India’s civil aviation sector is expected to grow steadily but at a modest pace during the 2025-26 financial year, with domestic passenger traffic projected to increase by 4 to 6 percent, according to the rating agency ICRA. The industry has maintained a ‘stable’ outlook despite facing several setbacks earlier in the year, such as cross-border tensions and an air tragedy in June 2025 that led to travel hesitancy. During the first half of 2025, domestic passenger numbers rose marginally by 1.6 percent to 944.5 lakh, indicating a slow but steady recovery.
The challenges faced by the sector include disruptions from international conflicts and safety incidents, which have contributed to cancellations and operational issues. Despite these obstacles, international passenger traffic is forecasted to grow by 13 to 15 percent, reflecting a more robust recovery in outbound and inbound flights. Fuel prices, exchange rates, and aircraft deliveries significantly influence airline profitability; although fuel costs have declined, industry losses are estimated to be around Rs 95 to 105 billion in 2025-26, higher than in previous years but much lower than the losses recorded during the peak pandemic years.
ICRA pointed out that financial health across airlines varies, with some benefiting from strong liquidity and parental support, while others continue to face credit and cash flow pressures. The industry outlook remains cautiously optimistic, with international routes contributing more significantly to growth, although domestic traffic is likely to lag behind due to external shocks and interconnected supply chain issues. Overall, the industry is poised for moderate growth, with careful monitoring of fuel and currency rates necessary for future stability.
