Domestic air passenger traffic has been estimated1 at 146.8 lakh in March 2026, 1.0% higher than 145.4 lakh in March 2025 and 4.4% higher than 140.6 lakh in February 2026. The airlines’ capacity deployment in March 2026 was 3.0% lower than March 2025 but was 10.6% higher than February 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%. In February 2026, international air passenger traffic for Indian carriers stood at 28.5 lakh, indicating a YoY decline of 0.3% and a sequential fall of 16.0%. However, in 11M FY2026 (April-February 2026), international air passenger traffic for Indian carriers grew by 7.7% (YoY) to 331.5 lakh. 

·       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 poses further downside risks to passenger traffic growth as demand for air travel may soften if air fares go up significantly. 

·     ATF prices in April 2026 rose by 9.2% on a sequential basis, impacted by the West Asian conflict – The average ATF prices announced on April 01, 2026, increased by 9.2% on a sequential basis and by 18.2% on a YoY basis on account of the impact of the West Asian conflict. While crude oil prices rose sharply (by 45.5% MoM in March 2026) due to the West Asian conflict, the pass-through to ATF prices was moderated. Further, although the MoCA capped domestic ATF price increases at 25% MoM, the oil marketing companies raised ATF prices by only 9.2% sequentially in April 2026 for domestic operations, tempering the immediate cost impact on the aviation sector. Nonetheless, crude oil prices remain elevated, which can impact ATF prices in the future. Continuous weakening of the INR against the USD is another concern. To support the industry, in April 2026, the MoCA announced a reduction in the landing and parking charges for domestic airlines by 25% for three months starting April 2026. These measures are expected to provide some relief to the domestic carriers. 

Fuel costs account for 30-40% of airlines’ operating expenses, including aircraft lease payments. Further, 35-50% of the operating charges, which include fuel expenses, lease payments, and a substantial share of aircraft and engine maintenance costs, are denominated in dollar terms. 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. Thus, the yield movement remains monitorable in the current situation of escalating costs.

Exhibit 1: Trend in capacity deployment by domestic airlines

Source: MoCA, DGCA, ICRA Research