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ICRA Sees Stable Outlook for Indian Aviation Despite Turbulence

ICRA has maintained a stable outlook for India's aviation sector despite forecasting a massive net loss for FY2026, attributing current challenges to temporary factors. Domestic passenger traffic growth has been sharply revised down due to geopolitical tensions, a past accident, and major operational disruptions at IndiGo triggered by new crew duty rules. The industry continues to face financial pressure from high fuel costs, a weak rupee, and persistent supply chain issues that have grounded over 130 aircraft. A partial recovery is expected with regulatory relief for IndiGo, leading to a stronger growth projection of 6-8% for FY2027.

Key Points: India Aviation: ICRA Maintains Stable Outlook Amid Losses

  • FY26 net loss seen at Rs. 170-180 bn
  • Domestic traffic growth revised to 0-3%
  • IndiGo's Dec 2025 disruption caused 4,500 cancellations
  • 133 aircraft grounded due to engine issues
3 min read

India Aviation Sector: ICRA maintains a stable growth outlook despite recent disruptions

ICRA maintains a stable outlook for Indian aviation despite forecasting a Rs. 170-180 bn FY26 loss, citing temporary disruptions from new rules and supply issues.

"disruptions are expected to be temporary - ICRA report"

New Delhi, January 22

ICRA has maintained its stable outlook on the Indian aviation industry, even as it navigates a challenging period marked by operational disruptions and revised growth projections. While the industry is expected to face a significant net loss of Rs. 170-180 billion in FY2026, the outlook remains stable because these "disruptions are expected to be temporary."

For the current fiscal year, domestic air passenger traffic is forecasted to grow by a modest 0-3 per cent, reaching approximately 165-170 million passengers. This is a downward revision from previous expectations of 4-6 per cent growth, primarily due to "cross-border escalations," an "aircraft accident tragedy in June 2025," and "the impact on business travel owing to the headwinds stemming from US tariffs."

A major factor in the recent slowdown was the significant operational disruption at IndiGo from December 3 to December 8, 2025, which resulted in approximately 4,500 flight cancellations. These issues were largely "triggered by the implementation of stricter flight duty time limitation (FDTL) regulations, especially tougher rules on night duties and landings, alongside adverse weather and technical challenges."

The report notes that "IndiGo's reliance on high aircraft utilisation and extensive night-time operations left it with limited flexibility, making it more vulnerable than its competitors". Consequently, domestic passenger traffic in December 2025 fell by 3.9 per cent year-on-year to 143.4 lakh. Despite this, the industry's domestic passenger load factor (PLF) was estimated at a healthy 94.0 per cent for the month.

Financially, the industry continues to grapple with high costs and currency volatility. Fuel remains a massive burden, as "fuel costs account for 30-40 per cent of airlines' operating expenses". Additionally, a substantial portion of these expenses, including maintenance and lease payments, is denominated in dollars.

The "weakening of the INR against the USD in Q2 FY2026 resulted in airlines reporting large foreign exchange (forex) losses," many of which remain unrealised. Supply chain issues also persist, with engine failures grounding approximately 133 aircraft as of March 2025, representing 15-17 per cent of the total industry fleet.

Looking ahead, the industry expects a stronger recovery in FY2027 with a projected growth rate of 6-8 per cent. While the "credit metrics and liquidity profiles of others continue to remain under pressure," some airlines benefit from strong parent companies.

For now, the Directorate General of Civil Aviation (DGCA) has provided IndiGo temporary relief from the new FDTL regulations until February 10, 2026, which is expected to allow for a "partial recovery in passenger traffic growth" in the coming weeks.

- ANI

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Reader Comments

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Priya S
I was one of those affected by the IndiGo cancellations in December. Absolute chaos at the airport! 😓 While pilot fatigue rules are important for safety, the rollout seems to have been poorly planned. Glad they got temporary relief, but a long-term solution is needed.
A
Arjun K
The 94% load factor is the key takeaway for me. It shows the underlying demand for air travel in India is rock solid. These are temporary operational and external headwinds (like US tariffs). Once the supply chain and engine issues are sorted, growth will bounce back. 🇮🇳✈️
S
Sarah B
As a frequent business traveler, the impact on schedules has been noticeable. The report mentioning "cross-border escalations" affecting growth is a sobering reminder of how geopolitics hits the common person. Hoping for more stability so business travel can pick up again.
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Vikram M
The reliance on dollar-denominated costs is a major structural weakness for Indian aviation. With a weakening rupee, it's a constant pressure. We need to develop more domestic MRO (Maintenance, Repair, Overhaul) capabilities to reduce some of this forex dependency.
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Karthik V
Respectfully, calling the outlook "stable" while reporting such massive losses and 133 grounded aircraft feels a bit optimistic. The DGCA giving temporary relief on FDTL rules seems like a patch, not a fix. The focus should be on sustainable growth, not just pushing utilization to the limit.

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