ICRA sees domestic air traffic rebounding to 175–179 million in FY27; aviation Losses to narrow by one-third to ₹110–120 billion

India’s aviation industry is set for a calibrated recovery in FY27, with domestic passenger traffic projected to grow 6–8% to 175–179 million, according to ICRA Limited. The outlook follows a subdued FY26, where growth was revised down to 0–3% amid operational and geopolitical headwinds.

The current fiscal was impacted by cross-border escalations, weather-related disruptions, travel hesitancy following the June 2025 aircraft accident, elevated US tariffs affecting business travel, and operational challenges at IndiGo in December 2025.

International traffic has held up better. ICRA estimates overseas passenger growth at 7–9% in FY26 and 8–10% in FY27, supported by a low base, expanding e-visa access and a government-led tourism push.

Losses to shrink, but red ink persists

Industry losses are projected to decline to ₹110–120 billion in FY27 from an estimated ₹170–180 billion in FY26. That compares with a far narrower loss of about ₹55 billion in FY25, underscoring the sharp deterioration this year.

Encouragingly, interest coverage — a key debt metric — is expected to improve to 1.3–1.5 times in FY27 from a weak 0.7–0.9 times in FY26, even as airlines continue to induct aircraft and add leverage.

Fuel and forex: The twin pressure points

Aviation turbine fuel (ATF), which accounts for 30–40% of operating costs, averaged ₹91,173 per kilolitre in the first 11 months of FY26 — 4% lower year-on-year but significantly above pre-pandemic levels of ₹64,715.

Meanwhile, the rupee depreciated about 3.2% against the US dollar during the first nine months of FY26. With aircraft leases, maintenance and debt largely dollar-denominated, currency weakness continues to strain balance sheets.

Yields declined year-on-year in 9M FY26, although the fall was less steep than the drop in fuel cost per available seat kilometre (CASK). ICRA expects yields to firm up as temporary disruptions ease.

Fleet expansion meets easing groundings

India’s fleet stood at 865 aircraft as of December 31, 2025. Over 1,700 aircraft are pending delivery over the next decade, largely aimed at replacing older jets with more fuel-efficient models.

Grounded aircraft — a major constraint in recent years — have reduced to 13–15% of the fleet as of February 2026, from 20–22% in September 2023, signalling gradual supply chain normalisation.