Icra cuts FY26 domestic air growth to 4-6%, August traffic stagnates

Icra lowered FY26 domestic air growth forecast to 4-6 per cent from 7-10 per cent, citing global tensions, accident-related hesitancy, and weak demand, as August passenger traffic stagnated

Ratings agency Icra said on Friday that it is expecting 4-6 per cent domestic passenger growth in FY2026, slightly lower than earlier projections of 7-10 per cent. The revision reflects cross-border tensions, travel hesitancy after aircraft accidents, and trade-related headwinds from US tariffs.

 

For international traffic, Icra now forecasts 13-15 per cent growth in FY2026, revised from an earlier 15-20 per cent projection.

 

Domestic air travel in August

 

Domestic air travel in India remained steady in August 2025, with passenger traffic estimated at 13.17 million, up 0.3 per cent from 13.13 million in August 2024 and 4.5 per cent higher than July 2025 (12.61 million). Despite the growth in passengers, airlines’ capacity deployment was 5.8 per cent lower than August 2024 and largely flat compared to July 2025, according to Icra.

 

For the first five months of FY2026 (April-August 2025), domestic passenger traffic totalled 6.775 million, marking a 2.2 per cent year-on-year (YoY) increase.

 

For FY2025 (April 2024-March 2025), domestic air passenger traffic reached 16.538 million, growing 7.6 per cent YoY, in line with Icra's 7-10 per cent growth forecast. International traffic stood at 33.86 million, up 14.1 per cent YoY, also broadly matching Icra’s estimates.   

 

International travel recovers after mid-year slowdown

 

International passenger traffic for Indian carriers reached 2.96 million in July 2025, a 6.7 per cent YoY rise and a 6.8 per cent sequential increase, recovering from a slower 1.9 per cent growth in June 2025. This slowdown had been linked to geopolitical tensions and weakened consumer confidence following an aircraft mishap.

 

For the April-July period (4M FY2026), international passenger traffic was 11.73 million, up 10.2 per cent YoY.

 

Fuel prices and cost pressures

 

Aviation turbine fuel (ATF) prices fell 1.4 per cent sequentially in September 2025. ATF costs averaged ₹95,181/KL in FY2025, down 8 per cent YoY, while prices from April-September 2025 were 10.2 per cent lower YoY. Fuel, along with aircraft lease and maintenance costs (largely dollar-denominated), constitutes 30-50 per cent of airlines’ operating expenses, making INR-USD exchange fluctuations a critical factor for profitability.   

 

Industry net losses expected to widen

 

Icra projects the industry’s net loss to rise to ₹95-105 billion in FY2026, compared to around ₹55 billion in FY2025. The increase is mainly due to slower passenger growth amid rising aircraft deliveries. Despite the expected losses, these remain significantly lower than ₹216 billion (FY2022) and ₹179 billion (FY2023). The industry’s interest coverage ratio is projected at 1.5-1.7 times for FY2026.

 

Capacity impacted by engine issues

 

Supply-chain problems and Pratt & Whitney engine failures have forced multiple airlines to ground aircraft, affecting capacity. As of March 2025, about 133 aircraft (15-17 per cent of the fleet) were grounded, down from 20-22 per cent in September 2023. Airlines also faced pilot and cabin crew shortages, further impacting operations.

 

Following the June 2025 crash, Air India temporarily cut 15 per cent of its wide-body international capacity, highlighting ongoing operational risks.

 

While some airlines benefit from strong parent company support, others continue to face credit pressures and liquidity constraints, despite improvements in recent years.