Reduced traffic amid rising ATF prices set to widen aviation losses in current fiscal: ICRA

Aviation losses are set to widen sharply in FY2026, with the Investment Information and Credit Rating Agency (ICRA) warning that the Indian airline industry will face deeper financial stress despite modest growth in passenger traffic.

The ratings agency has projected industry-wide net losses of Rs 95-105 billion in FY2026, compared to around Rs 55 billion in FY2025. It said losses will rise principally due to a slowdown in passenger traffic growth amid a period of rising aircraft deliveries.

The agency also flagged multiple stress factors, including rising fuel prices, forex losses, aircraft groundings, supply chain issues and stretched liquidity for select airlines.

According to the report, these factors have adversely impacted airlines’ cost structures. The agency has retained a stable outlook on the industry, but expects domestic air passenger traffic to grow only four to six per cent in FY2026.

The ICRA report highlighted that growth could have been higher but was impacted adversely by events like cross-border escalations that led to flight disruptions, and the Air India plane crash in June-2025 that increased travel hesitancy. The ATC-related disruptions in November 2025 would be an additional, although milder, growth dampener, it added.

Fuel costs have also been a pressure point. The ATF prices in November were 0.8 per cent higher on a sequential basis and 4.4 per cent higher on a year-on-year basis.

The ICRA said yield movement would be monitored due to its linkage with ATF prices and the INR to USD exchange rate. Fuel accounts for 30-40 per cent of operating expenses, while a substantial share of aircraft and engine maintenance expenses are denominated in dollar terms. The weakening of the rupee in the second quarter of FY2026 resulted in large forex losses for airlines, most of which were unrealised.

Meanwhile, capacity constraints continue to trouble the industry. As of March 31, 2025, around 133 aircraft, or 15-17 per cent of the total fleet, were grounded due to engine failures and supply chain issues.

IndiGo had around 40 grounded aircraft in September 2025, a number expected to remain similar till year-end. Go Airlines had earlier grounded half its fleet due to Pratt & Whitney engine issues.

ICRA said the grounding has pushed up expenses through higher wet lease rentals and lower fuel efficiency due to reliance on older replacement aircraft.

The sector also faced a shortage of pilots and cabin crew in FY2025, resulting in cancellations and delays. Following the June crash and subsequent safety checks, Air India temporarily reduced international wide-body capacity by around 15 per cent.

Liquidity remains another concern for some carriers. While a few benefit from stronger parent support or adequate reserves, others continue to face stretched liquidity issues. The ICRA expects the industry’s interest coverage ratio to remain at 1.5-1.7 times in FY2026.

International air passenger traffic for Indian carriers was 28.3 lakh in September 2025, up by 5.8 per cent year-on-year but down 5.7 per cent sequentially. For H1 FY2026, it stood at 175.6 lakh, a 9.1 per cent rise. ICRA projects international traffic growth at 13-15 per cent in FY2026.

Domestic air passenger traffic was 142.8 lakh in October 2025, a 4.5 per cent increase over October 2024. Sequentially, traffic rose 12.9 per cent. Capacity deployment grew 1.7 per cent year-on-year to around 99,816 departures. For April to October, domestic traffic rose 1.6 per cent year-on-year to 944.5 lakh. The passenger load factor stood at 84.7 per cent in October 2025, compared with 82.4 per cent a year earlier.

Meanwhile, the DGCA has proposed new cancellation norms, allowing passengers to amend or cancel tickets within 48 hours of booking without penalty for flights departing after five days for domestic routes and 15 days for international routes. Refunds are proposed to be processed within 21 working days.