Domestic pax traffic up in March, for FY 26 projected traffic growth 7-10 %

MUMBAI: Domestic passenger traffic reached 148.8 lakh passengers in March, marking significant year-over-year (YoY) and sequential growth, said credit rating agency ICRA in its monthly report released recently. Domestic traffic showed strong momentum with an 11.3% YoY increase and a 5.9% rise from February 2025. The fiscal year 2025 recorded total domestic passenger traffic of 1,657.1 lakh, representing a 7.8% YoY growth and notably surpassing pre-Covid levels by 17.1% compared to FY2020, it said.

The aviation sector maintains a stable outlook for FY2026, with projected domestic passenger traffic growth of 7-10%. However, airlines face challenges in maintaining yield levels while ensuring adequate passenger load factors.

International traffic for Indian carriers is expected to grow by 15-20% in both FY2025 and FY2026, ICRA said.

International travel through Indian carriers also displayed growth, with 11M FY2025 recording 309.5 lakh passengers, a 14.6% YoY increase and significantly exceeding pre-Covid levels by 41.9%. Airlines demonstrated improved operational efficiency with capacity deployment in March 2025 increasing by 8.5% YoY and 10.7% compared to February 2025. The Passenger Load Factor (PLF) reached 88.2% in March 2025, showing improvement from 86.0% in March 2024, though the overall FY2025 PLF slightly decreased to 87.0% from 88.0% in FY2024.

Aviation Turbine Fuel (ATF) prices showed favorable trends throughout FY2025, with prices declining in several months including April, June, September, October, January, and March 2025. The average ATF prices in FY2025 were 8% lower YoY, with April 2025 showing further improvement with a 6.1% sequential decline and a 12.9% YoY reduction.
Despite positive growth indicators, the industry faces ongoing challenges with elevated ATF prices compared to pre-Covid levels, currency fluctuation impacts on operating costs, high proportion of dollar-denominated expenses (35-50%) and need for strategic fare management to maintain profit margins.

The pace of recovery in industry earnings is likely to be gradual, owing to the high fixed-cost nature of the business. ICRA estimated the Indian aviation industry to report a net loss of Rs. 20-30 billion in FY2025 and FY2026 compared to a net profit of Rs. 16 billion in FY2024 due to anticipated pressure on yields as airlines strive to maintain adequate PLF amid continued elevated ATF prices. Further, the higher borrowing costs, due to increased lease liabilities with the scheduled aircraft deliveries for select airlines, are likely to increase the interest burden. Nonetheless, the expected losses are significantly lower than losses of Rs. 235 billion and Rs. 174 billion reported in FY2022 and FY2023, respectively. The industry debt metrics in FY2025 are estimated to remain range-bound, with interest coverage of 1.5-2.0 times.
Supply-chain challenges and engine failure issues continue to impact industry capacity.

The industry has been facing supply-chain challenges and issues of engine failures for the Pratt and Whitney (P&W) engines supplied to various airlines. InterGlobe Aviation Limited (IndiGo) had 60-70 aircraft grounded as on January 30, 2025, due to the P&W engine issue, including the powder metal (used to manufacture certain engine parts) contamination factor with its P&W fleet. However, the same is expected to reduce in FY2026. Overall, the Indian aviation industry had about 133 aircraft for select airlines grounded in March 2025, which was about 16% of the total industry fleet, thus impacting the overall industry capacity (as measured by available seat kilometre, or ASKMs). However, it remains significantly lower than the 154 aircraft on ground as on September 30, 2023. Considering the bulk recall of the engines globally by P&W and other existing issues with the original equipment manufacturers’ (OEM) engines, the testing by P&W is expectedly taking longer.

This is also resulting in increased operating expenses towards the cost of grounding, increased lease rentals due to additional aircraft being taken on lease (primarily wet lease) to offset the grounded capacity, rising lease rates and lower fuel efficiency (due to replacement by older aircraft taken on spot lease).

These factors are adversely impacting an airlines’ cost structure. "However, healthy yields, high PLF and partial compensation available from engine OEMs are helping absorb the impact to an extent. In FY2025, the industry also faced challenges related to the availability of pilot and cabin crew, resulting in several flight cancellations and delays. Such issues impact the capacity availability and add to customer grievances," said ICRA.