ICRA maintains stable outlook for Indian aviation; domestic air traffic to grow 4–6% in FY26

ICRA has reaffirmed a stable outlook for the Indian aviation sector and projected domestic air passenger growth of around 4–6% in FY26, even as the industry continues to face several operational and external pressures.

The rating agency said that despite global geopolitical uncertainty, elevated fuel prices and recurring operational disruptions, passenger demand has remained resilient. Domestic air travel had already grown by 7.6% in FY2025, rising to 165.38 million travellers as airlines expanded capacity across major routes.

According to ICRA’s latest estimates, Indian carriers flew 142.8 lakh domestic passengers in October 2025, representing a 4.5% increase year-on-year and a 12.9% rise over September. Domestic departures in October were expected to reach 99,816 flights, marking a 10.8% increase from September and a 1.7% rise compared with October 2024. Passenger Load Factors also showed improvement, with October’s PLF at 84.7%, up from 82.4% in the same month last year and 81.4% in September, indicating stronger seat utilisation across airlines.

Despite maintaining a stable outlook, ICRA warned that its growth expectations for the current fiscal have been revised downward. The agency cited heightened border tensions, broader geopolitical instability, lingering passenger caution following the June 2025 aircraft accident and persistent Air Traffic Control disruptions as factors likely to impact sentiment and operational efficiency through FY26.

Indian carriers continue to strengthen their international presence. ICRA reported that 2.83 million international passengers were carried in September 2025, a 5.8% increase from the previous year. For FY26, international traffic is expected to grow by 13–15%, driven by a greater number of aircraft becoming operational and an expansion of overseas routes.

Fuel costs remain one of the biggest constraints for airlines. Aviation Turbine Fuel prices in November 2025 were 4.4% higher year-on-year and nearly 0.8% above October levels. With fuel accounting for 30–40% of total operating costs, even modest increases pose significant financial pressure. ICRA projected that the aviation industry’s net loss could widen to between INR 95,000 crore and INR 105,000 crore in FY26 due to elevated fuel prices and ongoing disruptions.

Aircraft availability continues to challenge the sector. As of March 2025, approximately 133 aircraft were grounded because of global supply chain shortages involving engines and essential components, limiting airlines’ ability to fully utilise rising demand.

In an effort to improve consumer convenience, the DGCA has proposed new rules allowing passengers to cancel or modify bookings within 48 hours of purchase without incurring charges. The provision would apply to domestic flights scheduled more than five days later and international flights scheduled beyond 15 days. Refunds under these rules are required to be processed within 21 working days, offering travellers faster resolution and greater flexibility.