Domestic air passenger traffic falls 4.8% in July; ICRA keeps 'negative' outlook on aviation

The Indian aviation industry is expected to post a net loss of ₹36,000-38,000 crore in 2026-27, higher than the estimated ₹28,000-30,000 crore loss in the previous fiscal, ratings agency ICRA said on Thursday.

ICRA has maintained a "negative" outlook on the aviation industry, citing the impact of the West Asian conflict, higher aviation turbine fuel (ATF) prices, rupee depreciation and rising aircraft lease rentals.

The agency expects domestic air passenger traffic to grow 3-6% in FY27, while international passenger traffic of Indian carriers is projected to decline 3-6%.

"Escalation of the West Asian conflict" has affected passenger traffic, the rupee and fuel prices, ICRA said in its August 2026 report, adding that continued aircraft deliveries are expected to push up lease rentals.

Domestic passenger traffic fell 4.8% year-on-year to 120 lakh in July from 126.1 lakh a year earlier. It was also down 10.8% from 134.6 lakh in June.

Airlines deployed around 82,258 domestic departures in July, down 7.8% from 89,217 a year earlier and 8.5% from the previous month, according to ICRA.

The passenger load factor improved marginally to 83.1% in July from 82.9% a year earlier, although it was lower than 85.7% in June.

For the April-July period of FY27, domestic passenger traffic was 546.6 lakh, up just 0.1% year-on-year. In FY26, domestic traffic had grown 1.2% to 1,674.2 lakh.

International passenger traffic for Indian carriers, however, declined 23% in the first four months of FY27 due to disruptions caused by the West Asian conflict.

ATF prices for domestic routes rose ₹5,000 per kilolitre in August and were around 20% higher than a year earlier.

For the first five months of FY27, domestic ATF prices were 21.2% higher year-on-year.

ICRA said fuel accounts for 30-40% of airline operating expenses, while 35-50% of airline costs are dollar-denominated, including fuel, aircraft leases and maintenance.

A weaker rupee and elevated crude prices therefore continue to pose risks to airline profitability.

The industry is also dealing with aircraft availability and supply-chain challenges.

Engine failures and supply-chain issues had resulted in 99 aircraft being grounded as of March 2026, which is equivalent to 11-13% of the industry fleet.

However, the aircraft-on-ground level increased to 19-20% of the total industry fleet by August, partly due to international capacity rationalisation following the West Asian conflict.

The grounding of aircraft has increased operating costs, including through higher lease rentals and wet leases used to replace grounded capacity.

The government had approved the ₹5,000-crore Emergency Credit Line Guarantee Scheme (ECLGS) 5.0 in May to support airlines facing liquidity pressures.

ICRA said SpiceJet had drawn ₹150 crore, while Akasa Air had received a sanction of ₹740 crore.

Air India and IndiGo, despite being eligible for up to ₹1,500 crore each, had not availed the scheme as of July.

ICRA said some airlines have adequate liquidity or backing from strong parent companies, while the credit and liquidity profiles of others remain under pressure.