India’s aviation set for high growth in 2026, profits grounded by rising costs
India’s aviation set for high growth in 2026, profits grounded by rising costs
India’s aviation sector is expected to experience a significant ‘growth’ in 2026, driven by strong domestic and international passenger growth, fleet expansion, and increased investment in infrastructure. Air India will be a major contributor, inducting a new wide-body aircraft approximately every six weeks, while IndiGo expands its network and Akasa Air prepares for growth. While the industry is projected to see robust traffic growth, profitability may be challenged by factors like high fixed costs and fuel prices.
India’s aviation industry is also bracing for a difficult FY2026, with ICRA estimating sector-wide losses to climb to Rs95-105 billion, almost double the Rs 55 billion loss expected in FY2025. Softening passenger growth, upcoming fleet inductions and ongoing global and domestic disruptions are set to pressure financial performance.
ICRA’s outlook on the Indian aviation industry is Stable, driven by expectations of modest growth in domestic air passenger traffic in FY2026 at 4-6 per cent. The growth could have been higher but for events like cross-border escalations (that had led to flight disruptions and cancellations earlier during the year) and the aircraft accident tragedy in June 2025 that increased travel hesitancy at least in the period immediately post the accident. International passenger traffic is expected to grow by 15-20 per cent in FY2026.
The pace of recovery for industry earnings is likely to be gradual, owing to the high fixed-cost nature of the business. ICRA projects the Indian aviation industry’s net loss to be Rs20-30 billion in FY2026, in line with the estimated range for FY2025. However, these losses are expected to continue compared to a net profit of around Rs16 billion in FY2024 due to the anticipated pressure on yields as airlines strive to maintain adequate PLF amid continued elevated ATF prices. Further, higher borrowing costs due to increased lease liabilities associated with scheduled aircraft deliveries for select airlines are likely to increase the interest burden.
A recent report by ICRA named “Dominance of foreign airlines on international routes offers growth potential for Indian carriers” predicts that international passenger traffic for Indian airlines will rise by 15 to 20 per cent in the financial years 2025 and 2026. Domestic passenger traffic is expected to grow at a slower rate of 7 to 10 per cent per year.
India is forecasted to have a 10.5% growth rate in air passengers for 2026, potentially surpassing China.
Airlines are upgrading their existing fleets and training staff to handle increased demand. Companies like Safran are establishing maintenance centers in India to support the growing market, which could improve maintenance cycles for Indian carriers.
While growth is strong, financial performance may be under pressure due to persistent high fixed costs, elevated fuel prices, and increased interest expenses.
Airlines might face pressure on yields as they try to maintain high passenger load factors amidst rising operating costs.
ICRA projects the overall airport passenger traffic1 to witness healthy growth of around 7-9% YoY to reach new highs of 440-450 million in FY2026, after witnessing growth of ~10% to 412-415 million in FY2025. The revenues of ICRA’s sample set2 are likely to grow by around 18-20% YoY in FY2026. The sector’s debt coverage metrics are projected to remain comfortable with interest cover above 5 times and DSCR at above 3.5 times in FY2026.
Aviation, as one of the main modes of transport, generates economic growth, creates jobs, and facilitates international trade and is an enabler for the achievement of the 2030 Agenda and its Goals.
