India's Aviation Sector Faces Deeper Losses, ICRA Revises FY27 Forecast to ₹38,000 Crore

India's aviation sector faces a grim outlook, with ICRA projecting net losses to skyrocket to ₹36,000-38,000 crore in FY27. This sharp revision stems from a weaker rupee, soaring fuel costs, higher aircraft lease rentals, and subdued passenger demand, exacerbated by the West Asian conflict. Airlines are struggling to pass on rising operational expenses, leading to a significant downgrade in traffic growth forecasts for both domestic and international routes.

India's aviation sector is staring at even deeper losses this financial year, with ratings agency ICRA sharply revising its FY27 net loss estimate to ₹36,000-38,000 crore, citing a weakening rupee, elevated aviation turbine fuel (ATF) prices, higher aircraft lease rentals and softer passenger demand amid the West Asian conflict.

The revised estimate marks a significant deterioration from ICRA's earlier forecast of ₹11,000-12,000 crore in losses for FY27, as rising operating costs are expected to outpace airlines' ability to pass them on through higher fares.

"The onset of the West Asian conflict since the end of February 2026 is expected to result in subdued air passenger traffic growth in FY2027," ICRA said.

Additionally, increased costs due to depreciation of the INR against the US Dollar, elevated ATF prices and an anticipated rise in lease rentals owing to continued aircraft deliveries have collectively led ICRA to "revise its FY2027 net loss forecasts upwards to Rs 36,000-38,000 crore, as these cost escalations may not be adequately passed on by way of fare hikes," the ratings agency said.

ICRA also raised its estimate for the industry's FY26 losses to ₹32,000-34,000 crore, nearly double its earlier projection of ₹17,000-18,000 crore.

The agency attributed the steeper FY26 losses to foreign exchange losses arising from the sharp depreciation of the rupee, slower passenger traffic growth and higher ATF prices following the spike in crude oil prices triggered by the West Asian conflict toward the end of the previous fiscal.

Traffic forecasts cut

Reflecting the weaker demand environment, ICRA lowered its outlook for both domestic and international passenger traffic for FY27.

Despite domestic passenger traffic growing 11.3% year-on-year to 1.56 crore in May 2026, aided by a favourable base after last year's disruption caused by the Pahalgam attack and the subsequent India-Pakistan military conflict, the agency cut its domestic traffic growth forecast to 3-6%, down from 6-8% projected earlier.

ICRA said the downgrade reflects higher fares driven by rising airline costs as well as the anticipated impact of inflation on discretionary spending.

International traffic has also come under pressure. Indian carriers witnessed a 39% year-on-year decline in international passenger traffic in April 2026 due to disruptions linked to the West Asian conflict. Consequently, ICRA lowered its international traffic growth forecast to 0-3% from the earlier 8-10%.

For FY26, international passenger traffic for Indian carriers had grown 3.9% to 350 lakh.

Fuel, leasing costs add pressure

The agency noted that ATF prices announced on June 1, 2026, remained unchanged sequentially but were 26.9% higher year-on-year. During the first quarter of FY27, ATF prices were 22.8% higher compared with the same period last year, adding further pressure on airline profitability.

Meanwhile, continued aircraft deliveries are expected to increase lease rental expenses, while the depreciation of the rupee against the US dollar is set to inflate both leasing and maintenance costs, given the sector's heavy dependence on dollar-denominated payments.

Airlines continued to expand operations in May, with capacity deployment rising 5.1% year-on-year and 6.6% sequentially.

The domestic aviation industry is estimated to have operated at a passenger load factor of 88.8% in May, compared with 83.9% in the same month last year and 82% in April 2026.