Domestic Carriers Losses May Balloon to ₹36,000-38,000 Cr in FY27 on INR Fall, Increased Costs: ICRA

Ratings agency ICRA on Friday revised upward the net loss for domestic carriers at a monumental ₹36,000-38,000 crore for the current fiscal on the back of increased costs, driven by depreciation of the INR against the US Dollar, elevated jet fuel prices and an anticipated rise in lease rentals owing to continued aircraft deliveries.

The ratings agency also downgraded its forecast for both domestic and international traffic for the current fiscal year, reflecting the impact of the West Asian conflict, which has resulted in a hike in fares due to the cost escalations for the airlines and the anticipated curtailment of discretionary spending because of increased inflation.

For FY2027, while losses were earlier projected to narrow to ₹11,000-12,000 crore, supported by an improvement in passenger traffic, the outlook has since deteriorated, ICRA said.

The Indian aviation industry is estimated to have reported a net loss of ₹32,000-34,000 crore in FY2026 much higher than ICRA's earlier estimates of ₹17,000-18,000 crore, it said.

This is primarily on account of the foreign exchange (forex) losses arising from the sharp depreciation of the INR, moderation in passenger traffic growth and an increase in ATF prices following the rise in crude oil prices amid the West Asian conflict towards the end of the previous fiscal, ICRA said.

"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," it 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 ₹36,000-38,000 crore, as these cost escalations may not be adequately passed on by way of fare hikes," the ratings agency stated.

The ATF prices announced on June 1, 2026, remained unchanged on a sequential basis but increased by 26.9% on a YoY basis, ICRA said and added that for the first quarter of the ongoing fiscal, the ATF prices are higher by 22.8% on a YoY basis.

The ratings agency also forecast domestic air passenger traffic to grow 11.3% year-on-year to 1.56 crore in May from 1.40 crore in the corresponding month of last year, supported by a favourable base, while the international air passenger traffic for Indian carriers grew by 3.9% to 350 lakh in the previous financial year.

Despite the growth in May 2026, which was supported by a favourable base, given the demand disruption in the same month of last year following the Pahalgam attack and the subsequent military conflict between India and Pakistan, ICRA said it has revised its forecasts for the domestic air passenger traffic growth downwards to 3-6%, from its earlier projections of 6-8%.

International air passenger traffic for Indian carriers witnessed a sharp decline of 39% year-on-year in April 2026 due to disruptions arising from the West Asian conflict, the ratings agency said and added that it has also revised downwards its international air passenger traffic growth (for Indian carriers) forecasts to 0-3% from 8-10% projected earlier.

The airlines' capacity deployment in May 2026 increased by 5.1% YoY and 6.6% on a sequential basis. It is estimated that the domestic aviation industry operated at a passenger load factor of 88.8% in the previous month compared to 83.9% in the same month of last year, and 82 in April 2026.