The Indian aviation industry is expected to face tougher times in FY2026, with net losses projected to rise sharply to INR 95,000–1,05,000 crore, compared to INR 55,000 crore in FY2025, according to Investment Information and Credit rating agency (ICRA).

The rise in losses comes as passenger traffic growth slows and more aircraft are added to airline fleets, creating a mismatch between demand and capacity.

ICRA has also cut its forecast for domestic air passenger traffic growth in FY2026 to 4–6%, down from the earlier estimate of 7–10%. Passenger numbers are now expected to reach 172–176 million this year.

“During FY2025, the Indian aviation industry benefited from improved pricing power, evident in higher yields, driven by healthy demand for air travel. However, the demand environment has turned more cautious in FY2026,” said Kinjal Shah, Senior Vice President & Co-Group Head, ICRA.

Passenger traffic in the first quarter of FY2026 grew only 4.4% year-on-year, held back by cross-border tensions, flight disruptions, and a slowdown in travel sentiment after a major aircraft accident. Longer-than-usual monsoons in July and August, along with global trade headwinds from US tariffs, are also expected to weigh on business travel.

The weaker demand has already caused airfares (yields) to drop by 4–5% year-on-year in Q1 FY2026. With new aircraft entering service despite the slowdown, airlines are likely to face stronger pricing pressures, further adding to industry losses.

ICRA also warned that the industry’s debt position will worsen. Interest coverage is expected to fall to 1.3–1.5 times in FY2026, compared to 1.5–1.7 times in FY2025.

Despite the challenges, ICRA pointed out that the projected losses are still far lower than the pandemic-era levels, when airlines reported losses of INR 2.16 lakh crore in FY2022 and INR 1.79 lakh crore in FY2023.

Fuel costs and currency movements remain crucial risk factors. Aviation Turbine Fuel (ATF) prices averaged INR 87,962 per kilolitre in the first five months of FY2026, about 8% lower than last year, but still well above the pre-COVID average of INR 64,715 per kilolitre. At the same time, the rupee weakened by 3% against the US dollar in the first four months, adding to operational costs since many aviation expenses are dollar-linked.

As of March 2025, the Indian aviation fleet had grown to 855 aircraft, with airlines placing orders for more than 1,600 new planes over the next decade. Many of these are aimed at replacing older jets with more fuel-efficient models. Fleet groundings due to engine failures and supply chain issues have also reduced to 15–17% (around 130 aircraft) by March 2025, from as high as 20–22% in September 2023.

The widening losses underline the fragile balance between growth and profitability in India’s aviation sector. While airlines continue to expand fleets aggressively, weak demand, high fuel costs, and currency volatility threaten margins. To remain resilient, experts suggest that airlines will need to focus on capacity discipline, cost optimisation, and revenue diversification.

If Indian carriers can effectively manage capacity growth while leveraging modern, fuel-efficient aircraft, the industry could stabilise in the medium term, but FY2026 will be a testing year.