ICRA Forecasts Indian Airline Losses to Drop by One-Third in FY 2026-27

The Indian aviation industry is projected to see its net loss reduce by approximately one-third in the 2026-27 fiscal year, signaling a potential stabilization after a period of significant financial strain. According to a new forecast from the Investment Information and Credit Rating Agency (ICRA), the industry's collective net loss is expected to decrease to between Rs 110-120 billion (Indian Rupees). This improvement is contingent on a sustained recovery in domestic passenger demand and the normalization of airline operations.

The projection marks a significant turnaround from the estimated net loss of Rs 170-180 billion for the 2025-26 fiscal year. That figure itself represented a substantial increase from the approximately Rs 55 billion net loss recorded in the 2024-25 fiscal year. The anticipated recovery highlights the sector's resilience but also underscores its sensitivity to operational and economic variables.

Financial Projections and Traffic Recovery

The improved financial outlook is primarily supported by a forecast recovery in domestic air passenger traffic. ICRA projects that domestic traffic growth will rebound to 6-8% in fiscal year 2026-27, bringing total passenger numbers to a range of 175 million to 179 million. This follows a period of stagnation in the 2025-26 fiscal year, where growth estimates were revised downward to just 0-3%. The recovery is also expected in international travel, with passenger traffic for Indian carriers projected to grow by 8-10% in 2026-27.

In a statement accompanying the report, Kinjal Shah, Senior Vice President & Co-Group Head at ICRA, attributed the positive outlook to these growth trends. “ICRA has maintained a Stable outlook for the Indian aviation industry, supported by expectations of modest growth in domestic air passenger traffic and a gradually improving operating environment,” Shah stated. “The [net loss] is likely to reduce to Rs 110-120 billion in 2026-27, led by growth in domestic air passenger traffic and expected normalisation of operations post disruptions seen in 2025-26 that had resulted in flight cancellations and passenger refunds.”

Operational Headwinds and Cost Pressures

Despite the positive forecast, Indian airlines continue to face significant structural challenges. A primary concern remains the high cost of Aviation Turbine Fuel (ATF), which, according to the ICRA report, accounts for 30-40% of an airline's total operating expenses. The industry's profitability is highly sensitive to fluctuations in global crude oil prices, as ATF costs are a major component of the Cost per Available Seat Kilometre (CASK), a key industry metric for unit costs.

Furthermore, a large portion of airline expenses, including aircraft lease payments and major maintenance costs, are denominated in U.S. dollars. This exposes carriers to currency exchange rate volatility between the USD and INR. A weaker rupee directly inflates operating costs, putting pressure on margins even when passenger yields are strong.

The regulatory environment is also evolving. Following operational disruptions at a major carrier in late 2025, the Directorate General of Civil Aviation (DGCA), India's primary aviation regulator, has increased its scrutiny of fare data. This action is aimed at investigating potential abuse of market dominance, signaling a more active regulatory stance on pricing strategies during periods of capacity constraints.

Fleet Expansion and Future Outlook

Looking ahead, Indian carriers are poised for one of the most aggressive fleet expansion cycles globally. As of December 31, 2025, the total industry fleet stood at 865 aircraft. However, airlines have placed orders for more than 1,700 new aircraft scheduled for delivery over the next decade. This massive order book is intended to replace older, less fuel-efficient models and to cater to the long-term growth anticipated in the Indian market.

This expansion, while critical for modernization and growth, will also contribute to the industry's already elevated debt levels. The financing required for these new deliveries will add to balance sheet pressures. While ICRA expects the industry's interest coverage ratio to improve with better profitability, managing the high debt burden will remain a key challenge for airline management teams. The successful integration of this new capacity without creating a price-depressing oversupply will be crucial for maintaining the financial recovery projected in the ICRA report.

Why This Matters

ICRA's forecast provides a crucial benchmark for one of the world's fastest-growing and most competitive aviation markets. The projected reduction in losses suggests a path toward financial stability, driven by fundamental demand. However, it also underscores the deep-seated vulnerabilities of Indian airlines to external shocks like fuel price spikes and currency depreciation, challenges that must be navigated alongside an ambitious and capital-intensive fleet expansion.

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