India's aviation industry is bracing for a significantly deeper financial crisis, with rating agency ICRA projecting net losses for the sector to nearly triple by FY27. The latest outlook report forecasts losses of ₹36,000-38,000 crore for FY27, a stark increase from its previous estimate of ₹11,000-12,000 crore. This downturn is primarily attributed to the escalating West Asia conflict, stubbornly high aviation turbine fuel (ATF) prices, a depreciating rupee, and rising aircraft lease costs.
ICRA also revised its FY26 loss forecast upwards to ₹32,000-34,000 crore, from an earlier ₹17,000-18,000 crore, underscoring the prolonged impact of geopolitical tensions and increasing operational expenses. The agency highlights that fuel constitutes 30-40% of an airline's operating costs, while 35-50% of total expenses, including fuel, aircraft lease rentals, and maintenance, are denominated in US dollars, making carriers highly vulnerable to currency fluctuations.
The report specifically notes that the escalation of the West Asia conflict since late February has severely worsened the industry's earnings outlook. This has led to higher fuel costs, disruptions to airspace, and a general increase in operating expenses for airlines.
Revised Passenger Traffic Forecasts
In line with the challenging financial environment, ICRA has also lowered its passenger traffic growth forecasts for FY27. Domestic passenger traffic is now expected to grow by a modest 3-6%, down from the previous estimate of 6-8%. Similarly, international passenger traffic for Indian carriers is projected to rise by only 0-3%, a significant drop from the earlier forecast of 8-10%.
These downward revisions are a result of higher airfares, which stem from increased airline costs, ongoing airspace disruptions, flight cancellations, and an anticipated moderation in discretionary travel demand among consumers.
Despite Demand, Negative Outlook Persists
Despite the weakening profitability outlook, passenger traffic showed some resilience in recent months. Domestic airlines carried 15.64 million passengers in May, an 11.3% increase year-on-year. Passenger load factor (PLF) remained strong at an estimated 88.8%, indicating that airlines continued to fill a high proportion of available seats. However, ICRA noted that this robust year-on-year growth was partly due to a favorable base effect.
Despite healthy demand, ICRA has maintained its negative outlook on the aviation sector. The agency believes airlines are unlikely to fully pass on the escalating costs to passengers through fare increases, further squeezing profit margins. Fuel remains one of the industry's most significant cost challenges; domestic ATF prices in June were 26.9% higher than a year earlier, and international ATF prices were nearly 45% above year-ago levels.
Government Support and Operational Challenges
The report acknowledges several government measures aimed at supporting the sector. These include a 25% reduction in landing and parking charges, the ₹5,000-crore Emergency Credit Line Guarantee Scheme (ECLGS 5.0), and the recently approved ₹10,000-crore ATF Price Stabilisation Fund. This fund is expected to mitigate fuel price volatility and provide better cost visibility for airlines.
However, the industry continues to grapple with operational constraints, including ongoing supply-chain disruptions and persistent issues with Pratt & Whitney engines. As of March 2026, approximately 99 aircraft, representing 11-13% of the industry’s total fleet, remained grounded, although this marks an improvement from the 20-22% grounding rate observed in September 2023.