The Indian aviation industry’s outlook is deemed “stable,” with expectations of modest growth in domestic air passenger traffic for FY26, as per an ICRA report. ICRA has adjusted its forecast for domestic air passenger traffic growth in FY26 to 0-3%, reaching 165-170 million, lower than earlier projections of 4-6% year-on-year. Various factors like cross-border tensions, a tragic aircraft accident in June 2025, impacts of US tariffs on business travel, and operational disruptions at IndiGo have influenced this revision.
Despite temporary disruptions, ICRA maintains a stable industry outlook, forecasting a growth rate of 6-8% for FY2027. However, due to the lower base in FY2026, the revised estimates suggest domestic air passenger traffic of 175-182 million in FY2027. ICRA has also revised its international air passenger traffic growth forecast for Indian carriers to 7-9% for FY2026, down from the earlier projection of 13-15%.
Fuel costs, which constitute a significant portion of airlines’ operating expenses, have seen a decline, with ATF prices in January 2026 down by approximately 7.2% sequentially. The movement of yields remains dependent on factors like ATF prices and the INR to USD exchange rate, affecting airlines’ cost structures. The report highlights that airlines, facing forex losses due to INR depreciation, are likely to experience increased net losses in FY2026.
The industry is expected to incur net losses of Rs 170-180 billion in FY2026, a significant rise from the previous estimate of Rs 95-105 billion. IndiGo’s substantial losses, attributed to flight cancellations and operational disruptions in December 2025, are a major factor contributing to this deficit. While some airlines benefit from strong parent companies, others face pressure on credit metrics and liquidity profiles despite recent improvements.
