India's Aviation Sector Faces Pressure As Passenger Traffic Declines Further
India’s aviation industry is facing mounting pressure after domestic passenger traffic declined in April, with higher airfares, elevated fuel costs, and the ongoing West Asian conflict weighing on travel demand and airline profitability, ratings agency Icra said in a report.Domestic air passenger traffic stood at 140.8 lakh in April 2026, down 1.6 per cent from 143.1 lakh a year earlier and 2.0 per cent lower than March 2026 levels, Icra said. The agency attributed the decline to a moderation in discretionary travel demand amid elevated airfares.
The report marks a muted start to FY2027 for the aviation industry, which is already grappling with rising operating costs and supply chain disruptions.
Icra retained a “negative” outlook on the Indian aviation industry, citing the impact of hardening aviation turbine fuel (ATF) prices, disruptions to international airspace availability following the escalation of conflict in West Asia since late February 2026, and continued depreciation of the rupee against the US dollar.
“Flight cancellations amid airspace closures and an increase in air fares in view of the levy of fuel surcharge… will weigh on passenger traffic growth,” the agency said.
The ratings agency added that its earlier forecasts for international and domestic passenger traffic growth in FY2027 now carry a downward bias because of the geopolitical situation.
Icra expects the Indian aviation industry to report a net loss of Rs 170-180 billion in FY2026. Earlier projections for FY2027 had estimated losses would narrow to Rs 110-120 billion on the back of passenger traffic growth, but the agency now sees downside risks to those forecasts.
The agency said higher fuel burn due to the rerouting of long-haul international flights, additional airport charges, and rising fuel prices were increasing cost pressures on airlines.
ATF prices for domestic routes in May 2026 remained unchanged sequentially but were still 23.5 per cent higher compared with May 2025, according to the report. Fuel remains one of the largest cost components for airlines, accounting for 30-40 per cent of operating expenses.
Icra noted that 35-50 per cent of airline costs are denominated in U.S. dollars, including fuel, aircraft lease rentals and maintenance expenses, leaving carriers vulnerable to a weak rupee and elevated crude oil prices.
The report also highlighted persistent supply chain issues and engine-related problems affecting the sector. Around 99 aircraft remained grounded as of March 2026 because of supply chain challenges and Pratt & Whitney engine failures, accounting for 11-13 per cent of the industry’s fleet.
Airlines have also faced operational disruptions in recent months. Icra noted that InterGlobe Aviation’s IndiGo experienced significant disruptions in December 2025 following stricter flight duty time limitations, adverse weather, and technical issues, leading to around 1,600 flight cancellations at their peak.
Separately, Air India temporarily reduced its international wide-body flight capacity by around 15 per cent after heightened safety checks following an aircraft crash in June 2025, the report said.
To support the sector, the Ministry of Civil Aviation reduced landing and parking charges for domestic airlines by 25 per cent for three months starting April 2026.
The Indian government has also approved an Emergency Credit Line Guarantee Scheme worth Rs 5,000 crore for the aviation sector, allowing airlines to access additional funding with government-backed guarantees to ease near-term liquidity pressures.
Meanwhile, the governments of Maharashtra and Delhi have reduced value-added tax on ATF to 7 per cent from 18 per cent and 25 per cent, respectively, to provide cost relief to airlines.
Despite the challenges, Icra said domestic passenger traffic is still expected to grow by 6-8 per cent in FY2027, although the outlook remains vulnerable to further increases in air fares and prolonged geopolitical uncertainty.
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