ICRA expects the Indian aviation industry to report a net loss of Rs. 170-180 billion in FY2026. Earlier, ICRA had projected the net losses to narrow to Rs. 110-120 billion in FY2027 owing to growth in passenger traffic. However, initiation of the West Asian conflict since the end of February 2026 and its consequent impact on the INR and fuel costs (though the impact was moderated by the calibrated hikes in ATF prices by the Government of India) now pose a downward bias to the FY2027 net loss estimates. That said, support through credit lines guaranteed by the Government is likely to provide some relief to the liquidity position of airlines.

Domestic air passenger traffic has been estimated1 at 140.8 lakh in April 2026, 1.6% lower than 143.1 lakh in April 2025 and 2.0% lower than 143.7 lakh in March 2026. The airlines’ capacity deployment in April 2026 was 0.6% lower than April 2025 and 1.4% lower than March 2026. In FY2026, domestic air passenger traffic stood at 1,677.4 lakh, reflecting a year-on-year (YoY) growth of 1.4%, in line with ICRA’s estimates of 0-3%. The international air passenger traffic for Indian carriers grew by 3.9% to 350.0 lakh in FY2026, lower than ICRA’s estimate of 7-9% (drawn prior to the initiation of the West Asian conflict).

Negative outlook on the Indian aviation industry – 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 due to hardening of aviation turbine fuel (ATF) prices and disruptions in the availability of certain international airspaces starting February 28, 2026, following escalation of the geopolitical conflict in West Asia, coupled with continued depreciation of the INR against the USD. ICRA’s forecasts (drawn prior to the initiation of the West Asian conflict) of 8-10% for international air passenger traffic growth for Indian carriers and 6-8% for domestic air passenger traffic for FY2027 now have a downward bias. Flight cancellations amid airspace closures and increase in air fares in view of the levy of fuel surcharge (to the extent of 5-6% of the average air fares) will weigh on passenger traffic growth. The removal of price caps on the air fares, which were earlier introduced by the Directorate General of Civil Aviation (DGCA) in December 2025 would improve pricing flexibility of the players, however, demand for air travel may soften if air fares go up significantly, posing further downside risks to passenger traffic growth. Besides, the Government’s moral suasion to curb discretionary consumption is expected to weigh on travel, thereby pressurising the air passenger traffic growth. Some of the carriers have already announced curtailment of international flights in the coming few months amid the demand disruption and cost escalation caused by the West Asian conflict. This is likely to reverse the increase in share of international seat capacity witnessed in FY2026.

Exhibit 1: Trend in capacity deployment by domestic airlines

Source: MoCA, DGCA, ICRA Research