ICRA Predicts Sharp Rise in Aviation Industry Losses to Rs 17,000-18,000 Crore in FY2026
Credit rating agency ICRA has projected a significant increase in losses for India's aviation sector, estimating them to reach Rs 17,000-18,000 crore in FY2026. This marks a sharp rise from the Rs 5,600 crore loss projected for FY2025, highlighting growing financial pressures in the industry.
Multiple Factors Driving the Loss Projection
The agency cited several key factors contributing to this bleak outlook:
- Slowing domestic traffic growth: Domestic air passenger traffic declined by 3.9% year-on-year in December 2025 to 143.4 lakh passengers, with a 5.9% sequential drop from November 2025.
- Increase in jet fuel prices: Aviation turbine fuel (ATF) prices remain a major cost variable, with January 2026 prices 2.2% higher year-on-year.
- Depreciating rupee: The continued weakening of the rupee against the US dollar has led to significant foreign exchange losses for airlines.
Operational Challenges and Supply Side Pressures
ICRA noted that 133 aircraft of Indian carriers are currently grounded, representing approximately 15-17% of the total capacity. This creates substantial supply side pressure and exacerbates operational disruptions.
The agency described calendar year 2025 as "one of the worst years for Indian aviation" due to multiple high-profile incidents including:
- The tragic AI 171 Ahmedabad crash
- IndiGo's schedule collapse
- Delhi ATC software issues
- Various other operational disruptions
Revised Traffic Growth Estimates and Financial Metrics
ICRA has revised its domestic air passenger traffic growth estimates downward for FY2026. The agency now expects growth of just 0-3%, reaching 165-170 million passengers, compared to earlier estimates of 4-6% growth.
Key financial indicators paint a concerning picture:
- Fuel costs account for 30-40% of airlines' operating expenses
- 35-50% of total operating costs are dollar-denominated, exposing airlines to exchange rate volatility
- The industry's interest coverage ratio is projected at 0.7-0.9 times in FY2026, indicating stressed financial sustainability
Detailed Cost Analysis and Outlook
For FY2025, average ATF prices stood at ₹95,181 per kiloliter, representing an 8.0% year-on-year decrease. However, the sequential decline of 7.2% in January 2026 provides little relief given the broader cost pressures.
Domestic capacity deployment in December 2025 declined by 7.3% year-on-year and 7.6% month-on-month, with approximately 91,769 departures. This reduction was largely attributed to large-scale operational disruptions at IndiGo, including around 4,500 flight cancellations in early December 2025.
ICRA summarized the situation stating: "The Indian aviation sector is under sustained financial and operational pressure, with growth momentum moderating and industry losses widening... due to operational disruptions, elevated forex losses, higher cost structures and slowing passenger traffic growth."
While international traffic remains relatively resilient, the domestic sector faces significant headwinds that are expected to continue through FY2026, with further foreign exchange pressure anticipated in the third quarter.
