Indian airlines are flying some of their fullest planes on record, but high passenger load factors are no longer translating into profitability according to the latest ICRA report.
In December 2025, domestic load factors in India stood at an elevated 94%, even as passenger volumes declined sequentially, underscoring a sector constrained by capacity rather than buoyed by demand.
According to ICRA, capacity shortages driven by large-scale aircraft groundings and delivery delays have pushed utilisation metrics higher, but have simultaneously limited airlines’ ability to grow volumes, optimise networks or deploy capacity efficiently.
Around 15–17% of the industry fleet remains grounded, capping revenue expansion despite resilient underlying demand.
Rising Costs Squeeze Margins
Aviation turbine fuel accounts for 30–40% of airline operating costs. While 35–50% of total costs are dollar-denominated, exposing carriers to fuel price volatility and rupee depreciation. ATF prices rose 2.2% year-on-year in January 2026, further squeezing margins. As a result, fuller aircraft are failing to offset higher unit costs, pushing the industry into deeper losses despite strong utilisation levels, according to the report.
The disconnect marks a structural shift in how airline health is now assessed. Passenger Load factors, once a reliable proxy for operating strength, now reflect supply-side constraints rather than pricing power or margin expansion. With domestic traffic growth slowing sharply to 0–3% in FY2026, the focus has shifted from growth metrics to balance-sheet resilience and cost control. Additionally, Capacity constraints remain a key overhang. As of March 31, 2025, around 133 aircraft were grounded, representing 15–17% of the total industry fleet, restricting airlines’ ability to monetise demand even during peak travel periods.
Future Recovery Depends Normalization
As a result, FY2026 is shaping up as a stress year for Indian aviation, with industry interest coverage ratios weakening to 0.7–0.9x, highlighting pressure on cash flows and debt-servicing ability. ICRA expects the mismatch between utilisation and profitability to persist through the year, with a recovery cycle likely only after fleet availability improves, enabling a return to 6–8% domestic traffic growth in subsequent years.
Indian Aviation: Key Stress Indicators (FY26 Outlook)
Source: ICRA
Passenger Load Factor (Dec 2025): 94%
Domestic Traffic Growth (FY26E): 0–3%
ATF Price Movement: +2.2% YoY (Jan 2026)
Fuel Share of Operating Costs: 30–40%
Grounded Fleet Share: 15–17% of industry fleet
Recovery Trigger: Capacity normalisation
Medium-term Traffic Growth Potential: 6–8%