Ratings agency ICRA has revised its outlook on the Indian aviation industry to negative from stable, citing recent disruptions caused by geopolitical tensions in West Asia. This update reflects concerns over increased operational costs, currency fluctuations, and a subdued demand environment.
The agency forecasts that domestic air passenger traffic will grow by only 0-3 percent in the current fiscal year, while international passenger traffic is expected to increase by 7-9 percent. These projections are lower than earlier estimates of 6-8 percent domestic and 8-10 percent international growth, indicating a weakened near-term outlook.
Factors Contributing to the Outlook Change
ICRA highlights several factors impacting the industry, including flight cancellations, airspace closures, and higher fares driven by fuel surcharges, which are estimated at 5-6 percent of ticket prices. The rerouting of flights to avoid conflict zones is likely to increase fuel consumption and operating expenses. Additionally, the removal of airfare caps by the DGCA, following operational issues at airlines like IndiGo, adds further downside risks to passenger demand.
"A sharp rise in ticket prices could dampen travel demand going forward," said ICRA.
Previously, ICRA projected industry profits to narrow to Rs 11,000-12,000 crore in FY27 supported by traffic growth, but recent geopolitical and economic developments have introduced a downward bias to these forecasts. For FY26, the industry is expected to face net losses of Rs 17,000-18,000 crore.
Cost pressures are intensifying, with fuel expenses constituting 30-40 percent of operating costs and a significant portion of expenses being dollar-denominated. This exposes airlines to currency depreciation risks, compounding the financial strain.
In summary, ICRA's revised outlook underscores the challenges faced by Indian airlines and signals a cautious approach amid ongoing geopolitical tensions and economic uncertainties.
