NEW DELHI: India’s airline industry is set for a challenging financial year, with a new report by the credit rating agency ICRA predicting that losses will soar to ₹95–105 billion in FY2026. This is a sharp increase from the estimated ₹5.5 billion loss in FY2025, a downturn driven primarily by a mismatch between fleet expansion and slower-than-expected passenger demand.
Key Factors Driving the Forecasted Losses
ICRA has cut its forecast for domestic passenger traffic growth, now expecting it to grow by only 4–6% (to 172-176 million fliers), down from its previous projection of 7–10%. Several headwinds are contributing to this slowdown:
- Geopolitical Tensions and Travel Confidence: Passenger traffic in the first quarter of FY2026 grew by just 4.4% year-on-year, a rate weighed down by cross-border tensions and a dip in public travel confidence following a recent Air India crash.
- Intensifying Pricing Pressure: With airlines continuing to add more planes—the industry saw a 5% capacity increase in FY2025 to reach 855 aircraft—the slower demand is intensifying competition. This is leading to a decline in average fares, which slipped by 4–5% year-on-year in the first quarter of FY2026.
- External Headwinds: The report also cites a prolonged monsoon season affecting travel in July and August, as well as trade headwinds from US tariffs, which are expected to dampen business sentiment and, consequently, business travel.
While the aviation sector’s financial health is deteriorating, the forecasted losses remain significantly lower than the heavy losses reported during the pandemic years, which were ₹216 billion in FY2022 and ₹179 billion in FY2023.
Future Capacity and Challenges
Despite the near-term turbulence, the industry is gearing up for long-term growth. Airlines have placed orders for more than 1,600 new aircraft scheduled for delivery over the next decade. A large portion of these are intended to replace older, less fuel-efficient planes. The industry has also seen a reduction in grounded aircraft due to engine failures, with the proportion dropping from 20-22% in September 2023 to 15-17% by March 2025.