Industry losses in the domestic aviation industry are projected to decline to Rs 110–120 billion in FY27 from an estimated Rs 170–180 billion in FY26, led by a 6-8 percent growth in domestic passenger traffic to 175–179 million, according to ICRA.
The rating agency estimates the industry’s debt metric to improve to 1.3-1.5 times in 2026-27, despite increasing debt linked with new aircraft deliveries, after it weakened in 2025-26 with an estimated interest cover of 0.7-0.9 times from 1.8 times in 2024-25.
ICRA estimates
ICRA estimates overseas passenger growth at 7–9 percent in FY26 and 8–10 percent in FY27, supported by a low base, expanding e-visa access, and a government-led tourism push.
“ICRA has maintained a Stable outlook for the Indian aviation industry, supported by expectations of modest growth in domestic air passenger traffic and a gradually improving operating environment, despite near‑term challenges,” Kinjal Shah, Senior Vice President & Co-Group Head, ICRA, said.
The agency expects airline yields to improve in the near term after yields of the industry have declined in 9M 2025-26 on a YoY basis due to a series of external events like cross-border escalations, Air India airplane crash, and operational disruptions at IndiGo.
ICRA said that the movements in the prices of ATF and the USD-INR rate will remain key monitors for yields in 2026-27.
Backdrop of ICRA’s outlook
The outlook follows a subdued 2025-26, where ICRA revised passenger traffic growth down to 0–3 percent due to operational and geopolitical headwinds like the crash of Air India flight 171 in Ahmedabad in June 2025, Indigo’s operational meltdown in December 2025, airport closuress during operation Sindoor in April-May, headwinds emerging from the US tariffs on businesses, as well as the increased penetration of superfast trains in the country.
At the start of 2025-26, ICRA had predicted up to 6 percent growth, but then revised it to 0-3 percent in December 2025.
The rating agency also pointed out that aviation turbine fuel prices(ATF), which account for 30–40 percent of operating costs for airlines, averaged Rs 91,173 per kilolitre in the first 11 months of FY26, 4 percent lower year-on-year.
ICRA also pointed out that the rupee depreciated about 3.2 percent against the US dollar during the first nine months of FY26. With aircraft leases, maintenance, and debt largely dollar-denominated, currency weakness continues to strain balance sheets.