According to ICRA's latest report, India's domestic air passenger traffic is likely to grow by 3-6% in FY27, marking a significant recovery from the 1.4% growth recorded in FY26, which reached around USD 167.7 million passengers. The ratings agency projects that Indian aviation will grow at a CAGR of 6.3% over the next two decades, surpassing the 4.9% growth rate for the rest of Asia. However, ICRA has maintained a negative outlook on the country's aviation industry, citing profitability concerns and industry-wide challenges including aircraft availability issues caused by supply chain disruptions and engine-related inspections. The projected recovery signals an improvement in demand, although growth is expected to remain moderate compared to pre-disruption trends.
As reported by the government to Parliament, domestic airfares across 72 routes have risen by around 20.5% between March 2025 and June 2026, according to Minister of State for Civil Aviation Murlidhar Mohol. The Aviation Turbine Fuel (ATF) alone accounts for 35-40% of airlines' operating expenses, making fuel costs a critical factor in airline profitability. The government has implemented measures to address these challenges, including capping ATF prices at a maximum increase of 25% over the March 1, 2026 base price for April and May 2026. Additionally, the government provided one-time budgetary support of up to ₹10,000 crore to oil marketing companies for ATF price stabilisation support to scheduled Indian airlines amid exceptional fuel price volatility arising from the West Asia crisis.
As reported by ICRA, Indian airlines' international passenger traffic is expected to witness a modest 0-3% increase during FY27. The moderation reflects the impact of instability in West Asia, which has increased airline operating costs, pushed up airfares and is likely to curb discretionary travel spending due to inflationary pressures. Flight cancellations amid airspace closures have impacted international air travel demand, with Indian airlines cancelling approximately 26,000 international flights until July 20. The US-Iran conflict has caused significant airspace restrictions and flight disruptions, with airlines facing substantial revenue losses and increased operational costs due to longer flight durations and higher fuel consumption. While demand remains resilient, elevated expenses, supply chain constraints and fleet-related issues are expected to weigh on the financial performance of carriers.
The government has approved indicative Sustainable Aviation Fuel (SAF) blending targets of 1% by 2027, 2% by 2028 and 5% by 2030 for international flight operations, as reported by Minister Mohol. SAF is an alternative fuel made from non-petroleum feedstocks, including the food and yard waste portion of municipal solid waste, woody biomass, fats, greases, oils, and other feedstocks. According to the International Civil Aviation Organization (ICAO), SAF has the greatest potential to reduce CO2 emissions from international aviation. The PM JI-VAN Yojana provides financial assistance for setting up commercial and demonstration plants for advanced biofuels, including SAF, but did not announce any separate tax exemptions or subsidies for airlines using the fuel.
According to ICRA, the aviation industry will report a net loss of ₹36,000-38,000 crore in FY27, compared with an estimated ₹32,000-34,000 crore loss in FY26. The higher losses are expected to be driven by the depreciation of the Indian rupee against the US dollar, elevated Aviation Turbine Fuel (ATF) prices and rising lease rentals as airlines continue to induct new aircraft. The agency cautioned that any prolonged continuation or further escalation of the West Asian conflict could further weigh on traffic growth, yields and profitability. Profitability is expected to remain under strain due to high operating costs, including aircraft lease expenses, maintenance costs and fuel-related expenditure. The sector's outlook remains negative as airlines continue to face a combination of rising costs, constrained fleet availability and competitive pricing.
