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India's Air Traffic Growth Forecast Lowered To 4-6% For FY26 On Cross-Border Conflicts: ICRA

ICRA forecasts, the international air passenger traffic for Indian carriers is likely to grow by 13-15% in FY2026.

<div class="paragraphs"><p>Indian aviation industry may widen net loss to Rs 9,500-10,500 crore in FY26. (Photo source: Unsplash)</p></div>
Indian aviation industry may widen net loss to Rs 9,500-10,500 crore in FY26. (Photo source: Unsplash)
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India's air passenger traffic growth forecast is pegged at 4-6% in FY2026, lower than its previous expectations of 7-10% weighed down by cross-border escalations, that had led to flight disruptions and cancellations, as well as travel hesitancy post the aircraft accident tragedy.

The Indian aviation industry may widen net loss to Rs 9,500-10,500 crore in FY26 from an estimated Rs 5,500 crore in FY25, owing largely to the ongoing geopolitical situation and trade headwinds, as per ratings agency ICRA.

The rating agency's outlook on the Indian aviation industry is stable driven by expectations of modest growth in domestic air passenger traffic in FY2026. While the overall passenger traffic have so far held steady, ongoing geopolitical and operational headwinds warrant close monitoring for potential downside risks.

ICRA forecasts, the international air passenger traffic for Indian carriers is likely to grow by 13-15% in FY2026, lower than previous projections of 15-20%. This is due to prolonged period of monsoons which is likely to have affected air travel in July-August 2025 and trade headwinds emanating from US tariffs, which are set to dampen business sentiments in the coming quarters, bringing more circumspection to travel.

IndiGo Airline parent Interglobe Aviation Ltd. has received AA-Stable rating from ICRA, with long-term rating upgraded and short-term rating reaffirmed. Meanwhile, Akasa Air parent SNV Aviation Pvt. Ltd., has received BBB-Stable rating.

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At the same time, ICRA said, the estimated losses for the current fiscal, however, remain significantly lower than those reported in FY2022 and FY2023 at Rs 21,600 crore and Rs 17,900 crore, respectively, the ratings agency said.

"This slowdown in passenger traffic growth at a time when aircraft deliveries are rising, is estimated to widen the net loss of the Indian aviation industry to Rs 95-105 billion (Rs 9,500-10,500 crore) in FY2026 from Rs 55 billion (Rs 5,500 crore) in FY2025," said ICRA.

The ratings agency noted that, the yield movement will remain monitorable amid elevated aviation turbine fuel or ATF prices and depreciation of the Rupee vis-à-vis the US Dollar over pre-Covid levels, both of which have a significant bearing on airlines’ cost structures. The average ATF prices stood at Rs. 95,181/KL in FY2025, lower by 8.0% on a year-on-year basis.

Aviation sector challenges

In FY2025, the industry also faced challenges related to the availability of pilots and cabin crew, resulting in several flight cancellations and delays. Such issues impact the capacity availability and add to customer grievances.

The impact of the recent airplane crash on Boeing’s aircraft deliveries will be a key monitorable. Following the crash and other ongoing operational challenges, Air India has announced a temporary reduction of around 15% in its international flight capacity operated by wide-body aircraft.

While the impact of the crash did not show in the June month domestic passenger numbers on a sequential basis on account of the advanced booking, it became visible in July passengers volumes when domestic passenger traffic declined 2.94% year on-year with Air India losing nearly 1% market share.

Air India lost nearly four lakh passengers in July, at 33.08 lakh, as against 36.92 lakh passengers that it flew on domestic routes a year earlier.

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