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Indian Aviation Outlook Stable Despite Turbulence, Growth Forecast Trimmed

ICRA has revised its forecast for India's domestic air passenger growth in FY26 downward to 0-3%, citing factors like geopolitical tensions, an aircraft accident, and operational disruptions at IndiGo. Despite this, the credit rating agency maintains a stable outlook for the industry, believing these headwinds are temporary and projecting a recovery to 6-8% growth in FY2027. The report warns that industry net losses are expected to swell significantly in FY2026, partly due to IndiGo's elevated losses from recent cancellations. While fuel costs have eased, airlines remain vulnerable to foreign exchange losses due to the depreciating rupee and dollar-denominated expenses.

Key Points: India's Aviation Outlook Stable, FY26 Growth Forecast Lowered

  • FY26 domestic traffic growth revised to 0-3%
  • Stable industry outlook maintained
  • Net losses expected to widen to Rs 170-180 billion
  • ATF prices lower but forex pressure remains
  • International traffic growth forecast also trimmed
3 min read

Indian aviation industry outlook stable, disruptions expected to be temporary: Report

ICRA report revises India's domestic air passenger growth to 0-3% for FY26 but maintains a stable industry outlook, citing temporary disruptions.

"ICRA maintained its Stable outlook on the industry as these disruptions are expected to be temporary"

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.

- IANS

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Reader Comments

R
Rohit P
The dependency on the USD is a major pain point for our airlines. When the rupee weakens, ticket prices eventually go up for us common people. Lower ATF prices are good news, but will the benefit be passed to passengers? I doubt it. The industry needs better hedging strategies.
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Arjun K
Good to see a realistic assessment. The cross-border situation earlier this year did cause a lot of uncertainty and flight cancellations for many. It's a relief that these are seen as temporary blips. The long-term growth story of Indian aviation is still intact. Jai Hind!
S
Sarah B
The report mentions passenger hesitation after the accident. That's very real. My family postponed two trips. Confidence needs to be rebuilt through transparent safety communication. Also, 4500 cancellations in a week is massive disruption. Hope IndiGo has a solid recovery plan.
V
Vikram M
The gap between airlines with strong parent support and those without is concerning. We don't want a monopoly. The government should ensure a level playing field so that competition remains healthy. That's the only way to keep fares in check for the middle class.
K
Karthik V
While the outlook is stable, the projected losses doubling is not a small thing. It shows how fragile the profitability is. Maybe it's time to look at more sustainable models and not just growth in passenger numbers. Quality of service and on-time performance matter too!

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