India’s aviation sector is expected to witness slower passenger traffic growth and significantly higher losses in FY2027 as geopolitical tensions, elevated fuel prices and currency depreciation weigh on airline finances, according to ICRA‘s latest monthly aviation report.
Domestic air passenger traffic reached an estimated 156.4 lakh in May 2026, recording an 11.3 per cent year-on-year increase over 140.5 lakh in May 2025 and a 13.2 per cent rise compared with 138.1 lakh in April 2026. While the increase was supported by a favourable base following disruptions caused by the Pahalgam attack and the subsequent India-Pakistan military conflict in May 2025, ICRA has revised its domestic passenger traffic growth forecast for FY2027 to 3-6 per cent , down from its earlier estimate of 6-8 per cent .
International passenger traffic carried by Indian airlines grew by 3.9 per cent to 350.0 lakh in FY2026. However, traffic declined sharply by 39 per cent year-on-year in April 2026 due to operational disruptions arising from the West Asia conflict. Reflecting these developments, ICRA has reduced its FY2027 international traffic growth forecast to 0-3 per cent , compared with its earlier projection of 8-10 per cent .
The agency said the conflict has increased airline operating costs through higher fuel prices and longer flight routes while also affecting discretionary travel demand because of inflationary pressures.ICRA now estimates that the Indian aviation industry reported a net loss of INR 320-340 billion in FY2026, substantially higher than its earlier projection of INR 170-180 billion. The revision reflects foreign exchange losses caused by the depreciation of the INR against the USD, moderation in passenger traffic growth and higher aviation turbine fuel prices following the increase in crude oil prices.
For FY2027, the outlook has weakened further. ICRA now expects industry losses to increase to INR 360-380 billion, compared with its earlier estimate of INR 110-120 billion. The ratings agency expects airlines to face continued pressure from elevated ATF prices, higher lease rentals associated with ongoing aircraft inductions and currency-related costs, with limited ability to fully recover these increases through fare hikes.
Airline capacity deployment in May 2026 increased by 5.1 per cent year-on-year and 6.6 per cent month-on-month. Domestic passenger load factor is estimated at 88.8 per cent in May 2026, compared with 83.9 per cent in May 2025 and 82.0 per cent in April 2026. ATF prices announced on 1 June 2026 remained unchanged from the previous month but were 26.9 per cent higher than a year earlier. During the first quarter of FY2027, ATF prices were 22.8 per cent higher on a year-on-year basis.
