India’s aviation sector is expected to remain in the red in FY2025-26 (FY26), with net losses forecasted in the range of ₹20–30 billion. This estimate, issued by credit rating agency ICRA, signals a continuation of the profitability struggles witnessed in FY2024-25, even as passenger demand and overall traffic show sustained growth.
Despite robust recovery indicators — including increasing domestic and international passenger volumes — airlines are grappling with a profitability paradox. High operational costs, driven primarily by persistently expensive aviation turbine fuel (ATF), and an inability to substantially increase ticket prices due to intense market competition, are compressing margins and preventing a return to net profitability.
Why Profits Remain Elusive Despite Demand
While FY2024 saw a brief return to net profitability — an estimated ₹16 billion — the outlook for the next two years appears bleaker. The domestic air travel market continues to expand, but price sensitivity among consumers and ongoing fare competition are preventing airlines from raising yields significantly.
At the same time, aircraft lease obligations and scheduled deliveries are expected to push up interest and financing costs in FY26. As lease liabilities grow, so will the debt burdens, further eroding bottom lines. The industry’s overall cost structure, therefore, remains unsustainably high relative to revenue growth.
However, one silver lining remains: the sector’s interest coverage ratio — a critical indicator of financial health — is expected to fall between 1.5 to 2.0 times, suggesting that while profits are under pressure, debt-servicing ability is stable.
Passenger Traffic Metrics Show Strength
June 2025 Data:
- Domestic air passenger traffic reached 138.7 lakh, a 5.1% YoY increase over June 2024.
- However, it saw a 1.3% decline over May 2025, indicating seasonal fluctuation.
- Capacity deployment rose 4.9% YoY but dipped 2.3% sequentially.
Q1 FY2026 (April–June 2025):
- Domestic air passenger traffic totaled 422.4 lakh, a 5.1% YoY rise.
- International passenger traffic in May 2025 stood at 29.7 lakh, a 7.3% YoY increase but 7.9% lower than April 2025 due to geopolitical volatility.
FY2025 Summary:
- Domestic traffic hit 1,653.8 lakh, a 7.6% YoY growth.
- International traffic rose to 338.6 lakh, marking a 14.1% YoY surge.
Strategic Implications for Investors, Operators, and Policymakers
India’s aviation industry stands at a critical inflection point. While traffic recovery and demand fundamentals remain strong, cost control and pricing power are yet to align. The road to profitability will require:
- Dynamic pricing strategies that better align fares with market demand.
- Fuel hedging or alternative energy transitions to control ATF volatility.
- Structural reforms in leasing and airport fees to lower fixed costs.
For institutional investors and airline stakeholders, the key focus should now be on long-term operational efficiency, fleet rationalization, and digital monetization of ancillary services to diversify income streams.
