THEBUSINESSBYTES
BUREAU
MUMBAI,
APRIL 28, 2026
India's
domestic aviation sector ended FY2025-26 on a subdued note, with passenger
traffic growth slowing sharply amid rising fuel costs, geopolitical
disruptions, and pressure on airline profitability. According to the latest
estimates, domestic air passenger traffic stood at 146.8 lakh in March 2026,
registering a modest year-on-year increase of 1.0 per cent over 145.4 lakh in
the corresponding month last year.
Sequentially,
however, traffic rebounded strongly, rising 4.4 per cent from 140.6 lakh
recorded in February 2026, reflecting improved travel demand during the closing
month of the fiscal. For the full financial year, domestic air passenger
traffic reached 1,677.4 lakh, marking a 1.4 per cent year-on-year growth,
broadly in line with industry expectations.
The
March performance came despite airlines deploying 3.0 per cent lower capacity
compared to March 2025, although capacity was significantly higher — up 10.6 per
cent — over February 2026.
International
traffic, meanwhile, presented a mixed picture. Indian carriers flew 28.5 lakh
international passengers in February 2026, reflecting a marginal decline of 0.3
per cent year-on-year and a sharp 16 per cent drop sequentially. Nevertheless,
cumulative international passenger traffic during April 2025-February 2026 rose
a healthy 7.7 per cent to 331.5 lakh.
ICRA
has turned cautious on the sector, revising its outlook for the Indian aviation
industry to "Negative" from "Stable" in March 2026. The
rating agency cited mounting cost pressures arising from surging aviation
turbine fuel (ATF) prices, escalating geopolitical tensions in West Asia,
disruptions to key international air routes, and continued depreciation of the
Indian rupee against the US dollar.
The
outlook for FY2027 has also become increasingly uncertain. ICRA's earlier
forecasts of 6-8 per cent domestic traffic growth and 8-10 per cent
international traffic growth now carry a clear downside bias. Flight
cancellations caused by airspace restrictions, coupled with fuel
surcharge-driven fare hikes of 5-6 per cent, are expected to weigh on passenger
demand. The removal of airfare caps by the Directorate General of Civil
Aviation in December 2025 adds another layer of risk, as higher ticket prices
could dampen travel demand further.
Cost
pressures intensified in April 2026, with ATF prices rising 9.2 per cent
sequentially and 18.2 per cent year-on-year. The spike was largely driven by
elevated crude oil prices following the West Asian conflict. Although the
Ministry of Civil Aviation capped domestic ATF price increases at 25 per cent
month-on-month, oil marketing companies implemented a relatively moderate
increase, offering temporary respite to airlines.
To
cushion the sector, the Ministry of Civil Aviation has announced a 25 per cent
reduction in landing and parking charges for domestic airlines for a
three-month period beginning April 2026. This measure is expected to partially
offset the impact of rising fuel and operating costs.
Fuel
remains the single largest expense for airlines, accounting for 30-40 per cent
of operating costs. Additionally, 35-50 per cent of airline expenses — including
fuel, lease rentals, and maintenance — are denominated in US dollars, leaving
carriers vulnerable to currency fluctuations. With the rupee continuing to
weaken, airlines face increasing pressure on margins.
