Indian airlines are expected to remain in the red in FY27 despite steady growth in domestic passenger traffic, as elevated aviation turbine fuel (ATF) prices, higher aircraft lease rentals and disruptions arising from the West Asia conflict continue to weigh on profitability. According to ICRA, the domestic aviation industry is likely to post a net loss of ₹36,000-38,000 crore in FY27. The rating agency has, however, retained its forecast for domestic passenger traffic growth at 3-6% during the year, indicating that demand is expected to remain resilient even as cost pressures intensify.
The losses are expected to be driven by higher fuel costs following the escalation of the West Asia conflict, the depreciation of the rupee and an increase in lease rentals as airlines continue to induct new aircraft. While calibrated government intervention has partly softened the impact of rising ATF prices, geopolitical developments in the Middle East remain a key risk for the sector.
Traffic Trends
Domestic passenger traffic remained largely stable in June. ICRA estimates traffic at 13.72 million passengers, up 0.9% from 13.60 million in June last year, although it declined 10.8% sequentially from 15.39 million passengers in May. During the April-June quarter, domestic traffic rose 2.3% year-on-year to 42.93 million passengers.
International operations, however, have been hit harder by the regional conflict. Passenger traffic carried by Indian airlines on overseas routes declined 31.6% year-on-year during April-May, reflecting disruptions to services and weaker demand on affected routes.
Airlines also reduced capacity during June as operational disruptions and aircraft availability issues persisted. Capacity deployment was 5.5% lower than a year earlier and 12.3% below May levels. The lower supply helped push passenger load factors to an estimated 90.2% in June, compared with 84.5% a year ago and 85.9% in May.
ATF Price Volatility
Fuel costs remain another major concern. ATF prices announced on July 1 were unchanged from June but were still 18% higher than a year earlier. During the first four months of FY27, average ATF prices were 21.5% higher year-on-year. ICRA noted that crude oil prices had corrected sharply after mid-June on expectations of easing tensions in West Asia. However, the renewed escalation of hostilities in mid-July has once again raised uncertainty over oil prices, making fuel costs a key monitorable for airlines in the months ahead.
While smaller airlines are expected to receive some liquidity support through the Emergency Credit Line Guarantee Scheme (ECLGS) 5.0, larger carriers are better placed to absorb the cost pressures owing to stronger cash reserves or backing from financially stronger parent groups.
