ICRA slashes outlook, sees massive losses for Indian airlines in FY27

India's aviation industry is heading into another financially challenging year despite passenger traffic continuing to recover. Ratings agency ICRA has sharply revised its forecast for airline losses in the current financial year (FY27), warning that a combination of rising operating costs, geopolitical tensions and slowing travel demand will keep the sector under severe financial pressure.

According to ICRA, Indian airlines are now expected to post combined net losses of ₹36,000-38,000 crore in FY27, more than three times higher than their earlier estimate of ₹11,000-12,000 crore. The agency has also raised its estimate for FY26 losses to ₹32,000-34,000 crore, nearly double its previous projection.

The revised outlook highlights how quickly the industry's operating environment has deteriorated over the past few months.

A perfect storm

The biggest concern for airlines today is that almost every major cost component is moving in the wrong direction simultaneously. The depreciation of the Indian rupee has increased expenses because a large share of airline costs, including aircraft lease rentals, maintenance contracts and spare parts, is paid in US dollars. At the same time, aviation turbine fuel (ATF), which already accounts for nearly one-third of airline operating expenses, has become significantly more expensive.

ICRA noted that ATF prices in June were nearly 27 per cent higher than a year ago, while average fuel prices during the first quarter of FY27 were almost 23 per cent higher than the corresponding period last year.

The situation is expected to become even more expensive as airlines continue taking delivery of hundreds of new aircraft ordered over the past few years. While fleet expansion is necessary to meet India's long-term aviation demand, it also increases lease rental payments in the short term.

The challenge for airlines is that these rising costs cannot easily be passed on to passengers through higher ticket prices.

West Asia conflict

Adding to the industry's problems is the continuing conflict in West Asia, which has disrupted international aviation. The conflict has forced airlines to avoid certain airspaces, resulting in longer flight routes, increased fuel consumption and higher operating costs. Flight cancellations and schedule adjustments have also affected passenger confidence, particularly on international routes.

ICRA believes these geopolitical uncertainties will continue to weigh on passenger demand during FY27.

"The onset of the West Asian conflict since the end of February 2026 is expected to result in subdued air passenger traffic growth," the ratings agency said while explaining its revised outlook.

Passenger growth losing momentum

Although India's aviation market continues to grow, the pace of expansion is slowing.

Domestic passenger traffic increased by 11.3 per cent year-on-year in May 2026, reaching approximately 1.56 crore passengers. However, ICRA pointed out that this growth was supported by a favourable base, as travel demand had weakened during the same period last year following the Pahalgam terror attack and subsequent India-Pakistan military tensions.

Looking ahead, the agency has lowered its domestic passenger traffic growth forecast for FY27 to 3-6 per cent, compared with its earlier estimate of 6-8 per cent. The outlook for international travel appears even weaker.

ICRA has revised its international passenger traffic growth forecast for Indian airlines to just 0-3 per cent, down sharply from its earlier expectation of 8-10 per cent. International passenger traffic had already declined by 39 per cent year-on-year in April 2026, reflecting the impact of disruptions caused by the West Asia conflict. Higher airfares, inflation and reduced discretionary spending are also expected to discourage leisure travel over the coming months.

Airlines continue expanding capacity

Interestingly, airlines are continuing to add more flights despite mounting financial pressure. Capacity deployment increased by 5.1 per cent year-on-year in May and was also higher than the previous month. Passenger load factors remained healthy at nearly 89 per cent, suggesting that aircraft are largely flying full. However, high passenger loads do not automatically translate into profitability.

Industry analysts point out that airlines can fill seats while still losing money if fuel prices, lease rentals and maintenance costs rise faster than ticket revenues.

This is precisely the situation confronting many Indian carriers today.

Supply chain problems

Another factor weighing on airline finances is the global aircraft supply chain crisis.

As of March 2026, around 99 aircraft, representing nearly 11-13 per cent of India's commercial fleet, remained grounded due to Pratt & Whitney engine issues and other supply chain bottlenecks.

Grounded aircraft reduce operational efficiency while forcing airlines to lease additional aircraft or operate with reduced capacity, both of which increase costs.

The continuing shortage of engines, spare parts and maintenance capacity also means airlines are facing longer turnaround times for repairs and higher maintenance expenses.

Government measures

ICRA acknowledged that several government initiatives could provide some support to airlines. These include the Emergency Credit Line Guarantee Scheme (ECLGS) 5.0, reductions in airport charges, lower state taxes on aviation turbine fuel in some regions and the recently approved ATF Price Stabilisation Fund. These measures are expected to improve liquidity and reduce fuel price volatility to some extent.

However, the ratings agency believes these interventions alone may not be sufficient to offset the broader pressures created by global fuel prices, currency depreciation and geopolitical uncertainty.

The big picture

India remains one of the world's fastest-growing aviation markets, supported by rising incomes, expanding airport infrastructure and massive aircraft orders. Yet the industry's financial health tells a very different story.

The latest ICRA projections underline an important reality, that passenger growth alone is no longer enough to ensure profitability. Airlines are increasingly exposed to external risks such as currency movements, fuel price volatility, geopolitical conflicts and supply chain disruptions, factors that remain largely beyond their control.

For India's carriers, the coming year is likely to be less about expanding aggressively and more about carefully managing costs, protecting cash flows and maintaining operational resilience until market conditions improve.