NEW DELHI: The Middle East conflict, the sharp depreciation of the rupee and rising Aviation Turbine Fuel (ATF) prices have significantly widened losses for India's aviation industry in the 2025-26 financial year, with the sector expected to post losses of Rs 32,000 crore to Rs 34,000 crore, according to a report released on Friday by the Investment Information and Credit Rating Agency(ICRA).
The Year on Year (YoY) growth of international traffic has seen a sharp decline of 39% in April this year as compared to the same period the previous year, the report said. Domestic air passenger traffic has grown by 13.2% in the compared period. Due to this trend, the ICRA has decided to revise its forecast downward for both the domestic and international segment, it said.
The domestic air passenger traffic for May 2026 was estimated at 156.4 lakh, 11.3% higher than 140.5 lakh in May 2025 and 13.2% higher than 138.1 lakh in April 2026.
Despite the growth in May 2026, which was supported by a favourable base, given the demand disruption in May 2025 following the Pahalgam attack and the subsequent military conflict between India and Pakistan, ICRA has revised downward its forecasts for the domestic air passenger traffic growth in FY2027 to 3-6%, from its earlier projections of 6-8%.
“The international air passenger traffic for Indian carriers witnessed a sharp decline of 39% YoY in April 2026 due to disruptions arising from the West Asian conflict,” it said. ICRA has also revised downwards its international air passenger traffic growth (for Indian carriers) for the ongoing Financial year 2026-2027 to just 0-3% from the 8-10% projected earlier.
“The Indian aviation industry is estimated to have reported a net loss of Rs 32,000 -34,000 crore (320-340 billion) in FY2026, much higher than ICRA’s earlier estimates of Rs. 17,000-18,000 crore (170-180) billion, primarily on account of the foreign exchange losses arising from the sharp depreciation of the INR, moderation in passenger traffic growth and an increase in ATF prices following the rise in crude oil prices amid the West Asian conflict towards the end of FY2026,” the report said.
ICRA has now revised its FY 2027 net loss forecasts upwards to Rs 36,000 crore to Rs 38,000 crore, it said. “For FY2027, while losses were earlier projected to narrow to Rs. 11,000 crore to 12,000 crore (110-120 billion), supported by an improvement in passenger traffic, the outlook has since deteriorated, the report said. The onset of the Middle East conflict since end-February 2026 is expected to result in subdued air passenger traffic growth in FY2027. Additionally, increased costs due to depreciation of the INR against the USD, elevated ATF prices and an anticipated rise in lease rentals owing to continued aircraft deliveries have collectively led ICRA to revise its net loss forecast as these costs escalations may not be adequately passed on by way of fare hikes, the report said.
The airlines’ capacity deployment in May 2026 increased by 5.1% YoY and 6.6% on a MoM basis.
