Indian Aviation Poised for Moderate Growth Amidst Cost Challenges

The Indian aviation industry is projected for stable growth in 2025-26, driven by an increase in domestic and international passenger traffic. However, high fuel prices and currency fluctuations pose challenges that could impact airline profitability, according to ICRA's latest analysis.

The Indian aviation industry is looking forward to a stable phase of moderate growth in 2025-26, primarily due to expected increments in domestic and international air passenger traffic. Rating agency ICRA anticipates domestic traffic to grow between 7% and 10%, maintaining a relatively stable cost environment.

However, the airline sector is set to face pressure on its yields as operators strive to uphold adequate passenger load factors (PLF). The international passenger segment for Indian carriers is forecasted to rise by 15% to 20%, but yields remain vulnerable amid climbing aviation turbine fuel (ATF) prices and a depreciating Indian Rupee against the U.S. Dollar, key influencers of the industry's cost structures as highlighted in ICRA's report.

With fuel costs contributing 30-40% of airline expenses and a large portion of operating costs, including fuel and aircraft maintenance, being dollar-denominated, airlines' ability to adjust fares in line with input cost increases is crucial for margin expansion, ICRA suggests.

ICRA notes that the aviation industry's net losses will likely be limited, with a slow recovery in earnings due to the business's high fixed costs. The industry is projected to incur net losses of Rs 20-30 billion in 2024-25 and 2025-26, a stark contrast but lower than the losses in 2021-22. Challenges like supply-chain disruptions and engine failures continue to affect major carriers, underscored by cases involving Go Airlines and IndiGo.

(With inputs from agencies.)