ICRA Signals Trouble Ahead for Indian Aviation Sector Amid Rising Costs and Sluggish Growth, ETTravelWorld

India’s aviation sector is witnessing a phase of moderated growth, alongside rising cost pressures and operational challenges, according to the latest assessment by ICRA. Domestic air passenger traffic for February 2026 was estimated at 142.5 lakh, reflecting a marginal year-on-year growth of 1.5 per cent , while declining 6.5 per cent sequentially due to fewer operational days during the month.

For the eleven-month period of FY2026 (April to February), domestic passenger traffic reached 1,532.4 lakh, indicating a modest year-on-year growth of 1.6 per cent . Meanwhile, international passenger traffic for Indian carriers showed relatively stronger performance, growing 6.4 per cent year-on-year in January 2026 and 8.5 per cent for the ten-month period ending January FY2026.

Despite this growth, ICRA has revised its outlook on the Indian aviation industry to negative from stable. The revision is attributed to disruptions in international airspace following the escalation of geopolitical tensions in West Asia since late February 2026. These disruptions have led to flight cancellations, rerouting of long-haul flights, and increased operational costs.

The cost environment has further tightened with aviation turbine fuel (ATF) prices rising 5.7 per cent sequentially in March 2026 and 1.7 per cent year-on-year. The increase has been driven by a sharp rise in global crude oil prices, which climbed to USD 105 per barrel in late March from USD 72 per barrel in February. Additionally, depreciation of the INR against the USD has increased cost pressures, as a significant portion of airline expenses, including fuel, leases, and maintenance, are denominated in foreign currency.

Capacity constraints continue to impact the sector, with around 13–15 per cent of the fleet grounded as of February 2026 due to supply chain disruptions and engine-related issues. While this represents an improvement from previous levels, it continues to affect operational efficiency and capacity deployment.

ICRA estimates domestic passenger traffic growth for FY2026 to remain in the range of 0–3 per cent , while international traffic is expected to grow between 7–9 per cent . However, rising airfares, fuel surcharges, and removal of fare caps are likely to soften demand. The agency also notes a downward bias in its FY2027 loss estimates, citing continued uncertainty and cost pressures.

Overall, while demand fundamentals remain resilient, the sector faces near-term headwinds from cost escalation, operational disruptions, and macroeconomic factors, which are expected to influence growth trajectory and financial performance.