New Delhi [India], January 22 : ICRA has maintained its stable outlook on the Indian aviation industry, even as it navigates a challenging period marked by operational disruptions and revised growth projections. While the industry is expected to face a significant net loss of Rs. 170-180 billion in FY2026, the outlook remains stable because these "disruptions are expected to be temporary."
For the current fiscal year, domestic air passenger traffic is forecasted to grow by a modest 0-3 per cent, reaching approximately 165-170 million passengers. This is a downward revision from previous expectations of 4-6 per cent growth, primarily due to "cross-border escalations," an "aircraft accident tragedy in June 2025," and "the impact on business travel owing to the headwinds stemming from US tariffs."
A major factor in the recent slowdown was the significant operational disruption at IndiGo from December 3 to December 8, 2025, which resulted in approximately 4,500 flight cancellations. These issues were largely "triggered by the implementation of stricter flight duty time limitation (FDTL) regulations, especially tougher rules on night duties and landings, alongside adverse weather and technical challenges."
The report notes that "IndiGo's reliance on high aircraft utilisation and extensive night-time operations left it with limited flexibility, making it more vulnerable than its competitors". Consequently, domestic passenger traffic in December 2025 fell by 3.9 per cent year-on-year to 143.4 lakh. Despite this, the industry's domestic passenger load factor (PLF) was estimated at a healthy 94.0 per cent for the month.
Financially, the industry continues to grapple with high costs and currency volatility. Fuel remains a massive burden, as "fuel costs account for 30-40 per cent of airlines' operating expenses". Additionally, a substantial portion of these expenses, including maintenance and lease payments, is denominated in dollars.
The "weakening of the INR against the USD in Q2 FY2026 resulted in airlines reporting large foreign exchange (forex) losses," many of which remain unrealised. Supply chain issues also persist, with engine failures grounding approximately 133 aircraft as of March 2025, representing 15-17 per cent of the total industry fleet.
Looking ahead, the industry expects a stronger recovery in FY2027 with a projected growth rate of 6-8 per cent. While the "credit metrics and liquidity profiles of others continue to remain under pressure," some airlines benefit from strong parent companies.
For now, the Directorate General of Civil Aviation (DGCA) has provided IndiGo temporary relief from the new FDTL regulations until February 10, 2026, which is expected to allow for a "partial recovery in passenger traffic growth" in the coming weeks.