Research Report

Domestic air passenger traffic was 121.3 lakh in August 2026, 6.3% lower than 129.5 lakh in August 2025, however, improved by 1.1% sequentially over 120.0 lakh in July 2026. The airlines’ capacity deployment in August 2026 was 2.8% lower than August 2025 and 5.5% higher than July 2026. Amid a sluggish demand environment, domestic carriers reported a passenger load factor (PLF) of 79.0% in August 2026 compared with 84.1% in August 2025 and 83.1% in July 2026. Domestic air passenger traffic in 5M FY2027 (April-August 2026) was 667.9 lakh, a year-on-year (YoY) decline of 1.1%. In FY2026 (April 2025-March 2026), the same was 1,674.2 lakh, reflecting a modest YoY growth of 1.2%. The international air passenger traffic for Indian carriers grew by 3.9% to 350.0 lakh in FY2026. However, the same declined sharply by 20.9% YoY in 5M FY2027 (April-August 2026) due to the disruptions caused by the West Asian conflict and elevated aviation turbine fuel (ATF) prices. 

• Negative outlook on the Indian aviation industry – ICRA has a Negative outlook on the Indian aviation industry, reflecting the expected weakening of the revenue per available seat kilometre – cost per available seat kilometre (RASK-CASK) spread due to hardening of ATF prices and disruptions in the availability of certain international airspaces starting February 28, 2026, following escalation of the conflict in West Asia, coupled with continued depreciation of the INR against the USD. ICRA forecasts domestic air passenger traffic growth at 3-6% in FY2027. The international air passenger traffic for Indian carriers is projected to witness a 3-6% decline in FY2027. These forecasts reflect the impact of the instability in West Asia, which has resulted in a hike in airfare due to the cost escalations for the airlines and the curtailment of discretionary spends because of increased inflation. Moreover, the recent increase in ATF prices could exert further upward pressure on airfares. Any significant pass-through of the higher operating costs by airlines may weigh on passenger traffic growth, especially amid a relatively subdued demand environment. Any prolonged continuation or further escalation of the West Asian conflict could result in downside risks to ICRA’s traffic growth forecasts, yields and profitability, amid elevated fuel prices, ongoing airspace restrictions and inflationary pressures.

• ATF prices in September 2026 increased on a sequential as well as YoY basis – While ATF prices for domestic operations remained unchanged sequentially during April-June 2026 due to the absence of revisions by oil marketing companies (OMCs), they were, on average, 22.8% higher on a YoY basis during the period. Thereafter, ATF prices remained elevated, registering YoY increases of 18.0% in July 2026, 24.7% in August 2026 and 33.4% in September 2026, thereby exerting cost pressure on airlines.

Fuel remains a dominant cost, accounting for 30-40% of airline operating expenses. Further, with 35-50% 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. Also, some airlines have foreign currency debt. Although domestic airlines benefit from a partial natural hedge through earnings from international operations, they have net payables in foreign currency. The yield movement, thus, remains monitorable in the current situation of escalating costs.

Exhibit 1: Trend in capacity deployment by domestic airlines

Source: MoCA, DGCA, ICRA Research