Why ICRA Slashed India's Domestic Air Traffic Growth Forecast to 0–3% for FY2026

The rating agency ICRA has sharply lowered its India domestic air traffic growth forecast for the current fiscal year (FY2026). The new projection for domestic air passenger traffic growth is now 0–3 per cent. This is a significant drop from the earlier ICRA FY2026 forecast of 4–6 per cent. The downward revision follows slower-than-expected growth during the first eight months of the year. Domestic passenger traffic grew by only 2.2 per cent year-on-year from April to November 2025.

Factors Behind the Slower Growth

ICRA pointed to a mix of operational and geopolitical issues.

Geopolitical and Sentiment Headwinds

Cross-border escalations earlier in the year caused flight disruptions. These events dampened travel plans and passenger movement. Traveller confidence was also temporarily affected by an aircraft accident. This incident involved an Air India Boeing 787-8 crash in June 2025. Passengers showed hesitancy immediately after the tragedy. Furthermore, US tariffs created headwinds for corporate and business travel. This added pressure to the overall domestic air passenger traffic figures.

Major Operational Disruptions

Operational challenges at IndiGo further weighed on the outlook. The airline experienced major disruptions between December 3 and December 8, 2025. This resulted in approximately 4,500 flight cancellations. The cancellations were linked to stricter Flight Duty Time Limitation (FDTL) rules. Adverse weather and technical issues also contributed to the problem. Cancellations peaked on December 5, affecting about 70 per cent of IndiGo's daily flights. While the cancellations were a small fraction of annual departures (0.4 per cent), they impacted travel sentiment.

Wider Industry and International Outlook

The Indian aviation industry outlook is also affected financially. ICRA nearly doubled its net loss forecast for the sector in FY2026. The projected net loss is now INR 170–180 billion, up from INR 95–105 billion. This is partly due to the financial impact of the large-scale IndiGo cancellations. Depreciation of the Indian rupee against the US dollar also contributed to the higher loss estimate.

International traffic forecasts were also revised downwards. Growth for Indian carriers in FY2026 is now expected at 7–9 per cent. This is lower than the previous estimate of 13–15 per cent.

Despite these near-term challenges, ICRA maintains a stable medium-term outlook. The agency expects a recovery as temporary factors ease. The domestic air passenger traffic growth forecast for FY2027 remains at 6–8 per cent. However, the lower base of the 0-3% growth in FY2026 will reduce the absolute passenger volume in FY2027. Total domestic air traffic is now projected to reach 175–182 million passengers in FY2027. This is down from the earlier forecast of 179–186 million. For more commercial aviation news, visit flying.flights.

• The ICRA FY2026 forecast for domestic air traffic growth was cut to 0–3 per cent from 4–6 per cent.
• Key factors include geopolitical tensions, the June 2025 Air India aircraft accident, and IndiGo flight cancellations.
• The Indian aviation industry outlook faces a wider net loss of up to INR 180 billion in FY2026.
• The FY2027 growth forecast remains stable at 6–8 per cent, but on a lower passenger volume base.