Indian aviation faces turbulence from heavy rains, US trade shocks: Report

India’s aviation sector is staring at wider losses in FY2026 as slowing passenger growth collides with rising aircraft deliveries, according to a new report by ICRA. The rating agency has warned that prolonged monsoons, travel hesitancy after a recent aircraft accident and looming trade headwinds from US tariffs are likely to weigh heavily on demand in the coming quarters.

Passenger traffic in Q1 FY 2026 rose only 4.4 per cent year-on-year, dragged down by cross-border escalations and flight cancellations. Yields fell by 4-5 per cent in the same period. The ICRA now projects domestic passenger traffic at 172-176 million in FY2026, marking a modest 4-6 per cent growth, lower than its earlier 7-10 per cent forecast. This slowdown comes at a time when airlines are inducting new planes, deepening financial stress.

The aviation industry’s net loss is expected to widen to Rs 95-105 billion in FY 2026 from Rs 55 billion in FY 2025. “Losses are set to shoot up principally because passenger traffic growth will be slowing down amid a period of rising aircraft deliveries,” said Kinjal Shah, Senior Vice President & Co-Group Head, ICRA. Debt coverage is also expected to weaken, with interest coverage ratios likely to slip to 1.3-1.5 times from 1.5-1.7 times last year.

Costs remain another pain point. Fuel expenses, which account for 30-40 per cent of airline operating costs, continue to exert pressure despite some relief this year. Average Aviation Turbine Fuel (ATF) prices stood at Rs 87,962 per KL in the first five months of FY2026, eight per cent lower year-on-year but still higher than pre-Covid levels. Meanwhile, the rupee has depreciated three per cent against the US dollar, pushing up lease, maintenance, and debt-servicing costs in an already loss-making industry.

Despite these challenges, the report highlights some positives. Losses projected for FY2026 remain far lower than those in FY2022 and FY2023, when the industry bled Rs 216 billion and Rs 179 billion respectively. Airlines also added around five per cent capacity in FY2025, with the fleet reaching 855 aircraft by March 2025. Over the next decade, more than 1,600 new aircraft are expected to be delivered, much of it to replace older planes with fuel-efficient models.

Operational pressures from engine failures and supply chain disruptions have also eased. “Engine failures and supply chain challenges had caused 20-22 per cent of the total industry fleet to have been grounded as of September 2023. This proportion has come down to around 15-17 per cent as of March 2025, corresponding to around 130 aircraft,” Shah noted.