India’s aviation industry is set to remain under financial stress through FY2026, with losses expected to widen as higher fuel costs and geopolitical disruptions weigh on airlines, according to a report by Icra.
The ratings agency has projected a net loss of Rs 170–180 billion for the sector in FY2026, while warning that earlier expectations of a recovery next year are now under pressure following the escalation of conflict in West Asia. The disruption, which began in late February 2026, has pushed up crude oil prices, weakened the rupee against the USD and led to higher operating costs for carriers.
Icra said it had previously estimated industry losses to narrow to Rs 110–120 billion in FY2027, supported by traffic growth. However, it now sees a “downward bias” to that outlook as airlines grapple with cost pressures from fuel, rerouting and currency movements.
Fuel remains a critical concern. Aviation turbine fuel (ATF) prices rose 9.2 per cent sequentially in April 2026 and were up 18.2 per cent from a year earlier, driven by elevated crude prices linked to the West Asian conflict. Fuel accounts for 30–40 per cent of airline operating expenses, amplifying the impact of such increases on profitability.
Demand-side Risks And Growth In Domestic Traffic
At the same time, the industry is facing demand-side risks. Domestic passenger traffic growth remained subdued, rising just 1.0 per cent year-on-year in March 2026, bringing full-year growth for FY2026 to 1.4 per cent. This was in line with Icra’s earlier expectations but highlights a slowdown compared with previous years.
Icra expects domestic traffic to grow 6–8 per cent in FY2027, although it cautioned that higher airfares—driven partly by fuel surcharges of 5–6 per cent—could dampen demand. The removal of fare caps by the aviation regulator in December 2025 also poses downside risks if ticket prices rise sharply.
International operations present a mixed picture. While traffic for Indian carriers grew 7.7 per cent year-on-year in the first 11 months of FY2026, February saw a marginal decline and a sharp sequential drop, reflecting volatility amid global disruptions.
Operational challenges have compounded financial pressures. Supply chain issues and engine failures, particularly involving Pratt & Whitney engines, led to the grounding of 117 aircraft as of February 2026, representing 13–15 per cent of the industry fleet. This has forced airlines to lease additional aircraft at higher costs and operate older, less fuel-efficient planes.
Geopolitical tensions have also disrupted flight paths, increasing fuel burn and operating expenses due to rerouting of long-haul international flights and additional airport charges. These factors, combined with a weaker rupee, have increased the burden of dollar-denominated costs such as leases and maintenance.
Despite these headwinds, some mitigating factors remain. Passenger load factors were relatively strong at 89.5 per cent in March 2026, indicating resilient demand levels even as growth slows. Government measures, including a 25 per cent reduction in landing and parking charges for domestic airlines for three months starting April, are expected to provide limited relief.
Icra has revised its outlook on the sector to “negative” from “stable”, citing a weakening spread between revenue and costs. The agency noted that while some airlines benefit from stronger liquidity or parent support, others continue to face stretched financial positions.
With fuel prices volatile, currency pressures persisting and geopolitical risks unresolved, the industry’s path to profitability remains uncertain, Icra said. |
