Domestic aviation industry to post up to ₹18,000 crore loss in FY26; key takeaways from ICRA report

India’s aviation industry is expected to post wider losses in the financial year ending March 2026 on account of a likely lower passenger traffic, currency pressures and operational disruptions, credit rating agency ICRA said on Monday.

ICRA now expects the sector to report a net loss of ₹17,000-18,000 crore net loss in the current fiscal.

Earlier, the industry was projected to post a loss of ₹9,500-10,500 crore during 2025-26.

Passenger traffic growth forecasts cut

The agency also cut its forecast for domestic air passenger traffic growth in FY2026 to 0–3%, from an earlier projection of 4–6%, citing weaker-than-expected demand, recent operational disruptions at IndiGo and lingering concerns following a fatal aircraft accident earlier this year.

Domestic passenger traffic rose 8.4% year-on-year in November to an estimated 15.45 million passengers, but ICRA expects traffic to contract both sequentially and year-on-year in December after large-scale cancellations at IndiGo, India’s largest carrier by market share.

IndiGo cancellations weigh on sentiment

IndiGo cancelled around 4,500 flights between December 3 and December 8 after operational disruptions linked to the implementation of stricter flight duty time limitation rules, adverse weather and technical issues, ICRA said.

On December 5 alone, cancellations peaked at about 1,600 flights, roughly 70% of the airline’s daily schedule.

While the cancellations accounted for only about 0.4% of total annual industry departures, ICRA said the episode was likely to dampen travel sentiment in the near term.

For the April–November period of FY2026, domestic passenger traffic rose just 2.2% year-on-year to 109.65 million passengers. International passenger traffic for Indian carriers, on the other hand, grew 9.0% year-on-year to 20.55 million passengers in the April–October period.

ICRA, however, trimmed its FY2026 international traffic growth forecast to 7–9% from 13–15%.

"Coupled with the above (an estimated lower domestic and international passenger traffic), the depreciation of the rupee against the USD resulting in foreign exchange losses, has caused ICRA to revise its net loss forecast for the Indian aviation industry to Rs 17,000-18,000 crore in FY26, higher than its earlier projections of Rs 9,500-10,500-crore," it said.

Despite the downgrade to traffic projections, ICRA maintained a “stable” outlook for the industry, saying the disruptions were likely to be temporary and growth should recover to 6–8% in FY2027, albeit from a lower base.

Cost pressures remain elevated

Aviation turbine fuel (ATF) prices rose 5.3% sequentially in December and were 8.5% higher year-on-year, ICRA said, after averaging ₹95,181 per kilolitre in FY2025. Fuel accounts for 30–40% of airlines’ operating expenses.

The sector is also exposed to currency risk as 35–50% of operating costs, including fuel, aircraft leases and maintenance, were denominated in US dollars. The rupee’s weakness against the dollar in the second quarter of FY2026 resulted in large foreign exchange losses for airlines, many of which were unrealised, ICRA said.

ICRA said the widening industry loss forecast was driven largely by elevated losses at IndiGo from cancellations, passenger refunds and higher operating costs, alongside rising aircraft deliveries amid slowing demand.

The Directorate General of Civil Aviation has granted IndiGo temporary relief from the new duty time rules until February 10, 2026, allowing for a partial recovery in operations.