Key Points
- Modest Growth: Domestic air passenger traffic reached 131.7 lakh in August 2025, up from 131.3 lakh in August 2024, representing a marginal 0.3% year-on-year increase.
- Revised Forecasts: ICRA has lowered its domestic passenger growth forecast for FY26 to 4-6%, down from the earlier projection of 7-10%.
- Fleet Challenges: Approximately 133 aircraft (15-17% of the total fleet) remain grounded due to engine failures and supply chain disruptions, primarily affecting Pratt & Whitney engines.
- Financial Outlook: The industry is projected to face net losses of ₹9,500-10,500 crore in FY26, nearly double the ₹5,500 crore losses in FY25.
New Delhi: India’s aviation industry demonstrated resilience in August 2025 with domestic passenger traffic rising 0.3% year-on-year to 13.17 million, according to a comprehensive report by credit rating agency ICRA released on Friday. However, the sector continues to grapple with significant operational challenges, prompting ICRA to revise its growth forecasts downward for the fiscal year ahead.
Passenger Traffic Shows Mixed Signals
For the first five months of FY26 (April-August 2025), domestic air passenger traffic totaled 67.75 million, reflecting a year-on-year growth of 2.2%. On a sequential basis, August traffic was 4.5% higher than July 2025, indicating some recovery momentum. The industry recorded its highest single-day traffic of 535,343 passengers on February 23, 2025, during the Maha Kumbh event in Prayagraj.
International passenger traffic for Indian carriers showed better performance, with July 2025 witnessing 29.6 lakh passengers, a 6.7% year-on-year increase and 6.8% sequential growth. However, ICRA has also revised its international traffic growth expectations to 13-15% for FY26, down from the earlier 15-20% projection.
Engine Crisis Grounds Major Fleet Portions
The aviation sector continues to wrestle with a severe engine maintenance crisis, particularly affecting Pratt & Whitney engines that power many Airbus A320neo aircraft operated by Indian carriers. As of March 2025, about 133 aircraft were grounded across key Indian airlines, accounting for roughly 15-17% of the industry’s overall fleet. This marks a slight improvement from September 2023, when 154 aircraft were out of service.
IndiGo, India’s largest carrier, has been particularly affected, with 60-70 aircraft grounded due to contamination issues in powder metal used for critical engine components. The airline has responded by transitioning from Pratt & Whitney engines to CFM International’s LEAP engines for future deliveries and has resorted to expensive wet leasing arrangements to maintain operations.
Industry Grapples with Multiple Headwinds
ICRA attributed the revised growth projections to several factors, including cross-border tensions leading to flight disruptions, travel hesitancy following recent aircraft accidents, and trade headwinds stemming from potential US tariffs. These challenges, combined with the Russia-Ukraine conflict disrupting access to rare earth metals essential for engine manufacturing, have created a “full-blown global supply chain meltdown,” according to industry insiders.
The capacity deployment in August 2025 was 5.8% lower than in August 2024, largely due to the grounded aircraft situation. Airlines have been forced to increase wet lease arrangements and maintenance costs, while also dealing with pilot and cabin crew shortages that resulted in numerous flight cancellations and delays in FY25.
Financial Pressures Mount Despite Some Relief
While Aviation Turbine Fuel (ATF) prices provided some relief, falling 1.4% sequentially in September 2025 and averaging ₹95,181 per kiloliter in FY25 (down 8% year-on-year), airlines continue to face significant cost pressures. The projected doubling of industry losses to ₹9,500-10,500 crore in FY26 is primarily attributed to subdued passenger growth amid increasing aircraft deliveries.
Despite these challenges, ICRA maintains a stable outlook for the sector, citing healthy yields, high passenger load factors (PLF of 88.2% in August), and partial compensation from engine Original Equipment Manufacturers (OEMs) as factors helping airlines absorb the impact. The agency expects the industry’s financial health to gradually improve as supply chain issues resolve and new aircraft deliveries normalize capacity constraints.
