Indian aviation industry outlook negative; weak near-term demand: ICRA

Ratings agency Investment Information and Credit Rating Agency of India Limited (ICRA) on Friday revised its outlook on the Indian aviation industry to negative from stable, citing disruptions in international airspace following escalation of geopolitical tensions in West Asia.

The revision in outlook is also on account of a sharp depreciation of the rupee against the US dollar and an expected increase in jet fuel (ATF) prices, ICRA said. These factors are likely to significantly increase cost pressures for airlines, even as demand growth faces downside risks, it said.

The ratings agency said it expects domestic air passenger traffic growth to be at 0-3 per cent for the ongoing fiscal year and international passenger traffic growth for Indian carriers at 7-9 per cent, indicating a relatively weak near-term demand environment.

Prior to the West Asian crisis, ICRA had estimated domestic air passenger traffic growth at 6-8 per cent and international traffic growth for Indian carriers at 8-10 per cent for FY27. However, these projections now carry a downward bias, it said. Flight cancellations due to airspace closures, coupled with higher airfares following the levy of fuel surcharges (estimated at 5-6 per cent of average ticket prices), are expected to weigh on passenger traffic growth, ICRA said.

Additionally, rerouting of flights is likely to increase fuel burn and operating costs, the ratings agency said.Moreover, the removal of airfare caps by the DGCA, which were introduced in December last year following operational disruptions at IndiGo poses further downside risks.A sharp rise in ticket prices could dampen travel demand going forward,

ICRA said. ICRA had earlier projected net losses for the aviation industry to narrow to INR 11,000-12,000 crore in FY27, supported by traffic growth.

However, the recent geopolitical developments, along with adverse currency movements and rising fuel costs, have introduced a downward bias to these estimates, it said, adding that for FY26, the industry is expected to report net losses of INR 17,000-18,000 crore.

The pressure on profitability is being exacerbated by structural cost challenges. Fuel alone accounts for 30-40 per cent of airlines’ operating expenses, while 35-50 per cent of total costs, including lease payments and maintenance, are dollar-denominated, making airlines highly vulnerable to currency depreciation, ICRA added.In March, the report said Aviation Turbine Fuel (ATF) prices increased 1.7 per cent year-on-year and 5.7 per cent sequentially.

“The average ATF prices increased by 5.7 per cent as on March 1, 2026, on a sequential basis and by 1.7 per cent on a year-on-year basis.“Further, as a result of the escalating West Asian conflict, crude oil prices (Brent) have already risen significantly since February 28, 2026 — to $105/bbl as on March 26, 2026, from $72/bbl. This has had the contagion effect on ATF prices spiking up,” it said.

According to the report, during the April 2025 to March 2026 period, ATF prices have been lower by 4.1 per cent year-on-year.“Between April 2024 and March 2025, ATF prices were lower on a year-on-year basis in April, June, September, October, January and March 2025, leading to average ATF prices for FY2025, which were 8 per cent lower on a year-on-year basis,” it noted.