Indian aviation industry outlook remains stable, passenger traffic to grow 7-10% in FY26: ICRA

The domestic air passenger traffic is estimated to grow at 7-10 per cent in 2025-26.

However, the yields for airline operators are likely to be under pressure, as airlines strive to maintain adequate passenger load factor (PLF). International passenger traffic for Indian carriers is expected to grow by 15-20 per cent in 2025-26.

"The movement in the yields will remain monitorable, amid elevated aviation turbine fuel (ATF) prices and depreciation of the INR vis-a-vis the USD over pre-Covid levels, both of which have a major bearing on the airlines' cost structure," ICRA said in its aviation-specific report.

Fuel cost accounts for 30-40 per cent of the airlines' expenses, while 35-50 per cent of the operating expenses, including aircraft lease payments, fuel expenses and a significant portion of aircraft and engine maintenance expenses, are denominated in dollar terms.

"The airlines' efforts to effect fare hikes, proportionate to their input cost increase, will be the key to expand their profit margins," ICRA said.

ICRA asserts that the industry's net losses to remain range-bound.

The pace of recovery in industry earnings is likely to be gradual, owing to the high fixed-cost nature of the business.

ICRA estimates the Indian aviation industry to report a net loss of Rs 20-30 billion in 2024-25 and 2025-26 compared to a net profit of Rs. 16 billion in 2023-24 due to anticipated pressure on yields as airlines strive to maintain adequate passenger load factor (PLF) amid continued elevated ATF prices.

Nonetheless, the expected losses are significantly lower than losses of Rs 235 billion and Rs 174 billion reported in 2021-22 and 2022-23, respectively.

The industry has been facing supply-chain challenges and issues of engine failures for the Pratt and Whitney (P&W) engines supplied to various airlines. In 2023-24, Go Airlines (India) Limited grounded half of its fleet due to faulty engines, thus stalling its operations. InterGlobe Aviation Limited (IndiGo) also had 60-70 aircraft grounded as on January 30, 2025, due to the engine issue, including the powder metal (used to manufacture certain engine parts) contamination factor with its P&W fleet.