Domestic air traffic slips, losses to soar as headwinds hit airlines: ICRA

India’s skies are getting busier but not richer, according to credit rating agency ICRA. In its report, ICRA noted that domestic air passenger traffic dipped marginally in September 2025, and airline losses are expected to nearly double this fiscal year amid slower growth, higher costs, and persistent engine issues.

ICRA estimated domestic traffic at 128.5 lakh in September 2025, down 1.4 per cent year-on-year and 0.8 per cent month-on-month, with airlines flying fewer routes due to grounded aircraft and capacity cuts. For the first half of FY2026, domestic traffic rose just 1.3 per cent to 803.7 lakh passengers, signalling a visible slowdown.

The average passenger load factor, however, remained healthy at 84.6 per cent. higher than 83 per cent in the same month last year, showing that most flights continued to run full even as frequency declined.

International operations fared better. Indian carriers flew 29.9 lakh passengers abroad in August 2025, up 7.8 per cent year-on-year, with total international traffic between April and August climbing nearly 10 per cent.

ICRA maintained a “stable” outlook on the aviation industry but trimmed its FY2026 growth forecast to 4-6 per cent, down from 7-10 per cent, citing global instability, flight disruptions, and traveller caution following recent aviation accidents. “Geopolitical tensions and trade headwinds have dampened business sentiment and brought more circumspection to travel,” the agency said.

Fuel costs remain a major drag. Aviation turbine fuel (ATF) prices rose 3.3 per cent in October 2025 on a monthly basis and 7 per cent annually, averaging Rs 95,181 per kilolitre in FY2025. Despite being 8 per cent lower year-on-year overall, the volatility continues to squeeze margins. With fuel making up 30-40 per cent of airline operating costs, and over one-third of total expenses linked to the US dollar, the rupee’s weakness has added to the pressure.

ICRA expects the industry’s net losses to rise to Rs 95-105 billion in FY2026, compared with Rs 55 billion in FY2025. “Losses are likely to widen due to subdued traffic growth coinciding with a phase of rising aircraft deliveries,” the report noted. Even so, the losses remain far below the pandemic-era levels of Rs 216 billion and Rs 179 billion in FY2022 and FY2023.

To offset the shortage, the agency claimed that the airlines have resorted to costly wet leases and older, less fuel-efficient planes, raising operating expenses. Crew shortages and heightened safety checks following the recent aircraft accident have added further disruption. “Air India, for instance, has temporarily cut 15 per cent of its international wide-body operations,” said ICRA.

ICRA also flagged liquidity concerns for smaller airlines, warning that “while some carriers benefit from strong parent backing, others continue to face stretched finances despite modest recovery.”

The agency also cautioned that rising ATF prices, rupee depreciation, and geopolitical risks could test the industry’s resilience in the months ahead.

Despite the turbulence, demand spikes remain. The highest-ever single-day domestic traffic, 5.35 lakh passengers, was recorded on February 23, 2025, driven by Maha Kumbh travel. But with slowing growth and mounting costs, the industry may need more than full flights to stay afloat.