Indian airlines face ₹170-180 billion losses in FY26 as costs surge: ICRA

Indian aviation players are staring at massive losses to the tune of Rs 170-180 billion in FY26 with disruptions in international airspace availability following the escalation of geopolitical tensions in West Asia, along with a sharp depreciation of the rupee and aviation fuel hike, said ICRA.

The rating agency downgraded the outlook to Negative from Stable, highlighting that these factors are likely to significantly increase cost pressures for airlines, even as demand growth faces downside risks.

ICRA expects domestic air passenger traffic growth for FY26 at 0-3% and international passenger traffic growth for Indian carriers at 7-9%, indicating a relatively weak near-term demand environment.

Earlier growth forecast for FY27, formulated prior to the West Asian conflict, estimated domestic air passenger traffic growth at 6-8% and international traffic growth for Indian carriers at 8-10%. However, these projections now carry a downward bias.

Losses

Flight cancellations due to airspace closures, coupled with higher airfares following the levy of fuel surcharges (estimated at 5-6% of average ticket prices), are expected to weigh on passenger traffic growth. Additionally, rerouting of flights is likely to increase fuel burn and operating costs.

Additionally, the removal of airfare caps by the Directorate General of Civil Aviation (DGCA), which were introduced in December 2025, poses further downside risks. A sharp rise in ticket prices could dampen travel demand going forward.

ICRA had earlier projected net losses for the aviation industry to narrow to Rs. 110-120 billion in FY27, supported by traffic growth. However, the recent geopolitical developments, along with adverse currency movements and rising fuel costs, have introduced a downward bias to these estimates. For FY26, the industry is expected to report net losses of Rs. 170-180 billion.

Operational challenges have also intensified. Supply chain disruptions and engine-related issues have led to the grounding of around 117 aircraft as of February 2026, representing 13-15% of the industry’s fleet, though this has improved from earlier levels of around 20-22%, thereby constraining capacity and increasing operating costs.

Aviation fuel

The pressure on profitability is being exacerbated by structural cost challenges. Fuel alone accounts for 30-40% of airlines’ operating expenses, while 35-50% of total costs, including lease payments and maintenance, are dollar-denominated, making airlines highly vulnerable to currency depreciation.

On the cost front, ATF prices increased by 5.7% sequentially as of March 1, 2026, and by 1.7% on a year-on-year basis. However, for FY26 as a whole, ATF prices remained lower by around 4.1% YoY. The escalation in geopolitical tensions has pushed Brent crude prices sharply higher to $105 per barrel as of March 26, 2026, from $72 per barrel prior to the conflict, exerting further upward pressure on fuel costs.

The industry is also witnessing financial stress among select airlines, with stretched liquidity profiles, despite some support from stronger parent entities. Interest coverage for the sector is expected to weaken to 0.7-0.9 times in FY2026 from 1.8 times in FY2025, before a modest recovery in FY27, subject to no prolonged escalation in the ongoing conflict.

Muted growth

In February 2026, domestic air passenger traffic stood at 14.25 million, reflecting a modest 1.5% year-on-year growth but a 6.5% sequential decline from January 2026, partly due to fewer days in the month.

For the first eleven months of FY26 (April-February), domestic traffic grew by 1.6% year-on-year to 153.24 million. Capacity deployment during the month declined by 2.9% year-on-year and 8.8% sequentially, indicating supply-side constraints.

International passenger traffic for Indian carriers stood at 3.4 million in January 2026, registering a year-on-year growth of 6.4% and a sequential growth of 3.8%. For the first ten months of FY26, international traffic grew by 8.5% year-on-year to 30.3 million.

Despite these challenges, passenger load factors (PLFs) remained strong at an estimated 93.0% in February 2026, compared to 89.0% in February 2025 and 87.5% in January 2026, indicating healthy demand relative to available capacity.