Operational disruptions and weak rupee to drive bigger losses for Indian airlines: Report

India’s aviation industry is set to post sharply higher losses in FY2026 as operational disruptions, currency weakness and rising costs outweigh a recovery in passenger traffic, according to a February report by ratings agency Icra. Icra estimates the sector will report a net loss of Rs 170–180 billion in FY2026, compared with a net loss of Rs 56 billion in FY2025. The projection is significantly higher than its earlier forecast of Rs 95–105 billion in losses for the current fiscal year. The deterioration is driven largely by elevated losses at InterGlobe Aviation, which operates IndiGo, and by foreign exchange pressures. The report says that many flight cancellations and passenger refunds during disruptions in early December 2025 hurt IndiGo’s performance. On December 5, about 1,600 flights were cancelled, which was around 70 percent of its daily operations at the height of the crisis. A weakening rupee against the US dollar in the second and third quarters of FY2026 added to the strain, resulting in sizeable foreign exchange losses, though a substantial portion remains unrealised.

Traffic improves, but growth slows

The industry is under financial stress even though passenger numbers are improving. Domestic air traffic grew 5.6 per cent year-on-year in January 2026 to 154.4 lakh passengers, up from 146.1 lakh a year earlier. Compared to December 2025, traffic rose 7.9 per cent, showing a recovery after the disruptions. In the first 10 months of FY2026, domestic traffic reached 1,391.8 lakh passengers, which is a modest 1.7 per cent increase from the previous year. Passenger load factor improved to an estimated 94.5 per cent in January 2026, up from 89.2 per cent a year earlier. Capacity deployment, however, was marginally lower by 0.2 per cent year-on-year at around 98,108 departures, though it rose month-on-month. Despite these improvements, Icra lowered its domestic traffic growth forecast for FY2026 to 0–3 per cent, down from its earlier estimate of 4–6 per cent. The agency pointed to cross-border tensions, an aircraft accident in June 2025, business travel challenges from US tariffs, and the December disruptions at IndiGo as reasons. International traffic growth expectations were also trimmed to 7–9 per cent from an earlier 13–15 per cent.

Cost pressures persist

Fuel prices have eased slightly. Aviation turbine fuel (ATF) prices declined 4.1 per cent year-on-year and 1.0 per cent sequentially in February 2026. Average ATF prices stood at Rs 95,181 per kilolitre in FY2025, down 8 per cent year-on-year. However, fuel still makes up 30–40 per cent of airlines’ operating expenses. About 35–50 percent of total costs, including fuel, lease rentals, and some maintenance, are paid in dollars. This exposes airlines to currency swings. Exchange rate movements remain a key risk, as most carriers have net foreign currency payables despite partial hedges from international revenue. Supply chain disruptions and engine-related issues have further constrained capacity. Aircraft powered by Pratt & Whitney engines have faced groundings due to engine failures and powder metal contamination. As of March 31, 2025, around 133 aircraft — representing 15–17 per cent of the industry fleet — were grounded across select airlines. These groundings have led to higher lease rentals, increased wet leasing of older aircraft and elevated maintenance expenses, adding pressure on margins. In January 2026, IndiGo was fined Rs 22.2 crore for failing to comply with the new flight duty time rules after temporary regulatory relief ended on February 10.

Outlook

Icra maintained a stable outlook on the sector, noting that recent disruptions are temporary and demand fundamentals remain intact. It expects domestic passenger traffic to grow 6–8 per cent in FY2027, translating to 175–182 million passengers, albeit on a lower base. The agency expects the industry’s interest coverage ratio to be 0.7–0.9 times for FY2026, which shows that financial strain will continue. Some airlines have strong parent companies and good cash reserves, but others are struggling with weak credit. For now, rising costs and currency swings are likely to outweigh the recovery in demand, so profits will remain under pressure for another year.