India’s aviation industry is entering FY2027 under mounting financial and operational pressure, with domestic passenger traffic recording a decline in April 2026 amid rising airfares, higher fuel costs and geopolitical tensions linked to the ongoing West Asia conflict.

According to a latest report by ICRA, domestic air passenger traffic stood at 140.8 lakh in April 2026, down 1.6 per cent compared to 143.1 lakh passengers in April 2025. Traffic was also 2.0 per cent lower than March 2026 levels, indicating a slower start to the new financial year.

The ratings agency said the fall in passenger numbers was largely driven by softer discretionary travel demand as airfares continued to rise.

Airlines under pressure

The aviation sector is currently dealing with several challenges at the same time. These include high aviation turbine fuel (ATF) prices, a weakening rupee, supply chain disruptions, grounded aircraft and increased operational costs caused by international airspace restrictions.

ICRA has retained a “Negative” outlook on the Indian aviation industry, warning that airlines may continue to face profitability challenges in the coming months.

The report said the escalation of conflict in West Asia since late February 2026 has added fresh pressure on airlines. Several international air routes have been disrupted due to airspace closures, forcing airlines to take longer routes that consume more fuel and increase operating expenses. At the same time, airlines have also introduced fuel surcharges on some routes, leading to higher ticket prices for passengers.

“Flight cancellations amid airspace closures and increase in air fares due to fuel surcharge will weigh on passenger traffic growth,” ICRA said in its report.

Industry losses expected to remain high

ICRA expects the Indian aviation industry to post a net loss of Rs 170-180 billion in FY2026.

Earlier, the agency had estimated that industry losses would narrow to around Rs 110-120 billion in FY2027 as passenger traffic improved. However, the ongoing geopolitical situation and rising fuel costs have now created downside risks to those projections.

The report noted that airlines are particularly vulnerable because a large portion of their expenses are linked to the US dollar.

Around 35-50 per cent of airline operating costs, including fuel, aircraft lease rentals and maintenance expenses are dollar-denominated. As the rupee weakens against the dollar, airline costs automatically increase.

Also read: Air India cuts domestic flights by up to 22% amid high fuel prices

Fuel prices continue to hurt

Fuel remains one of the largest expenses for airlines, accounting for nearly 30-40 per cent of total operating costs. According to ICRA, ATF prices for domestic routes in May 2026 remained unchanged compared to April but were still 23.5 per cent higher than May 2025 levels.

The agency also pointed out that international rerouting due to the West Asia conflict is increasing fuel burn for long-haul flights, further adding to airline expenses.

While the Government has moderated some fuel price hikes and reduced certain airport charges, airlines continue to operate under severe cost pressure.

Supply chain problems persist

The report also highlighted the ongoing supply chain crisis affecting the global aviation sector. As of March 2026, around 99 aircraft belonging to Indian airlines remained grounded because of supply chain delays and Pratt & Whitney engine-related issues. This accounts for nearly 11-13 per cent of the industry’s total fleet.

Aircraft shortages have affected airline schedules, capacity deployment and operational efficiency across the sector. ICRA noted that airlines are still facing difficulties in obtaining engines, spare parts and maintenance support within expected timelines.

IndiGo and Air India face operational challenges

IndiGo faced significant operational disruptions in December 2025 due to stricter flight duty time regulations, poor weather conditions and technical issues. At the peak of the disruption, the airline reportedly cancelled around 1,600 flights.

Meanwhile, Air India temporarily reduced its international wide-body operations by around 15 per cent after enhanced safety inspections were introduced following an aircraft crash in June 2025.

These disruptions have further impacted capacity and passenger movement across both domestic and international routes.

Government steps in

To ease financial pressure on airlines, the Ministry of Civil Aviation has introduced several support measures. The Government reduced landing and parking charges for domestic airlines by 25 per cent for three months starting April 2026.

In addition, an Emergency Credit Line Guarantee Scheme worth Rs 5,000 crore has been approved for the aviation sector. The scheme allows airlines to access additional funding backed by government guarantees to improve liquidity.

State governments have also announced tax relief measures on aviation turbine fuel.

The governments of Maharashtra and Delhi reduced value-added tax (VAT) on ATF to 7 per cent from earlier rates of 18 per cent and 25 per cent respectively.

Industry observers believe these steps may provide temporary relief, although they are unlikely to fully offset the impact of high fuel prices and geopolitical instability.

Passenger growth outlook uncertain

Despite current challenges, ICRA still expects domestic passenger traffic to grow by around 6-8 per cent in FY2027. However, the agency cautioned that the outlook remains uncertain and vulnerable to further increases in airfares or prolonged geopolitical tensions.

The agency also warned that demand for air travel could weaken further if ticket prices rise sharply in the coming months.

Another concern highlighted in the report is the Government’s push to curb discretionary consumption, which could impact leisure and non-essential travel demand.

Several airlines have already announced plans to reduce international flights in response to rising operational costs and weaker demand caused by the West Asia conflict.

Also read: India’s SAF push could transform airlines, airports and air travel

A difficult year aviation

The Indian aviation industry had entered FY2027 hoping for stronger recovery and improved profitability after years of financial stress and pandemic-related disruption. However, rising fuel costs, aircraft shortages, global geopolitical tensions and operational challenges are once again creating uncertainty for airlines.

While passenger demand for air travel in India remains structurally strong over the long term, industry experts believe airlines may continue facing margin pressure and operational disruptions in the near future.

For now, India’s aviation sector appears set for another challenging year as carriers attempt to balance rising costs with competitive pricing and growing passenger expectations.