India's Air Travel Market Experiencing Turbulence: What's Causing It?

India's aviation sector, once soaring with optimistic growth projections, is currently experiencing significant turbulence. Several factors, both domestic and international, are contributing to this challenging period, impacting airlines and passengers alike.

Revised Growth Forecasts and Stagnant Growth

In late September 2025, Icra, a leading ratings agency, revised its growth projections for the Indian aviation sector for FY2026. The agency now forecasts a domestic air traffic increase of just 4-6%, a sharp reduction from the previously anticipated 7-10%. Similarly, the growth forecast for international air travel has been adjusted to 13-15%, down from the initial 15-20%. Passenger traffic in August 2025 reflected this stagnation, with domestic passenger numbers reaching 13.17 million, a mere 0.3% higher than the same month the previous year. For the first five months of FY2026, domestic air traffic reached 6.775 million passengers, a modest 2.2% year-on-year increase.

Reduced Capacity and Rising Costs

Domestic airlines are facing headwinds due to capacity reductions and rising operational costs. The number of available seats hasn't kept pace with demand, as airlines have been cutting capacity, particularly on domestic routes. This is partly due to operational issues like engine failures and maintenance backlogs, which grounded approximately 130 aircraft as of March 2025. A significant number were grounded due to issues with Pratt & Whitney engines.

Fuel expenses, accounting for 30-40% of airline operating costs, continue to pressure the industry. Although average Aviation Turbine Fuel (ATF) prices were lower than the previous year, they remained higher than pre-COVID levels. The rupee's depreciation against the US dollar further exacerbates the situation, increasing lease, maintenance, and debt-servicing costs.

Financial Strain and Increasing Losses

Icra's outlook for the aviation sector indicates rising losses for airlines. Net losses for airlines could increase to ₹95-105 billion in FY2026, compared to ₹55 billion in FY2025. This increase is attributed to the slow recovery in domestic and international air traffic, combined with rising operational costs. Other reports estimate that the country's airlines will report a net loss of between ₹2,000 crore and ₹3,000 crore in FY2025 and FY2026 each.

Geopolitical Tensions and Other Headwinds

Global political instability, travel hesitancy after aircraft accidents, and slowing trade growth are also contributing to the turbulence. Prolonged monsoons and looming trade headwinds from US tariffs are expected to weigh heavily on demand. The Air India plane crash in June 2025 has also heightened safety concerns among travelers. Cross-border escalations and flight cancellations have further dampened passenger traffic.

Infrastructure and Operational Challenges

India's aviation infrastructure faces several challenges, including airport infrastructure, security lapses, and reliance on overseas services. Many Tier 2 and Tier 3 cities lack operational airports, and existing ones often have inadequate runways, passenger amenities, and air traffic control systems. These deficiencies limit capacity and affect travel convenience. There is also a growing concern regarding the increasing control of the private sector in airport operations, management, development, security, and safety.

Silver Linings and the Road Ahead

Despite these challenges, there are some positive aspects. Losses projected for FY2026 are still lower than those recorded in FY2022 and FY2023. The Indian aviation market is the world's third-largest by passenger traffic. India's in-service fleet stood at 855 aircraft as of March 2025, with over 1,600 pending deliveries expected over the next decade. The Indian fleet is also relatively young and fuel-efficient, supporting unit cost and sustainability objectives. Direct connectivity continues to improve, with Indian and foreign carriers adding routes. However, experts advise caution, stressing the need to prioritize training, safety, and oversight to meet global standards.