Mumbai, Feb 24 According to ICRA, Indian airlines are expected to reduce losses to an estimated ₹11,000-12,000 crore in the next fiscal year, compared to the projected ₹17,000-18,000 crore this fiscal year, despite maintaining a "stable outlook" for the domestic aviation industry.
ICRA also estimates that domestic air passenger traffic will grow by 6-8 percent and reach 175-179 million passengers in FY2026-27.
In December 2025, ICRA revised its domestic air passenger growth estimates to 0-3 percent for the current fiscal year from the earlier projection of 4-6 percent.
The international air passenger traffic growth for Indian carriers is expected to remain relatively strong, driven by the low base effect, expanding e-visa/visa-on-arrival coverage, and the Central Government's focus on developing theme-based and iconic tourist destinations, the ratings agency said.
ICRA predicts that international air passenger traffic will grow at 7-9 percent this fiscal year and 8-10 percent next year. The current fiscal year has seen modest growth in domestic air passenger traffic due to cross-border escalations, weather-related disruptions, travel hesitancy following the June 2025 aircraft accident, and operational disruptions at IndiGo in December 2025.
ICRA maintains a "stable outlook" for the Indian aviation industry, supported by expectations of modest growth in domestic air passenger traffic and a gradually improving operating environment, despite near-term challenges, according to Kinjal Shah, a senior vice president at ICRA.
"The Indian aviation industry is expected to report a net loss of ₹170-180 billion (17,000-18,000 crore) in 2025-26, significantly higher than the estimated net loss of around ₹55 billion (5,500 crore) in 2024-25.
However, this is likely to reduce to ₹110-120 billion (11,000-12,000 crore) in 2026-27, driven by growth in domestic air passenger traffic and the expected normalization of operations following the disruptions seen in 2025-26, which led to flight cancellations and passenger refunds," she said.
The industry's debt metric, which weakened in 2025-26 with an estimated interest cover of 0.7-0.9 times from 1.8 times in 2024-25, is also expected to improve to 1.3-1.5 times in 2026-27, despite increasing debt linked with new aircraft deliveries, according to Shah.
The yields of the industry declined in the April-December period of 2025-26 due to a series of external events like cross-border escalations, airplane crash, and operational disruptions at IndiGo in the first week of December 2025, ICRA said.
Despite these challenges, the drop in yields was not as steep as the reduction in fuel cost per available seat kilometre (CASK), as airlines strived to maintain yield levels amid rising cost pressure from currency fluctuations and operational expenses related to flight cancellations and delays, it said.
ICRA expects yields to improve in the near term as temporary disruptions ease. Nonetheless, the movement in prices of ATF and the USD-INR rate will remain key monitorable.
According to the ratings agency, the industry saw around 4 percent capacity addition in CY2025, and the total number of aircraft stood at 865 as of December 31, 2025.
Various industry players have announced large aircraft purchase orders, and as per the indicative numbers, the total pending aircraft deliveries stand at more than 1,700 as on January 31, 2026, which are likely to be received over the next 10 years, but a large part of these orders is towards replacement of old aircraft with new fuel-efficient ones, ICRA said.
Grounded aircraft have been a cause of concern for the industry over the past few years, according to the ratings agency.
"Engine failures and supply chain challenges had resulted in the grounding of 20-22% of the total industry fleet as of September 2023. This has come down to 13-15% as of February 2026, corresponding to 117 aircraft."
As the count of grounded aircraft reduces further over time and fresh supply comes in, the balance between supply and the secularly rising demand from domestic and international travelers should move towards a more stable equilibrium," Shah added.