The Indian aviation sector is expected to face a net loss of ₹36,000-38,000 crore in the financial year 2027, according to rating agency ICRA. This negative outlook is driven by rising aviation turbine fuel prices, depreciation of the rupee, and disruptions caused by the ongoing West Asian conflict. Despite some growth in domestic passenger traffic, international traffic for Indian carriers is projected to decline.
- ICRA forecasts domestic passenger traffic growth of 3-6% in FY2027.
- International passenger traffic for Indian carriers may decline by 3-6%.
- Net losses estimated between ₹36,000-38,000 crore in FY2027.
- Higher fuel prices and rupee depreciation are key challenges.
- West Asian conflict has caused airspace restrictions and supply-chain issues.
- Government introduced a ₹5,000 crore Emergency Credit Line Guarantee Scheme to support airlines.
Why is the aviation sector outlook negative for FY2027?
ICRA maintains a negative outlook due to several factors. Aviation turbine fuel (ATF) prices have risen significantly, increasing operational costs. The rupee has depreciated against the US dollar, making dollar-denominated expenses such as fuel, aircraft leases, and maintenance more expensive. Additionally, the West Asian conflict has led to restrictions on international airspace since February 2026, disrupting flight routes and increasing costs. These challenges have weakened airline revenues and profitability.
How is passenger traffic expected to change in FY2027?
Domestic passenger traffic is expected to grow modestly by 3-6%. However, international passenger traffic for Indian carriers is projected to decline by 3-6% due to airspace restrictions and higher fuel costs. In August 2026, domestic traffic stood at 121.3 lakh passengers, down 6.3% from the previous year but slightly up from July 2026. The overall domestic traffic from April to August 2026 declined by 1.1% compared to the same period the previous year.
What are the main cost pressures for airlines?
Fuel costs account for 30-40% of airline operating expenses, and 35-50% of total costs are dollar-denominated. The price of aviation turbine fuel for domestic operations increased by ₹6,280 per kilolitre in September 2026 compared to August, and is 33.4% higher than in September 2025. Aircraft lease rentals are also rising due to continued deliveries of new aircraft. These higher costs put pressure on airline profitability.
What impact has the West Asian conflict had on the aviation industry?
The conflict has led to restrictions on certain international airspaces since February 28, 2026, causing route disruptions and increased fuel consumption. It has also contributed to elevated fuel prices and inflationary pressures. Additionally, supply-chain challenges, including Pratt & Whitney engine failures, have grounded 99 aircraft as of March 2026, representing 11-13% of the industry fleet. These factors have further strained airline operations and finances.
How is the government supporting the aviation sector?
To address liquidity pressures, the government approved the ₹5,000 crore Emergency Credit Line Guarantee Scheme (ECLGS) 5.0 in May 2026. This scheme offers 90% credit guarantee coverage, allowing eligible scheduled passenger airlines to borrow up to 100% of peak working capital used in Q4 FY2026, capped at ₹1,500 crore per airline. By July 2026, applications worth ₹2,530 crore had been made, with ₹920 crore sanctioned or disbursed, mainly to SpiceJet and Akasa Air.
What are the risks ahead for the aviation industry?
Any prolonged or intensified West Asian conflict could worsen traffic growth, yields, and profitability due to continued fuel price increases, airspace restrictions, and inflation. The subdued demand environment means that passing higher operating costs to passengers through increased airfares could reduce traffic further. Supply-chain issues and grounded aircraft also remain challenges for the sector.
