India Aviation Industry Losses to Narrow by One-Third in FY27 as Passenger Traffic Rebounds: ICRA

India’s aviation industry is poised for a significant financial turnaround in 2026-27, with net losses expected to shrink by nearly one-third as passenger traffic regains momentum, according to a report released on Tuesday by ICRA.

Net Losses Seen Declining to Rs 110-120 Billion in FY27​

The report projects that the industry’s net losses will decline to Rs 110-120 billion in 2026-27, compared with the current estimated losses of Rs 170-180 billion. The improvement is expected to be supported by a recovery in domestic air travel demand and a gradual stabilisation in the operating environment.

Domestic passenger traffic is forecast to grow by 6-8 per cent in 2026-27, reaching an estimated 175-179 million passengers. This marks a return to healthier growth levels after a period of moderate expansion in the ongoing fiscal year.

International Traffic Growth to Remain Strong​

International air passenger traffic for Indian carriers is also expected to maintain steady growth. ICRA estimates international traffic expansion at 7-9 per cent in 2025-26 and 8-10 per cent in 2026-27.

The agency attributes this growth to a low base effect, the expansion of e-visa and visa-on-arrival coverage, and the government’s focus on developing theme-based and iconic tourist destinations. These factors are expected to continue supporting outbound and inbound travel demand.

Stable Outlook Maintained Amid Gradual Recovery​

ICRA has maintained a Stable outlook for the Indian aviation industry. The agency expects modest domestic passenger growth and a gradually improving operating environment to support the sector, even as near-term challenges persist.

According to the report, domestic growth in the current fiscal remained moderate due to multiple disruptions. These included cross-border escalations, weather-related interruptions, travel hesitancy following the June 2025 aircraft accident, headwinds from elevated US tariffs, and operational disruptions at IndiGo in December 2025.

Fuel Prices and Currency Movement Remain Key Risks​

The report highlights aviation turbine fuel prices and the rupee-dollar exchange rate as critical factors influencing airline profitability.

ATF prices averaged Rs 91,173 per kilolitre in the first 11 months of 2025-26. During the first nine months of the fiscal year, the rupee depreciated by around 3.2 per cent year-on-year.

Fuel accounts for 30-40 per cent of airlines’ operating costs, making price fluctuations a major determinant of margins. While the recent currency depreciation may not be materially disruptive in isolation, it adds pressure to an already strained cost structure. Key expenses such as aircraft lease payments, aircraft and engine maintenance, and debt servicing remain highly sensitive to exchange rate movements.

Industry Positioned for Gradual Financial Improvement​

Despite ongoing cost pressures and operational challenges, the aviation sector is expected to benefit from recovering passenger demand and a stabilising operating landscape in 2026-27. The projected reduction in losses signals a gradual financial improvement for airlines as traffic volumes strengthen and capacity utilisation improves.