India’s aviation sector is projected to significantly reduce its net losses in 2026–27, supported by a recovery in domestic passenger traffic, according to a report by ICRA.
The ratings agency estimates that industry losses will decline by nearly one-third to around Rs 110–120 billion in FY27, compared to the current losses of approximately Rs 170–180 billion. This improvement is expected as domestic air passenger traffic grows by 6–8 percent, reaching an estimated 175–179 million passengers during the year.
Domestic and International Traffic Outlook
While domestic air travel growth remained moderate in the current fiscal year, it is expected to regain momentum going forward. International passenger traffic for Indian carriers is projected to perform even better, supported by a low base effect, expanded e-visa and visa-on-arrival facilities, and the government’s continued focus on developing theme-based and iconic tourist destinations.
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ICRA forecasts international passenger traffic growth at 7–9 percent in 2025–26 and 8–10 percent in 2026–27.
Kinjal Shah, Senior Vice President and Co-Group Head at ICRA, said the agency has maintained a Stable outlook for the Indian aviation industry. The outlook is backed by expectations of steady domestic traffic growth and gradual improvements in operating conditions, despite certain near-term pressures.
Challenges Faced by the Industry
The report highlighted several factors that led to subdued domestic growth in the ongoing fiscal year. These included cross-border tensions, adverse weather conditions, reduced travel sentiment following a June 2025 aircraft accident, elevated US tariffs, and operational disruptions at IndiGo in December 2025.
Additionally, airline profitability remains highly sensitive to aviation turbine fuel (ATF) prices and fluctuations in the rupee-dollar exchange rate.
ATF prices averaged Rs 91,173 per kilolitre during the first 11 months of FY26. Meanwhile, the Indian rupee depreciated by around 3.2 percent year-on-year during the first nine months of the fiscal.
Fuel expenses account for roughly 30–40 percent of an airline’s operating costs. Although the currency depreciation alone may not be severely disruptive, it adds further strain to an already loss-making industry. Major cost components such as aircraft lease payments, engine and maintenance expenses, and debt servicing are largely dollar-denominated, making them particularly vulnerable to exchange rate movements.