The domestic aviation industry is set to see its losses nearly double in FY2026, amid mounting challenges such as geopolitical tensions and trade headwinds. Rating agency Icra on Thursday projected the sector’s net losses to widen to `9,500–10,500 crore, compared with ₹5,500 crore in FY2025.
Slowing demand and rising costs create financial strain
Alongside this, Icra lowered its growth forecast for domestic air passenger traffic to 4–6% in FY2026, down from an earlier estimate of 7–10%. Passenger volumes are now expected to reach 172–176 million.
“During FY25, the Indian aviation industry benefited from improved pricing power, evident in higher yields, driven by healthy demand for air travel. However, the demand environment has turned more cautious in FY26,” said Kinjal Shah, senior vice-president & Co-Group head, Icra.
The slowdown in passenger traffic growth, coupled with a rising number of aircraft deliveries, is expected to weigh on the industry’s debt metrics and reduce interest coverage ratios.
Easing supply chain issues, but new challenges emerge
As of March 2025, the industry has seen a decline in the number of grounded aircraft caused by supply chain issues. Shah added, “Engine failures and supply chain challenges had caused 20–22% of the total industry fleet to have been grounded as of September 2023. This proportion has come down to around 15–17% as of March 2025, corresponding to around 130 aircraft.”
Icra noted that the Indian airline industry expanded capacity by 5% in FY2025, reaching a fleet size of 855 aircraft as of March 31, 2025. However, additional cost pressures persist due to currency fluctuations and fuel prices, which make up a significant share of operating costs. The depreciation of the Indian rupee against the US dollar—by about 3% year-on-year—has further added to the financial strain.