India’s aviation industry is set to remain in the red in FY2027, with both operational and net losses expected to stay elevated despite a modest recovery in passenger traffic, according to ICRA’s April 2026 report.
The sector is estimated to report losses of Rs 17,000–18,000 crore in FY2026, with earlier projections of narrowing to Rs 11,000–12,000 crore in FY2027 now facing downside risks. ICRA has revised its outlook on the industry to negative, citing rising fuel costs, a weakening rupee and persistent geopolitical disruptions.
Financial Turbulence
Industry stress is already visible at the airline level. Sources have told FE that Air India is likely to report a full-year loss exceeding Rs 20,000 crore for FY2026, nearly double the previous year, raising concerns at Tata Group headquarters. The carrier had already posted a loss of about Rs 16,000 crore in the nine months through December 2025 on revenue of Rs 70,000 crore, significantly overshooting earlier internal estimates. Rating agency Crisil has also flagged subdued operating performance for Air India in FY26 amid a series of external shocks
Supply Constraints
ICRA attributed the worsening outlook to the escalation of the West Asia conflict since late February 2026, which has disrupted international airspace, leading to flight cancellations and rerouting. This has increased fuel burn and operating costs, with crude oil prices rising sharply to about $105 per barrel from $72 earlier.
Fuel remains the single largest cost component, accounting for 30–40% of operating expenses. Aviation turbine fuel prices rose 5.7% sequentially in March 2026, while 35–50% of airline costs are dollar-linked, exposing carriers to currency volatility amid a weakening rupee.
Traffic growth, meanwhile, remains uneven. Domestic passenger growth for FY2026 is estimated at 0–3%, with FY2027 projections of 6–8% now carrying a downward bias. International traffic growth of 7–9% in FY2026 also faces risks to its earlier 8–10% FY2027 outlook.
Higher fares could further dampen demand. Airlines have introduced fuel surcharges of 5–6%, while the removal of fare caps by the Directorate General of Civil Aviation has increased pricing flexibility.
Capacity constraints persist, with 13–15% of the fleet grounded due to engine issues and supply chain bottlenecks. The sector’s recovery in FY2027 will hinge on fuel prices, currency stability and the duration of geopolitical disruptions.