In a clear sign of turbulence ahead, Air India has reportedly deferred annual salary increments for a significant section of its employees and intensified internal cost-cutting measures. The Tata Group-owned carrier cites a volatile FY26 outlook as the primary reason, raising concerns about profitability despite its ongoing turnaround under the Vihaan.AI transformation plan.
The Decision: Hikes on Hold
According to internal communications accessed by industry sources, Air India has postponed performance-linked and merit-based salary revisions that were due in mid-2025. While top executives have taken voluntary pay freezes earlier, this latest move affects managerial, engineering, and cabin crew staff across domestic and international operations.
No timeline yet on when hikes will resume
Variable pay affected for non-flight roles
Promotions still happening, but with delayed salary adjustments
Why the Caution? FY26 Volatility Explained
The airline industry is bracing for a challenging FY26 due to multiple headwinds:
1. Rising Fuel & Operating Costs
Crude price fluctuations and a weaker rupee have pushed ATF costs up by nearly 12% in early 2025. Fleet expansion with new wide-body aircraft adds lease and maintenance expenses.
2. Intensifying Competition
IndiGo, Akasa, and even rejuvenated SpiceJet are aggressively pricing routes. Air India cannot fully pass on costs without losing market share on price-sensitive domestic sectors.
3. Integration & Restructuring Costs
The merger with Vistara (operational by mid-2025) brings synergies but also one-time IT, legal, and workforce redundancy costs that strain working capital.
Cost Cuts Beyond Salaries
Air India is simultaneously targeting non-salary expenses:
Travel & hotel budgets for corporate staff reduced by 20%
Hiring freeze on non-critical roles
Route rationalization – weaker-performing international routes may see frequency cuts
Vendor renegotiations for ground handling and catering
Employee Morale vs. Long-Term Vision
While the delay in increments is prudent for financial health, it risks employee morale — especially as rival carriers like IndiGo and Akasa continue offering market-linked hikes. Air India is betting that its employees will prioritize long-term ESOP benefits and growth prospects over immediate cash compensation.
What’s Next?
Air India’s leadership has hinted at a reassessment in Q3 FY26, depending on fuel prices, demand recovery from Europe/US markets, and successful Vistara integration. For now, the airline is tightening its belt — sending a clear signal that the post-COVID aviation boom may be hitting an air pocket.