New Delhi, Jan 22 The outlook on the Indian aviation industry is “stable,” driven by the anticipation of modest growth in domestic air passenger traffic in FY26, according to an ICRA report on Thursday.
ICRA has revised its forecasts for the domestic air passenger traffic growth in FY26 to 0-3 per cent, reaching 165-170 million, lower than its previous expectations of 4-6 per cent on a YoY basis. This is attributed to cross-border escalations (that led to flight disruptions and cancellations earlier during the year); the aircraft accident tragedy in June 2025 that made travellers hesitant, at least during the period immediately post the accident; the impact on business travel owing to the headwinds stemming from US tariffs; and the impact of operational disruptions at IndiGo from December 3, 2025 to December 8, 2025, resulting in around 4,500 flight cancellations.
However, ICRA maintained its Stable outlook on the industry as these disruptions are expected to be temporary, with ICRA’s growth forecast for FY2027 remaining unchanged at 6-8 per cent, although the low base of FY2026 would mean lower-than-earlier projected domestic air passenger traffic (175-182 million in FY2027 as per revised forecasts, against 179-186 million projected earlier).
ICRA had also revised its international air passenger traffic growth forecast for Indian carriers for FY2026 to 7-9 per cent from its earlier projection of 13-15 per cent.
ATF prices in January 2026 were lower by around 7.2 per cent on a sequential basis. The yield movement will remain monitorable due to its linkage with aviation turbine fuel (ATF) prices and the INR to USD exchange rate, both of which have a significant bearing on airlines’ cost structures. ATF prices from April 1, 2025, to January 1, 2026, have been lower by 4.2 per cent (on-year).
Fuel costs account for 30-40 per cent of airlines’ operating expenses, including aircraft lease payments. Further, 35-50 per cent of the operating expenses, which include fuel expenses and a substantial share of aircraft and engine maintenance costs, are denominated in dollar terms. Also, some airlines have foreign currency debt. As the INR continued to depreciate in Q3 FY2026, airlines are likely to face further forex losses, the report states.
The report expects the industry’s net losses to increase to Rs 170-180 billion in FY2026, higher than its earlier expectations of net loss of Rs 95-105 billion for the year (against net loss of Rs. 56 billion in FY2025). The primary contributor to this larger deficit is IndiGo’s elevated losses, stemming from the financial impact of flight cancellations, passenger refunds and elevated operating expenses due to the operational disruptions experienced in the first week of December 2025.
While some airlines have adequate financial assistance from strong parent companies, supporting their credit profiles, the credit metrics and liquidity profiles of others continue to remain under pressure, despite some improvement in recent years, the report added.
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