Turbulence ahead! Airlines may lose Rs 105 billion in FY26; ATF prices, slow traffic hurt margins

India’s aviation sector is likely to face deeper financial turbulence, with net losses expected to rise to Rs 95-105 billion in FY2026, compared with Rs 55 billion in FY2025, according to credit rating agency ICRA. The agency attributed the projected widening of losses to slower passenger growth, higher operational costs, and the impact of elevated aircraft deliveries.Aviation turbine fuel (ATF) remains a major cost driver, with prices rising 3.3 per cent sequentially in October 2025. While fuel prices averaged Rs 95,181 per kilolitre in FY2025, lower than the previous year, volatility continues due to exchange rate fluctuations. Fuel accounts for 30–40 per cent of an airline’s operating expenses, most of which are dollar-denominated, leaving carriers exposed to currency risks, as per news agency ANI.The report highlighted a 1.4 per cent year-on-year decline in domestic air passenger traffic, which stood at 128.5 lakh in September 2025, compared to 130.3 lakh a year earlier. This was also 0.8 per cent lower than 129.5 lakh in August 2025, despite a marginal rise in deployed capacity. During the April–September 2025 period, domestic traffic reached 803.7 lakh, a modest 1.3 per cent growth from the previous year, reflecting what ICRA described as “cautious travel sentiment.”In contrast, international traffic for Indian carriers showed stronger recovery. In August 2025, it rose 7.8 per cent year-on-year to 29.9 lakh passengers, while during the April–August 2025 period, carriers flew 147.3 lakh passengers, up 9.7 per cent from the previous year.ICRA has maintained a ‘Stable’ outlook for the aviation sector but revised its FY2026 growth forecast to 4–6 per cent, down from the earlier estimate of 7–10 per cent. The agency cited “cross-border escalations leading to flight disruptions, travel hesitancy following an aircraft accident, and trade tensions linked to US tariffs” as potential drags on demand.The sector continues to grapple with engine supply issues, particularly involving Pratt & Whitney, leaving around 133 aircraft, or 15–17 per cent of the total fleet, grounded as of March 2025. Despite pilot shortages, high lease rates, and liquidity challenges for some airlines, ICRA noted that “healthy yields and high passenger load factors are helping absorb some of the pressure.”