India’s aviation industry set to face Rs 105 billion loss in FY26 as costs rise, traffic slows: ICRA

India’s aviation industry is expected to see its financial losses deepen in FY2026, with total net losses estimated between Rs 95 billion and Rs 105 billion, credit rating agency ICRA said in a report released on Tuesday, October 28. The assessment suggests a steep rise from the Rs 55 billion loss estimated for FY2025, as domestic traffic growth slows and operational costs climb despite continued demand recovery.

Rising fuel prices and weak rupee pressure airlines

According to ICRA, high aviation turbine fuel (ATF) prices remain one of the biggest cost challenges for Indian carriers. ATF prices rose 3.3 per cent month-on-month in October 2025, while the average price in FY2025 stood at Rs 95,181 per kilolitre. Although this was lower than the previous year, fluctuations in crude oil prices and the exchange rate have kept fuel expenses volatile.

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Fuel accounts for 30-40 per cent of an airline’s operating costs, and much of the sector’s expenditure is dollar-denominated, leaving airlines exposed to currency movements. These factors, ICRA noted, continue to erode margins even as passenger load factors remain healthy.

Domestic travel slows despite higher capacity

Domestic air traffic slipped slightly in September 2025, with 128.5 lakh passengers recorded compared to 130.3 lakh a year earlier. The figure was also marginally lower than August 2025, despite airlines deploying marginally higher capacity. Capacity levels, however, were still 3.3 per cent below September 2024.

For the first half of FY2026 (April–September 2025), domestic traffic reached 803.7 lakh passengers, up just 1.3 per cent year-on-year. ICRA described the trend as evidence of “cautious travel sentiment” amid persistent operational and financial headwinds.

International routes show stronger recovery

In contrast, international passenger traffic has shown firmer momentum. Indian carriers carried 29.9 lakh passengers on international routes in August 2025—a 7.8 per cent increase from the previous year. Between April and August 2025, international passenger volumes rose 9.7 per cent year-on-year to 147.3 lakh, reflecting a sustained recovery in global travel demand.

Grounded aircraft and supply issues limit capacity

The industry continues to struggle with grounded aircraft and supply chain delays, particularly related to Pratt & Whitney engines. ICRA estimated that about 133 planes - roughly 15–17 per cent of the total fleet were grounded as of March 2025. Shortages of pilots and spare parts, along with rising lease rentals, have added to the operational strain.

While a few airlines benefit from strong parent-company support, several others continue to face liquidity pressures. “Healthy yields and high load factors are helping absorb some of the cost pressure,” ICRA said, adding that overall balance sheets remain stretched.