Why India's Aviation Outlook Remains 'Stable' Despite Major FY2026 Turbulence

The Indian aviation industry outlook is stable, according to a recent ICRA report. This stable rating holds despite significant FY2026 turbulence and revised growth forecasts. The rating agency expects current disruptions to be temporary.

Revised Passenger Traffic Forecasts

ICRA has significantly lowered its domestic air passenger traffic growth forecast for the current fiscal year (FY2026). The revised growth is now projected at 0-3%. This is a drop from the previous expectation of 4-6% growth. Total domestic traffic is expected to reach 165-170 million passengers.

This downward revision is due to several major headwinds. These include cross-border escalations causing flight cancellations. A fatal aircraft accident tragedy in June 2025 also made travelers hesitant. Business travel was impacted by US tariff-related uncertainties.

International traffic forecasts were also cut. Indian carriers international traffic growth is now expected at 7-9% for FY2026. This is down from the earlier projection of 13-15%.

Financial Strain and Net Losses

The India airline net losses for FY2026 are expected to widen sharply. ICRA projects losses to increase to Rs 170-180 billion. This is much higher than the earlier estimate of Rs 95-105 billion. It is also significantly more than the Rs 56 billion loss in FY2025.

• The primary driver for this increase is IndiGo operational disruptions.
• A six-day period in December 2025 saw about 4,500 flight cancellations.
• These disruptions were triggered by stricter flight duty time limitation (FDTL) rules.
• IndiGo's elevated losses from cancellations and refunds contributed heavily to the industry deficit.

Cost Headwinds and Currency Volatility

Fuel costs remain a major concern for Indian airlines. Aviation Turbine Fuel (ATF) prices account for 30-40% of operating expenses. ATF prices in January 2026 were 7.2% lower sequentially. However, prices from April 2025 to January 2026 were still 4.2% lower year-on-year.

Currency fluctuations add further pressure. About 35-50% of operating costs are dollar-denominated. This includes fuel, maintenance, and lease payments. The continued depreciation of the INR to USD exchange rate in Q3 FY2026 will lead to further forex losses for carriers.

Long-Term Stability and Industry Resilience

Despite the short-term challenges, ICRA maintains its stable outlook on the industry. The agency believes the current disruptions are temporary. The growth forecast for FY2027 remains unchanged at 6-8%. This indicates a strong rebound is expected.

Future domestic air passenger traffic is projected to be 175-182 million in FY2027. This is a slight downward revision from earlier projections. It reflects the lower base of FY2026. Some airlines, like IndiGo, have strong parent company support. This helps their credit profiles. However, other carriers still face pressure on their credit metrics and liquidity. The long-term growth story of Indian aviation remains intact.

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