The Indian aviation industry faces significant financial challenges as projected losses are set to widen to Rs 9,500-10,500 crore in the fiscal year 2026. This forecast, provided by ICRA, highlights the growing difficulties within the sector, compounded by geopolitical tensions and trade headwinds.
The anticipated losses mark an increase from an estimated Rs. 55 billion in the previous fiscal year, FY2025, as airlines grapple with evolving market dynamics.
Several factors contribute to this financial strain. “During FY2025, the Indian aviation industry benefited from improved pricing power, evident in higher yields, driven by healthy demand for air travel. However, the demand environment has turned more cautious in FY2026,” stated Kinjal Shah, Senior Vice President & Co-Group Head of ICRA. The slowdown in passenger traffic growth, coupled with the increased number of aircraft deliveries, is expected to significantly impact the industry’s debt metrics, reducing interest coverage ratios.
As of March 2025, the industry has seen a reduction in grounded aircraft due to supply chain challenges, with Shah noting, “Engine failures and supply chain challenges had caused 20-22% of the total industry fleet to have been grounded as of September 2023. This proportion has come down to around 15-17% as of March 2025, corresponding to around 130 aircraft.” While this development signals progress, the financial outlook remains cautious.
ICRA reports that the Indian airline industry had a 5% capacity increase in FY2025, achieving a fleet size of 855 aircraft by March 31, 2025. Despite this growth, the industry faces additional cost pressures due to currency fluctuations and fuel expenses, which account for a substantial portion of operating costs. The depreciation of the Indian Rupee against the US Dollar by approximately 3% year-on-year adds to the financial burden.
Passenger growth projections for FY2026 indicate a modest increase to 172-176 million, reflecting a 4-6% rise over the previous year. However, this is below earlier forecasts of a 7-10% increase. The reduced growth is attributed to geopolitical conflicts and trade-related challenges that have disrupted airline operations and led to cautious travel behaviour among consumers.
The Aviation Turbine Fuel (ATF) prices offered some relief, with a decrease of 8% year-on-year during the first five months of FY2026. Nevertheless, these prices remain above pre-COVID levels, affecting the industry’s overall profitability. Despite these challenges, the forecasted losses for FY2026 are expected to be significantly lower than those recorded in FY2022 and FY2023.
Shah elaborated on the current obstacles, stating, “The industry debt metrics are thus expected to weaken in FY2026, with interest coverage of 1.3-1.5x times compared to the estimate of around 1.5-1.7 times in FY2025.” This downturn in financial metrics underscores the need for strategic adjustments to navigate the complex landscape.
As the industry navigates these turbulent times, stakeholders are urged to adopt innovative strategies to optimise operations and mitigate financial risks. The prevailing economic conditions necessitate vigilant monitoring and agile responses to maintain competitiveness and financial stability within the Indian aviation sector.