New Delhi: India’s aviation sector is headed for a much deeper financial setback than previously anticipated, with ratings agency ICRA projecting industry-wide net losses of ₹36,000-38,000 crore in FY27 as geopolitical turmoil, elevated fuel costs and a weaker rupee combine to erode airline profitability.
The revised forecast marks a sharp deterioration from ICRA’s earlier estimate of ₹11,000-12,000 crore in losses for FY27 and comes after the industry is estimated to have posted losses of ₹32,000-34,000 crore in FY26. The latest outlook underscores how the escalation of the West Asia conflict has fundamentally altered the earnings outlook for Indian carriers, despite continued growth in domestic air travel.
According to the ICRA’s report, domestic passenger traffic grew by 11.3% YoY in May 2026 on a low base. The report also lowered its FY27 domestic passenger traffic growth forecast to 3-6% from the earlier expectation of 6-8%, while cutting projected international passenger growth for Indian carriers to 0-3% from 8-10%.
“The Indian aviation industry is estimated to have reported a net loss of Rs. 320-340 billion in FY2026, much higher than ICRA’s earlier estimates of Rs. 170-180 billion, primarily on account of the foreign exchange (forex) losses arising from the sharp depreciation of the INR, moderation in passenger traffic growth and an increase in ATF prices following the rise in crude oil prices amid the West Asian conflict towards the end of FY2026. For FY2027, while losses were earlier projected to narrow to Rs. 110-120 billion, supported by an improvement in passenger traffic, the outlook has since deteriorated,” said Jitin Makkar, Senior Vice President and Group Head, Corporate Ratings, ICRA Ltd.
Costs Outpace Demand
The deterioration reflects multiple cost pressures hitting airlines simultaneously. Aviation turbine fuel (ATF), which accounts for 30-40% of operating expenses, remains significantly costlier than a year ago despite recent government intervention. At the same time, 35-50% of airline costs — including fuel, aircraft lease rentals and maintenance — are denominated in dollars, amplifying the impact of the rupee’s depreciation against the US currency.
Although domestic passenger traffic rose 11.3% year-on-year in May to an estimated 156.4 lakh passengers, the increase came on a favourable base following disruptions caused by the Pahalgam terror attack and the subsequent India-Pakistan military conflict in May 2025. Traffic during April-May FY27 still grew only 3.8%, highlighting the moderation in underlying demand. Capacity deployment increased 5.1% year-on-year, while passenger load factor improved to an estimated 88.8%, suggesting airlines continue to fill aircraft despite pricing challenges.
“The onset of the West Asian conflict since end-February 2026 is expected to result in subdued air passenger traffic growth in FY2027. Additionally, increased costs due to depreciation of the INR against the USD, elevated ATF prices and an anticipated rise in lease rentals owing to continued aircraft deliveries have collectively led ICRA to revise its FY2027 net loss forecasts upwards to Rs. 360-380 billion, as these cost escalations may not be adequately passed on by way of fare hikes,” said Makkar.
The industry’s operating environment has also been complicated by continuing aircraft supply-chain disruptions. Engine issues involving Pratt & Whitney-powered aircraft left 99 aircraft grounded as of March 2026, equivalent to 11-13% of the industry’s fleet. Airlines have had to rely on expensive wet leases and older replacement aircraft, pushing up lease rentals and operating costs even as manufacturers provide only partial compensation.
Support Limits Pain
The Centre has rolled out a series of measures aimed at cushioning the industry’s financial stress, including a 25% reduction in landing and parking charges for domestic airlines, the ₹5,000-crore Emergency Credit Line Guarantee Scheme (ECLGS) 5.0 for the aviation sector and a ₹10,000-crore ATF price stabilisation fund designed to smooth fuel price volatility over a 36-month period. Maharashtra and Delhi have also sharply reduced VAT on ATF.
“Although domestic ATF price increases have been moderated through government intervention, fuel remains a dominant cost, accounting for 30-40% of airline operating expenses. Further, with 35-50% of airline costs being dollar-denominated — including fuel, aircraft lease rentals and maintenance expenses — sustained high crude prices and a weak rupee continue to pose risks. Also, some airlines have foreign currency debt,” noted Makkar.
ICRA said the liquidity support should partly ease funding pressures for smaller carriers, while larger airlines remain supported by stronger balance sheets or financially robust parent groups. However, the agency cautioned that profitability will continue to depend on how crude oil prices, exchange rates and geopolitical developments evolve, with airlines facing limited ability to fully pass rising costs on to passengers without hurting demand. The agency retained its Negative outlook on the Indian aviation industry, signalling that the sector’s recovery remains vulnerable despite continued growth in air travel.
(Cover photo by Divyadarshi Acharya on Unsplash)