ICRA revises aviation outlook to Negative amid West Asia tensions, weak rupee, fuel costs

Investment Information and Credit Rating Agency of India (ICRA) has revised its outlook on the Indian aviation industry to “Negative” from “Stable”, citing escalating geopolitical tensions in West Asia, a weakening rupee and rising aviation turbine fuel (ATF) prices that are expected to significantly increase cost pressures for airlines.

The rating agency said disruptions in international airspace since February 28, 2026, along with adverse currency movements and higher fuel costs, could weigh on profitability even as demand growth faces downside risks.



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ICRA expects domestic passenger traffic growth to remain muted at 0–3% in FY2026, while international traffic for Indian carriers is projected to grow at 7–9%. Its earlier FY2027 projections 6–8% for domestic and 8–10% for international traffic, now carry a downward bias.

Flight cancellations due to airspace closures, along with rerouting of aircraft, are expected to increase fuel burn and operating costs. Airlines are also likely to pass on rising costs through fuel surcharges of around 5–6% of ticket prices, which could dampen demand.

Further risks stem from the removal of airfare caps by the Directorate General of Civil Aviation (DGCA) in December 2025, which could lead to higher ticket prices and softer passenger growth.

The aviation industry is projected to report net losses of Rs 170–180 billion in FY2026. Although losses were earlier expected to narrow to Rs 110–120 billion in FY2027, ICRA said recent developments have introduced a downward bias to those estimates.

Fuel remains a key cost component, accounting for 30–40% of operating expenses, while 35–50% of total costs are dollar-denominated, increasing vulnerability to rupee depreciation. ATF prices rose 5.7% sequentially as of March 1, 2026, while Brent crude prices have surged to about $105 per barrel from $72 prior to the conflict.

Operational challenges persist, with around 117 aircraft—13–15% of the fleet—grounded due to supply chain disruptions and engine issues, constraining capacity and increasing costs.


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Domestic passenger traffic stood at 142.5 lakh in February 2026, up 1.5% year-on-year but down 6.5% sequentially. For April–February FY2026, traffic rose 1.6% to 1,532.4 lakh. International traffic for Indian carriers reached 34 lakh in January 2026, up 6.4% year-on-year.

Despite these pressures, passenger load factors remained strong at around 93% in February, indicating healthy demand relative to available capacity.

ICRA also flagged financial stress among some airlines, with interest coverage expected to weaken to 0.7–0.9 times in FY2026 from 1.8 times in FY2025, before a modest recovery in FY2027, subject to geopolitical developments.