ICRA’s most recent monthly aviation research predicts that geopolitical tensions, increasing fuel prices, and currency depreciation will put a strain on airline finances in FY2027, leading to slower passenger traffic growth and significantly larger losses for India’s aviation sector.

Estimates for domestic air passenger traffic in May 2026 were 156.4 lakh, up 11.3 percent from 140.5 lakh in May 2025 and 13.2 percent from 138.1 lakh in April 2026. Although the pahalgam attack and the subsequent India-Pakistan military conflict in May 2025 had a positive impact on the base, ICRA has reduced its forecast for domestic passenger traffic growth in FY2027 from 6-8 percent to 3-6 percent.

In FY2026, Indian airlines carried 350.0 lakh international passengers, an increase of 3.9% from FY19. The West Asia conflict caused operational difficulties in April 2026, which led to a precipitous 39% year-on-year drop in traffic. In light of these changes, ICRA has lowered its prediction for foreign traffic growth in FY2027 from 8-10% to 0-3%.

According to the organization, the war has impacted discretionary travel demand due to inflationary pressures and increased airline operating expenses due to longer flight routes and higher fuel prices.

Following an increase from its previous prediction of INR 170–180 billion, ICRA now predicts that the Indian aviation industry recorded a net loss of INR 320–340 billion in FY2026. The adjustment reflects the loss of foreign currency due to the Indian rupee’s depreciation vs the US dollar, a slowdown in the expansion of passenger traffic, and higher fuel costs for aviation turbines as a result of rising crude oil prices.