ICRA cuts FY2027 domestic air traffic growth forecast to 3–6% despite strong May traffic
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The international air passenger traffic for Indian carriers grew by 3.9% to 350.0 lakh in FY2026; however, it witnessed a sharp decline of 39% YoY in April 2026 due to disruptions arising from the West Asian conflict.
According to ICRA, the domestic air passenger traffic for May 2026 was estimated at 156.4 lakh, 11.3% higher than 140.5 lakh in May 2025 and 13.2% higher than 138.1 lakh in April 2026. Despite the growth in May 2026, which was supported by a favourable base, given the demand disruption in May 2025 following the Pahalgam attack and the subsequent military conflict between India and Pakistan, ICRA has revised downwards its forecasts for the domestic air passenger traffic growth in FY2027 to 3-6%, from its earlier projections of 6-8%.
The international air passenger traffic for Indian carriers grew by 3.9% to 350.0 lakh in FY2026; however, it witnessed a sharp decline of 39% YoY in April 2026 due to disruptions arising from the West Asian conflict. ICRA has also revised downwards its international air passenger traffic growth (for Indian carriers) forecasts for FY2027 to 0-3% from 8-10% earlier.
These revisions reflect 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 spends because of increased inflation.
The Indian aviation industry is estimated to have reported a net loss of INR 320-340 billion in FY2026, much higher than ICRA’s earlier estimates of INR 170-180 billion, 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 FY2026. For FY2027, while losses were earlier projected to narrow to INR 110-120 billion, supported by an improvement in passenger traffic, the outlook has since deteriorated.
The onset of the West Asian conflict since end-February 2026 is expected to result in subdued air passenger traffic growth in FY2027. Additionally, increased costs due to depreciation of the INR against the USD, 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 INR 360-380 billion, as these cost escalations may not be adequately passed on by way of fare hikes.
The airlines’ capacity deployment in May 2026 increased by 5.1% YoY and 6.6% on a MoM basis. It is estimated that the domestic aviation industry operated at a PLF of 88.8% in May 2026 compared to 83.9% in May 2025 and 82.0% in April 2026.
The ATF prices announced on June 01, 2026, remained unchanged on a sequential basis but increased by 26.9% on a YoY basis. For Q1 FY2027, the ATF prices are higher by 22.8% on a YoY basis.
