Indian airlines expected to reduce losses: ICRA

Indian airlines are expected to reduce losses to an estimated Rs 11,000-12,000 crore next fiscal from a projected Rs 17,000-18,000 crore this financial  year, ratings agency ICRA said on Tuesday, even as it maintained a “stable outlook” for the domestic aviation industry.

ICRA also estimates the domestic air passenger traffic to grow by 6-8 per cent and touch 175-179 million passengers in FY2026-27. ICRA, in December 2025, had revised its domestic air passenger growth estimates to 0-3 per cent for the current financial year from 4-6 per cent envisaged earlier.

The international air passenger traffic growth for Indian carriers is expected to remain relatively stronger, aided by low base effect, expanding e-visa/visa-on-arrival coverage, and the Central Government’s focus on developing theme-based and iconic tourist destinations, the ratings agency said.

ICRA said the international air passenger traffic is seen growing at 7-9 per cent for this financial year and 8-10 per cent next year, and added that the current fiscal year has seen a period of modest domestic air passenger traffic growth due to cross-border escalations, weather-related disruptions, travel hesitancy following the June 2025 aircraft accident, the impact on business travel owing to the headwinds stemming from elevated US tariffs and operational disruptions at IndiGo in December 2025.

ICRA has maintained a “stable outlook” for the Indian aviation industry, supported by expectations of modest growth in domestic air passenger traffic and a gradually improving operating environment, despite near-term challenges, said Kinjal Shah, senior vice president at ICRA.

“The Indian aviation industry is expected to report a net loss of Rs 170-180 billion (17000-18000-crore) in 2025-26, significantly higher than the estimated net loss of around Rs 55 billion (5,500 crore) in 2024-25.

However, the same is likely to reduce to Rs 110-120 billion (11,000-12,000 crores) in 2026-27, led by growth in domestic air passenger traffic and expected normalisation of operations post disruptions seen in 2025-26 that had resulted in flight cancellations and passenger refunds,” she said.

The industry’s debt metric, which weakened in 2025-26 with an estimated interest cover of 0.7-0.9 times from 1.8 times in 2024-25, is also expected to improve to 1.3-1.5 times in 2026-27, despite increasing debt linked with new aircraft deliveries, according to Shah.

The yields of the industry have declined in the April-December period of 2025-26 on a YoY basis due to a series of external events like cross-border escalations, airplane crash and operational disruptions at IndiGo in the first week of December 2025, ICRA said.

Despite these challenges, the drop in yields was not as steep as the reduction in fuel Cost per Available Seat Kilometre (CASK), as airlines strived to sustain the yield levels amid rising cost pressure from currency fluctuations and operational expenses related to flight cancellations and delays, it said.

ICRA expects the yields to improve in the near term as temporary disruptions ease. Nonetheless, the movement in prices of ATF and the USD-INR rate will remain key monitorable. According to the ratings agency, the industry saw around 4 per cent capacity addition in CY2025, and the total number of aircraft stood at 865 as of December 31, 2025.

Various industry players have announced large aircraft purchase orders and as per the indicative numbers, the total pending aircraft deliveries stand at more than 1,700 as on January 31, 2026, which are likely to be received over the next 10 years but a large part of these orders is towards replacement of old aircraft with new fuel-efficient ones, ICRA said. Grounded aircraft have been a cause of concern for the industry over the past few years, as per the ratings agency.

“Engine failures and supply chain challenges had resulted in grounding of 20-22% of the total industry fleet as of September 2023. The same has come down to 13-15% as of February 2026, corresponding to 117 aircraft.”  As the count of grounded aircraft reduces further over time and fresh supply comes in, the balance between supply and the secularly rising demand from domestic and international travellers should move towards a more stable equilibrium,” Shah added.