Indian Aviation Industry Losses to Narrow in FY27, Says ICRA; Domestic Traffic Seen at 175 to 179 Million

The Indian aviation industry is expected to see a significant reduction in losses in FY2026 to 2027, even as the sector continues to face operational and cost-related pressures, according to ICRA. The ratings agency has maintained a stable outlook on the domestic aviation industry, supported by improving operating conditions and steady passenger growth.

Losses to Decline to ₹11,000 to 12,000 Crore in FY27​

ICRA estimates that Indian airlines will report a net loss of ₹17,000 to 18,000 crore in FY2025 to 2026, sharply higher than the estimated ₹5,500 crore loss in FY2024 to 2025.

However, losses are projected to narrow to ₹11,000 to 12,000 crore in FY2026 to 2027. The improvement is expected to be driven by growth in domestic air passenger traffic and normalization of operations after disruptions in FY2025 to 2026 that led to flight cancellations and passenger refunds.

Kinjal Shah, Senior Vice President at ICRA, said the gradual recovery in traffic and easing of operational challenges are likely to support the financial performance of airlines in the coming fiscal.

Domestic Air Passenger Traffic to Reach 175 to 179 Million​

ICRA projects domestic air passenger traffic to grow 6 to 8 percent in FY2026 to 2027, reaching 175 to 179 million passengers.

In December 2025, the agency revised its domestic traffic growth forecast for the current fiscal year to 0 to 3 percent from an earlier estimate of 4 to 6 percent. The moderation reflects modest growth amid several headwinds.

The current fiscal year has seen softer domestic passenger growth due to cross-border escalations, weather-related disruptions, travel hesitancy following the June 2025 aircraft accident, and operational disruptions at IndiGo in December 2025.

International Traffic Growth Remains Strong​

International air passenger traffic for Indian carriers is expected to remain relatively robust. ICRA forecasts growth of 7 to 9 percent in the current fiscal year and 8 to 10 percent in the next fiscal year.

The growth is attributed to a low base effect, expanding e-visa and visa-on-arrival coverage, and the Central Government’s focus on developing theme-based and iconic tourist destinations.

Debt Metrics to Improve Despite New Aircraft Deliveries​

The industry’s debt metrics weakened in FY2025 to 2026, with estimated interest coverage falling to 0.7 to 0.9 times from 1.8 times in FY2024 to 2025.

However, ICRA expects the interest coverage ratio to improve to 1.3 to 1.5 times in FY2026 to 2027, even as airlines continue to take on additional debt linked to new aircraft deliveries.

Yields Under Pressure but Recovery Expected​

Industry yields declined during the April to December period of FY2025 to 2026 due to cross-border escalations, the aircraft accident, and operational disruptions at IndiGo in early December 2025.

Despite these challenges, the fall in yields was less steep than the reduction in fuel cost per available seat kilometre. Airlines attempted to maintain pricing levels amid rising cost pressures from currency fluctuations and expenses related to flight cancellations and delays.

ICRA expects yields to improve in the near term as temporary disruptions ease. However, aviation turbine fuel prices and the USD-INR exchange rate will remain key monitorables for the sector.

Capacity Addition and Aircraft Deliveries​

The industry added around 4 percent capacity in calendar year 2025, with the total fleet reaching 865 aircraft as of December 31, 2025.

Airlines have announced large aircraft purchase orders, and pending deliveries stand at more than 1,700 aircraft as of January 31, 2026. These deliveries are expected over the next decade, with a significant portion aimed at replacing older aircraft with newer fuel-efficient models.

Grounded Aircraft Numbers Improve​

Grounded aircraft have been a concern for the industry in recent years. Engine failures and supply chain issues had led to 20 to 22 percent of the total industry fleet being grounded as of September 2023.

As of February 2026, this has declined to 13 to 15 percent, corresponding to 117 aircraft.

According to ICRA, as the number of grounded aircraft reduces further and new aircraft supply improves, the balance between supply and steadily rising domestic and international demand is expected to move towards a more stable equilibrium.

Overall, the Indian aviation sector appears set for gradual financial improvement in FY2026 to 2027, supported by traffic growth, easing disruptions, and improving operating metrics, while remaining exposed to fuel prices and currency movements.