New Delhi: India’s aviation industry is projected to report net losses of Rs 36,000-38,000 crore in FY 2027, up from an estimated Rs 28,000-30,000 crore in the previous financial year, as a sharp rise in aviation turbine fuel (ATF) prices, rupee depreciation and disruptions caused by the West Asia conflict weigh on finances of airlines, rating agency ICRA Limited said in a report released Thursday.
The financial pressure is being compounded by weakening passenger traffic, with domestic air passenger numbers declining 6.5 percent year-on-year in September. International passenger traffic for Indian carriers also contracted sharply in the first half of FY2027 as airspace restrictions disrupted flight operations.
ATF prices for domestic routes surged 46.2 percent year-on-year in October 2026, adding to the operating costs of airlines. Prices also increased 13.2 percent sequentially during the month, rising by Rs 16,000 per kilolitre compared with the months of September.
ICRA said the combination of higher fuel costs, a weaker rupee and increased aircraft lease rentals would push industry losses higher in FY2027, as airlines may not be able to fully pass on the additional costs to passengers through higher fares.
“The resultant adverse impact on passenger traffic, the INR and ATF prices, along with an estimated increase in lease rentals owing to continued aircraft deliveries are expected to result in a net loss of Rs 360-380 billion (Rs 36,000-38,000 crore) for the Indian aviation industry in FY2027,” the report said.
ICRA, formerly Investment Information and Credit Rating Agency of India Limited, was established in 1991. Moody’s Investors Service is its largest shareholder and provides technical support and access to its global research base.
ATF prices add to cost burden
Fuel remains one of the biggest expenses for airlines, accounting for 30-40 percent of their operating costs. Further, 35-50 percent of airline expenses are dollar denominated, including fuel, aircraft lease rentals and maintenance, making carriers vulnerable to rupee depreciation.
“Fuel remains a dominant cost, accounting for 30-40 percent of airline operating expenses,” ICRA said.
On average, ATF prices for domestic operations were 22.8 percent higher year-on-year during April-June 2026. The annual increase subsequently accelerated to 18 percent in July, 24.7 percent in August, 33.4 percent in September and 46.2 percent in October.
The increase in fuel costs has prompted major airlines to introduce or revise fuel surcharges. IndiGo revised its fuel surcharge on new domestic and international bookings from 6 October, while Air India, Air India Express and Akasa Air introduced or revised surcharges from 9 October.
For domestic routes, the additional charges range from Rs 375 to Rs 1,200 per ticket, depending on the distance travelled, with higher charges on international routes.
High crude oil prices and a weaker rupee continue to increase costs and therefore losses for airlines. While airlines earn some revenue in foreign currencies through international operations, their overall foreign currency payments remain higher.
Passenger traffic outlook remains weak
Domestic air passenger traffic stood at 118.2 lakh in September, compared with 126.4 lakh in the same month last year, a 6.5 percent year-on-year decline and a 2.5 percent fall compared with August.
For the first half of FY2027 (April-September), domestic passenger traffic declined 1.9 percent year-on-year to 786.1 lakh. International passenger traffic for Indian carriers fell 19.3 percent during the same period, largely due to disruptions arising from the West Asia conflict, including airspace restrictions and changes to flight networks.
ICRA expects domestic passenger traffic to grow by 3-6 percent in FY2027, while international passenger traffic for Indian carriers is projected to decline by 3-6 percent.
The agency cautioned that higher airfares could further affect demand, particularly as inflationary pressures reduce discretionary spending.
“Any significant pass-through of the higher operating costs by airlines may weigh on passenger traffic growth, especially amid a relatively subdued demand environment,” the report said.
ICRA report also highlighted problems with aircraft availability, particularly due to engine issues involving US-based Pratt & Whitney, whose engines power some aircraft operated by Indian airlines. The report said engine failures and supply-chain problems related to these engines have forced airlines to ground aircraft, increasing their operating costs as they lease additional planes to maintain services.
As a result of engine problems, supply constraints and flight disruptions linked to the West Asia conflict, 19-20 percent of the industry’s total aircraft fleet was grounded as of August 2026.
(Edited by Viny Mishra)
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