Indian Aviation Losses Set to Widen Sharply in FY26: ICRA

India’s aviation sector is expected to face a sharp rise in losses in 2025-26, even as passenger traffic shows signs of gradual recovery. According to rating agency ICRA, the industry is projected to post a net loss of ₹170-180 billion in FY26, significantly higher than the estimated ₹55 billion loss in FY25.

However, the outlook improves slightly for FY27, with losses expected to narrow to ₹110-120 billion, driven by better domestic traffic growth and operational stabilisation.

Traffic Growth to Recover Gradually

Domestic air passenger traffic in FY26 has remained modest due to multiple disruptions. Cross-border escalations, weather-related interruptions, travel hesitancy following the June 2025 aircraft accident, and operational challenges at IndiGo in December 2025 weighed heavily on demand. Elevated US tariffs also impacted business travel sentiment.

ICRA had earlier revised domestic passenger growth estimates for FY26 to 0-3%, down from 4-6%. For FY27, traffic is expected to rebound by 6-8%, reaching 175-179 million passengers.

International traffic is likely to remain relatively stronger. Growth is estimated at 7-9% in FY26 and 8-10% in FY27, supported by expanding e-visa access and the government’s push for tourism development.

Financial Metrics Under Pressure

The industry’s financial health weakened in FY26, with interest coverage estimated at 0.7-0.9 times, down from 1.8 times in FY25. However, this is expected to improve to 1.3-1.5 times in FY27, even as airlines take on additional debt for aircraft deliveries.

Fuel costs continue to be a major burden, accounting for 30-40% of operating expenses. Aviation turbine fuel (ATF) prices and currency fluctuations remain key risks. The rupee depreciated by about 3.2% year-on-year in the first nine months of FY26, increasing pressure on lease payments, maintenance costs, and debt servicing.

Capacity Expansion Continues

Despite losses, capacity expansion remains strong. The fleet size reached 865 aircraft as of December 31, 2025, with around 4% capacity addition during the year. More than 1,700 aircraft deliveries are pending over the next decade, largely aimed at replacing older, less fuel-efficient planes.

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Conclusion

While FY26 is set to be a challenging year for Indian aviation, the medium-term outlook remains stable. With traffic recovery, operational normalisation, and improved cost efficiencies, the industry may gradually return to financial stability in FY27 and beyond.

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