The Indian aviation industry is expected to report a net loss of Rs 360 to Rs 380 billion in the current financial year (FY27), significantly higher than the earlier forecasts of Rs 110 to Rs 120 billion, Icra said in a report. This is primarily due to the escalation of the West Asian conflict and its consequent adverse impact on passenger traffic, the Indian Rupee and aviation turbine fuel (ATF) prices.
The losses are expected to surge despite the growth in passenger traffic. The domestic passenger traffic stood at 294.6 lakh in the two months of the current fiscal (April to May 2026), registering a year-over-year (YoY) growth of 3.8 per cent. For FY26, domestic air passenger traffic was reported at 1,674.2 lakh, reflecting a modest YoY growth of 1.2 per cent.
The report added that the domestic air passenger traffic has been estimated at 156.4 lakh in May 2026, 11.3 per cent higher than 140.5 lakh in May 2025. In March 2026, Icra revised its outlook on the Indian aviation industry to negative from stable, owing to expected weakening of the revenue per available seat kilometre – cost per available seat kilometre (RASK-CASK) spread.
“Despite a 11 per cent YoY growth in domestic air passenger traffic in May 2026, which was supported by a favourable base, given the demand disruption in May 2025 following the Pahalgam attack and the subsequent military conflict between India and Pakistan, Icra has revised downwards its forecasts for the domestic air passenger traffic growth in FY27 to 3 to 6 per cent, from its earlier projections of 6 to 8 per cent,” the report explained.
The ratings agency has also revised its international air passenger traffic growth (for Indian carriers) forecasts for FY27 to 0 to 3 per cent from 8 to 10 per cent earlier. The report added that although domestic ATF price increases have been moderated through government intervention, fuel remains a dominant cost, accounting for 30 to 40 per cent of airline operating expenses.
Further, with 35 to 50 per cent of airline costs being dollar-denominated, including fuel, aircraft lease rentals and maintenance expenses, sustained high crude prices and a weak rupee continue to pose risks. The report noted that liquidity pressures for the relatively smaller airlines are likely to be partly alleviated by access to the Emergency Credit Line Guarantee Scheme (ECGLS), while the larger ones either have sufficient cash balances or have the backing from a strong parent
