India’s airlines may cut losses by a third in FY27 amid traffic rebound: ICRA

India’s aviation sector is likely to trim its losses by nearly a third in FY27, helped by a rebound in passenger traffic and a gradual reduction in grounded aircraft, according to a report by ratings agency ICRA. ICRA estimates net losses of ₹11,000–12,000 crore in FY27, compared with ₹17,000–18,000 crore in FY26, marking a significant improvement after a disruption-hit year. The industry had reported a net loss of ₹5,600 crore in FY25. The agency had earlier projected FY26 losses at ₹9,500–10,500 crore but revised the estimate upwards in December 2025 following operational setbacks and weaker-than-expected traffic growth.

Disruptions weigh on FY26

ICRA said the bigger losses in FY26 were mainly due to higher losses at IndiGo. These were caused by flight cancellations, passenger refunds, and increased operating costs after disruptions in early December 2025. The rupee’s drop against the US dollar in the second and third quarters of FY26 also led to large foreign exchange losses, though many of these were not realised. Domestic passenger traffic growth slowed to about 0–3% in FY26, with total traffic expected to reach 165–170 million passengers. In December 2025, ICRA lowered its earlier forecast of 4–6% growth, pointing to cross-border tensions, flight disruptions, weaker confidence after a June 2025 aircraft accident, and business challenges from US tariffs. Airlines also faced pressure on yields. They reported a 2% drop in yields in the first nine months of FY26 because of weak demand and global uncertainties. “The domestic passenger traffic growth is likely to regain its normal trend in the next fiscal,” ICRA said in its report.

Traffic recovery and capacity easing

For FY27, ICRA expects domestic passenger traffic to grow by 6–8%. This suggests demand will become more stable as disruptions decrease. Capacity limits that have affected the sector in recent years are expected to slowly improve. In February 2026, 117 planes were still grounded at some airlines because of engine failures and supply chain problems, making up 13–15% of the total fleet. This marks an improvement from September 2023, when 20–22% of aircraft were grounded. ICRA expects the proportion to decline further in FY27 as engines are repaired and deliveries resume. India’s airlines have ordered over 1,700 aircraft for delivery in the next ten years, with many meant to replace older, less fuel-efficient planes. However, supply chain problems at manufacturers could still delay these deliveries. “As the count of grounded aircraft reduces further over time and as fresh aircraft supply comes in, the balance between supply and the secularly rising demand from domestic and international travellers should move towards a more stable equilibrium,” ICRA said.

Key risks still exist

While the outlook has stabilised, the sector remains exposed to volatile aviation turbine fuel prices and currency movements. The dollar-rupee exchange rate remains a critical monitorable, given airlines’ exposure to foreign currency liabilities. ICRA still sees a stable outlook for the sector but warns that global politics and uncertain trade conditions could create new risks. After two difficult years with disruptions, pricing pressure, and foreign exchange losses, India’s airlines seem ready for slow financial recovery if passenger growth continues and there are no major external shocks.