The domestic aviation sector began the financial year 2026-2027 (FY27) on a subdued note, with domestic passenger traffic declining year-on-year amid elevated airfares, rising fuel costs and geopolitical disruptions weighing on travel demand, according to a report by ICRA.
Domestic air passenger traffic stood at 14.08 million passengers in April 2026, down 1.6% year-on-year from 14.31 million passengers in April 2025 and 2% sequentially from 14.37 million passengers in March 2026, the ratings agency said in its latest aviation outlook report released on Friday.
The decline comes at a time when airlines are grappling with higher aviation turbine fuel (ATF) prices, rupee depreciation and operational disruptions arising from the ongoing West Asia conflict.
Capacity deployment by domestic airlines also remained weak. Airlines operated around 97,598 departures during April 2026, lower by 0.6% year-on-year and 1.4% sequentially.
ICRA said moderation in discretionary travel demand amid elevated airfares contributed to the decline in passenger traffic growth.
Despite the softer traffic environment, passenger load factor (PLF) remained healthy at an estimated 85.9% in April 2026 compared with 86.8% in April 2025 and 83.4% in March 2026, indicating that airlines continued to operate with relatively high seat occupancy.
The report noted that ATF prices for domestic routes in May 2026 were 23.5% higher YoY, though unchanged sequentially from April 2026 levels. Fuel continues to account for 30-40% of airline operating costs, while 35-50% of airline expenses remain dollar-denominated, including fuel, aircraft lease rentals and maintenance expenses.
For FY26, domestic passenger traffic stood at 167.74 million passengers, registering a modest growth of 1.4% over FY25, in line with ICRA’s estimate of 0-3% growth.
International passenger traffic for Indian carriers rose 3.9% YoY to 35 million passengers in FY26, lower than ICRA’s earlier projection of 7-9% growth made before the escalation of tensions in West Asia.
Macro Headwinds
ICRA maintained a “negative” outlook on the Indian aviation industry, citing pressure on airline profitability due to higher fuel prices, airspace disruptions, rerouting of international flights and weakening of the rupee against the US dollar.
According to the report, government calls to curb discretionary consumption, flight cancellations, higher fuel burn due to rerouting, elevated airport-related charges and softer travel demand are likely to continue weighing on airline profitability, apart from rising fuel costs and rupee depreciation.
The agency said it had earlier estimated industry net losses to narrow to Rs 11,000-12,000 crore in FY2027 from Rs 17,000-18,000 crore in FY2026, supported by passenger traffic growth. However, the escalation of the West Asia conflict since late February 2026 has created a “downward bias” to those projections.
Supply Chain Bottlenecks
The industry also continues to face supply-chain disruptions and engine-related issues involving Pratt & Whitney engines. Around 99 aircraft remained grounded as of March 2026, accounting for nearly 11-13% of the industry fleet, although this has improved from 20-22% in September 2023.
The report also highlighted operational disruptions faced by InterGlobe Aviation Limited in December 2025, when flight cancellations peaked at around 1,600 flights in a single day due to stricter crew duty regulations, adverse weather and technical challenges.
To support the sector, the government recently reduced landing and parking charges for domestic airlines by 25% for three months beginning April 2026. It also approved a Rs 5,000 crore Emergency Credit Line Guarantee Scheme (ECLGS 5.0) to help airlines manage near-term liquidity stress.
Maharashtra and Delhi reduced value-added tax (VAT) on ATF to 7% from 18% and 25%, respectively, providing partial cost relief to airlines grappling with elevated operating expenses, the report said.