for 40 to 50% of Indian carriers' operating costs compared with a global average of about 25%. Issues related to the delivery of components and engines have aggravated airlines' woes.

"Capacity constraints have been significant, with 13-15% of the fleet grounded due to supply chain and engine issues, reducing seat availability and pushing fares higher by 40-50% on key metro routes," said Mayal.

Jainam Shah, aviation analyst at the Mumbai-headquartered brokerage, Equirus Securities, said that the slowdown has been driven largely by supply-side constraints rather than weak demand.

"Higher fuel prices, airspace restrictions and aircraft availability issues forced airlines to prioritise profitability over capacity growth by reducing frequencies on loss-making routes and passing on part of the higher costs through fare increases."

During the peak of the crisis, the government announced the ATF Price Stabilisation Fund, approving Rs 100 billion ($1.2 billion) in interest-free advances to oil marketing companies to cushion airlines against volatility.

It followed this up with the Emergency Credit Line Guarantee Scheme (ECLGS 5.0), earmarking Rs 50 billion ($600 million) for airlines to ease liquidity pressures. The initiatives have found ready takers among carriers including Air India, IndiGo and SpiceJet.

Recovery Gains Pace

The easing of tensions is now helping international operations recover.

"International traffic already showed a sharp sequential improvement in June, with year-on-year declines narrowing significantly. This suggests that underlying demand remains healthy and passengers are returning as operational disruptions ease," said Shah.

Domestic traffic is also showing signs of recovery. DGCA data released on July 7 showed airlines carried 15.39 million passengers in May, up from 13.82 million in April, about a 10% month-on-month increase

Shah added, "As fares moderate and schedules stabilise, both domestic and international traffic should recover quickly. While complete network normalisation may take a quarter or two, depending on aircraft availability and airline scheduling, we expect passenger growth to rebound much faster than the disruption itself."

Industry participants expect demand to strengthen further during the festive season. Mayal said, "Carriers are using low headline fares to capture forward bookings for the festive and winter cycles. People know fares are lower now, so they are booking in advance."