Indian airlines’ operating profit may dip to INR 20,000–21,000 crore in FY26 - Crisil

The domestic airline industry is likely to post an operating profit of INR 20,000–21,000 crore in FY26, translating to a margin of 11–14%, according to a report released by Crisil Ratings.

While the second half of the fiscal year, which usually contributes 50–55% of annual traffic, is expected to see faster growth, overall profit will be lower than last year’s INR 23,500 crore. This is due to weak demand in the first quarter and an expected drop in passenger yields, the report said.

The outlook contrasts with the strong recovery airlines saw in the three years following the Covid-19 pandemic. Crisil noted that weaker operating profits will also lead to a moderation in airlines’ debt metrics this year. However, credit profiles are likely to remain stable, supported by healthy liquidity and planned equity infusions by some carriers.

In the first quarter of FY26, the industry faced two major disruptions.

• Border tensions: The closure of several airports along India’s western border for a week, along with airspace restrictions, led to the rerouting of international flights and longer flying times.
• Aircraft mishap: A major accident in June dampened passenger sentiment, forcing the affected airline to cut capacity while regulators carried out heightened safety checks.

These factors resulted in slower passenger traffic growth of 5.2% year-on-year in Q1, compared with 7.1% in the same period last year.

Despite the weak start, traffic is expected to pick up in the second half as disruptions ease. For the full fiscal year, passenger growth is estimated at 7–8%, broadly in line with the 8.1% growth in FY25.

However, airlines will face pressure on profitability. Passenger yields are projected to decline by 2–4%, compared to a 3% rise last year. Additional costs from rerouted flights due to airspace closures will also weigh on margins.

“Despite steady traffic growth, sustaining passenger load factors will come at the cost of lower yields this year,” said Gautam Shahi, Director, Crisil Ratings.