Domestic air travel in India to grow 7–10% in FY 2026, but Sector to remain in loss: ICRA

Ratings agency ICRA forecasts that India’s domestic air passenger traffic will increase by 7–10% in fiscal year 2026, reaching 175–181 million travellers. This follows a 7.6% jump in FY 2025, when about 165.4 million people flew domestically, a figure that also marked a robust 16.8% increase over pre-Covid traffic.

Despite rising travel volumes, the sector remains under financial strain. ICRA projects a net loss of INR 20,000–30,000 crore in FY 2026 a level comparable to losses in FY 2025 and far from the INR 1,600 crore profit recorded in FY 2024. The key culprits are elevated costs, including high jet-fuel prices, increasing interest charges, and rising lease expenses for aircraft.

Key Metrics & Recent Trends:

• May 2025 Volumes: About 14.36 million domestic passengers, up 4.1% from May 2024. Capacity deployed rose by 5.1% YoY.
• Load Factors: Passenger load factor remained strong at 88%, compared to 86.1% in April 2025.
• Interest Coverage: Projected to be between 1.5 and 2.0, showing a modest improvement in debt servicing capacity.

On the international front, ICRA expects 15–20% growth in passengers carried by Indian carriers in FY 2026, building on 33.9 million international travellers in FY 2025—a 14.1% rise year-over-year and a 49% increase over pre-pandemic levels.

Why the Losses Continue

Several persistent challenges are keeping the industry in the red:

1. High aviation turbine fuel (ATF) prices and volatility in global crude oil.

2. Heavy lease liabilities as carriers expand and replace fleets.

3. Rising interest obligations linked to leasing and debt.

4. Intense competition is forcing airlines to maintain high load factors at the cost of yields.

ICRA emphasises that despite steady passenger demand, the financial recovery will be gradual and limited, constrained by high fixed operating costs and the need to balance pricing with full flights.

Outlook Summary (FY 2026):

Aspect Expected Trend

Domestic volume+7–10%, reaching 175–181 million

International volume+15–20%

Net losses₹20,000–30,000 cr

Fuel & lease costsHigh, pressuring margins

Interest coverage ratio1.5–2.0x – modest improvement

While India’s aviation sector continues to show strong recovery in traffic, financial results remain weak as cost pressures outweigh growth in demand. Carriers will need to navigate rising fuel, lease, and interest expenses before moving back into profitability.