New Delhi, India: India’s aviation industry is expected to report net losses of ₹36,000–38,000 crore (approximately US$4.09-4.32 billion) in FY2027 as the Iran war and wider West Asia conflict, a weakening Indian rupee, elevated aviation turbine fuel prices and rising aircraft lease rentals put pressure on airline finances.
The projection is based on an assessment by credit-rating agency ICRA. The agency estimated that the industry incurred net losses of ₹28,000–30,000 crore (approximately US$3.18–3.41 billion) in FY2026.
“The losses were primarily driven by moderation in passenger traffic growth, rising aviation turbine fuel (ATF) prices and forex losses arising from the sharp depreciation of the Indian rupee,” ICRA said in the report.
The agency expects the conflict that began escalating at the end of February 2026 to suppress passenger traffic growth during the current financial year. Higher costs resulting from the rupee’s depreciation against the US dollar, rising fuel prices and increased lease rentals associated with continued aircraft deliveries are expected to widen the industry’s losses.
Airlines may struggle to pass these additional costs on to passengers through fare increases without weakening demand. ICRA has consequently maintained a Negative outlook on the Indian aviation industry.
The assessment covers Air India Limited on a consolidated basis, InterGlobe Aviation Limited, SNV Aviation Private Limited, which operates Akasa Air, and SpiceJet Limited.
Domestic air passenger traffic declined to 118.2 lakh in September 2026 from 126.4 lakh in September 2025, representing a year-on-year contraction of 6.5%. Traffic also fell 2.5% sequentially from 121.3 lakh in August 2026, according to ICRA.
The decline coincided with a reduction in airline capacity. Domestic departures totalled approximately 82,845 in September 2026, down 8.1% from 90,112 a year earlier and 4.5% from August 2026.
Average daily departures fell to around 2,762 from approximately 3,004 in September 2025. However, the average number of passengers per flight increased to 143 from 140 over the same period.
The domestic passenger load factor (PLF), which measures the proportion of available seats occupied, stood at 81.1% in September 2026. This compared with 81.4% in September 2025 and 79.0% in August 2026.
ICRA attributed the relatively stable load factor despite falling passenger numbers to lower capacity deployment. Elevated airfares, inflationary pressures and weaker discretionary travel demand contributed to the traffic decline.
For the first half of FY2027, covering April to September 2026, domestic passenger traffic totalled 786.1 lakh, down 1.9% year on year. In FY2026, domestic passenger traffic grew 1.2% to 1,674.2 lakh.
ICRA forecasts domestic passenger traffic growth of 3–6% in FY2027. However, the outcome will depend on festive-season demand, the evolution of the geopolitical situation and whether airlines can absorb higher operating expenses without raising fares enough to discourage travel.
International passenger traffic for Indian carriers declined 19.3% year on year during April–September 2026, reflecting the effects of airspace restrictions and network disruptions associated with the West Asia conflict.
The contraction followed 3.9% growth in international passenger traffic for Indian carriers in FY2026, when traffic reached 350.0 lakh.
ICRA projects international passenger traffic for Indian carriers to decline by 3–6% in FY2027. Restrictions affecting certain international airspaces began on February 28, 2026, following the escalation of the conflict in West Asia.
The disruption has affected airline networks and international capacity deployment, while higher operating costs have pushed up fares. Inflationary pressures may also force passengers to reduce discretionary spending, further affecting travel demand.
ICRA warned that a prolonged conflict or further escalation could create additional downside risks for passenger traffic, airline yields and profitability. The outlook remains dependent on geopolitical developments, airspace availability, fuel prices and airlines’ ability to recover rising costs through fares.
Aviation turbine fuel has become one of the most significant sources of cost pressure for Indian airlines. ATF prices for domestic operations announced for October 2026 rose by ₹16,000 per kilolitre (approximately US$182 per kilolitre) compared with September, marking a 13.2% month-on-month increase and a 46.2% year-on-year rise.
For the first half of FY2027, ATF prices increased 24.1% year on year, according to ICRA.
Domestic ATF prices remained unchanged sequentially between April and June 2026 because oil marketing companies did not revise prices during that period. Nevertheless, prices were, on average, 22.8% higher year on year during those three months.
Subsequent year-on-year increases reached 18.0% in July, 24.7% in August, 33.4% in September and 46.2% in October 2026.
In FY2026, average ATF prices were 4.1% lower than in FY2025 as crude oil prices moderated during most months on a year-on-year basis. The trend reversed after the conflict in West Asia intensified.
Crude oil prices corrected sharply between mid-June and early July 2026 amid expectations of a peace agreement and improved market sentiment. However, renewed hostilities raised concerns about supplies, pushing crude prices higher from early July.
ICRA identified developments in the conflict and their impact on major oil supply routes as important factors to monitor for future crude-price movements.
Fuel accounts for approximately 30-40% of airline operating expenses, making sustained increases in ATF prices a significant threat to profitability.
Indian carriers have begun adjusting passenger charges in response to the increase in fuel expenses. IndiGo revised fuel surcharges on domestic and international bookings from October 6, 2026. Air India, Air India Express and Akasa Air introduced or revised surcharges for new bookings from October 9, 2026.
For domestic routes, fuel surcharges range from ₹375 to ₹1,200 per ticket (approximately US$4.26–13.64), depending on the distance and route. International routes attract higher charges.
However, passing on higher costs to passengers carries a risk. ICRA expects the recent increase in ATF prices to exert further pressure on fares and cautions that significant fare increases could weigh on passenger traffic, particularly in an environment of subdued demand and rising inflation.
Airlines therefore face a difficult balance between recovering higher operating expenses and maintaining passenger volumes.
The weakening Indian rupee against the US dollar is compounding the impact of higher fuel prices. ICRA estimates that 35–50% of airline costs are denominated in US dollars.
These expenses include fuel, aircraft lease rentals and maintenance. Some airlines also carry foreign-currency debt, increasing their exposure to exchange-rate movements.
When the rupee depreciates, airlines need more domestic currency to meet the same dollar-denominated obligations. This increases operating expenses and can generate foreign-exchange losses.
Although international operations provide Indian carriers with a partial natural hedge through foreign-currency earnings, ICRA noted that airlines remain net payers in foreign currencies.
The combined impact of a weak rupee and elevated fuel prices has weakened the spread between revenue per available seat kilometre (RASK) and cost per available seat kilometre (CASK). This spread is an important measure of whether airlines can generate enough revenue from available capacity to cover their operating costs.
ICRA said yield movements remain an important factor to monitor as costs continue to rise. If airlines cannot recover these increases through fares, their financial performance could deteriorate further.
The industry is also dealing with engine-related supply-chain challenges, particularly those involving Pratt & Whitney engines.
ICRA reported that engine failures and supply-chain constraints had resulted in 99 aircraft being grounded at selected airlines as of March 2026. These aircraft represented 11–13% of the total industry fleet.
The situation had improved from September 30, 2023, when 20–22% of the industry fleet was grounded. However, the conflict in West Asia and the subsequent rationalisation of international capacity contributed to a renewed increase in aircraft groundings.
By August 2026, aircraft on ground represented 19–20% of the total industry fleet, according to ICRA.
Grounded aircraft create additional financial pressure because airlines may need to lease replacement aircraft, particularly through wet leases, to maintain capacity. Replacement aircraft may carry higher lease rates and lower fuel efficiency, especially when older aircraft are taken on spot leases.
These factors increase operating expenses and weaken airline cost structures.
ICRA noted that relatively healthy yields, high passenger load factors and partial compensation from engine original equipment manufacturers have helped airlines absorb some of the impact. However, engine failures and supply-chain constraints continue to pose risks to capacity and profitability.
Continued aircraft deliveries are also expected to increase lease rentals, adding another cost burden during a period of weak passenger growth and elevated fuel expenses.
The government has introduced financial and operational support measures to help airlines manage rising costs and liquidity pressures.
The Ministry of Civil Aviation had announced a 25% reduction in landing and parking charges for domestic airlines at major airports for three months beginning in April 2026. The temporary relief has since lapsed, leaving domestic carriers to bear the full charges.
On May 5, 2026, the Government of India approved the Emergency Credit Line Guarantee Scheme (ECLGS) 5.0, worth ₹5,000 crore (approximately US$568 million), to address near-term liquidity constraints and improve access to credit in the aviation sector.
Under the scheme, scheduled passenger airlines can receive credit guarantee coverage of 90%. Eligible borrowing can reach 100% of the peak working capital utilised during the fourth quarter of FY2026, subject to a maximum of ₹1,500 crore per airline (approximately US$170.5 million).
The repayment period can extend to seven years, including a two-year moratorium, providing airlines with additional flexibility to manage operational disruptions arising from geopolitical uncertainties.
However, uptake remained moderate as of August 2026. Applications totalled ₹2,530 crore (approximately US$287.5 million), while sanctions and disbursements amounted to around ₹920 crore (approximately US$104.5 million), according to ICRA.
SpiceJet had drawn ₹150 crore (approximately US$17 million) and was awaiting a further ₹350 crore (approximately US$39.8 million) in disbursement. Akasa Air had received a sanction of ₹740 crore (approximately US$84.1 million).
Air India and IndiGo, despite being eligible for up to ₹1,500 crore each (approximately US$170.5 million per airline), had not availed the scheme as of the report’s stated assessment period.
ICRA said access to ECLGS 5.0 could partly ease liquidity pressures for relatively smaller airlines. Larger carriers may be better placed because of their cash balances or support from strong parent companies.
The Federation of Indian Airlines (FIA) has urged the Government of India to provide immediate financial and operational relief to domestic carriers facing severe liquidity and working-capital pressures.
The federation cited the West Asia conflict, airspace restrictions, rupee depreciation, elevated ATF prices and rising operating costs. It also highlighted the limited scope airlines have to pass these costs on to passengers through higher fares.
FY2027 Outlook Remains Negative
ICRA expects the Indian aviation industry to remain under pressure during FY2027, with its financial performance depending on the interaction between passenger demand, fuel prices, exchange rates, aircraft availability and geopolitical developments.
The agency forecasts domestic passenger traffic growth of 3–6% in FY2027, while international passenger traffic for Indian carriers is projected to decline by 3–6%.
The projections remain vulnerable to further escalation of the West Asia conflict, continuing airspace restrictions, inflation and additional increases in ATF prices. Any substantial increase in fares could weaken passenger demand, while airlines that absorb higher expenses may see further pressure on margins.
The industry’s estimated losses of ₹36,000–38,000 crore (approximately US$4.09–4.32 billion) in FY2027, compared with ₹28,000–30,000 crore (approximately US$3.18–3.41 billion) in FY2026, underline the financial challenge facing Indian carriers.
With domestic ATF prices in October 2026 already 46.2% higher than a year earlier, the outlook will depend on whether airlines can manage rising costs, maintain yields, restore international capacity and secure sufficient liquidity without significantly undermining passenger demand.
