The Indian aviation sector in India is in a paradox: record-breaking passenger growth but persistent financial turbulence.

According to ICRA , the aviation industry is expected to report a net loss of Rs 20-30 billion in FY2025 and FY2026 each.

Meanwhile, it has projected domestic air passenger traffic to rise by 7-10 per cent year-on-year, reaching 164-170 million in FY25.

International traffic for Indian carriers is expected to grow even faster, with a 15-20 per cent rise, reaching 34-36 million passengers by the end of FY25.

In the first half of FY2025, the domestic air passenger traffic stood at 79.3 million, a growth of 5.3 per cent YoY, which was partly impacted by the severe heat waves and other weather-related disruptions, the agency said.

Despite an expected surge in domestic and international air traffic, driven by increasing connectivity and demand, airlines continue to grapple with high operating costs, suppressed ticket prices, and supply chain woes, leaving profitability to take a hit. High operating costs and low fares Senior Vice President at ICRA, Kinjal Shah, has said that the industry is expected to report a net loss but significantly lower than the losses witnessed in the past supported by improved pricing power of the airlines.

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The cost dynamics are sobering.

Aviation turbine fuel (ATF) prices, accounting for 30-40% of expenses, eased by 6.8% year-on-year to Rs. 96,192 per kiloliter during FY2025 so far but remain far above pre-COVID levels.

Moreover, nearly half of airline expenses, including aircraft leases and maintenance, are dollar-denominated, leaving carriers prone to currency fluctuations.

While grounded aircraft have decreased to 144 from a peak of 20-22% of the total fleet last year, the impact on operational capacity and efficiency remains significant.

“The grounding and global supply chain issues have led to higher costs due to wet leases and lower fuel efficiency,” Shah said.

One of the biggest hurdles is the struggle to raise air ticket prices in a fiercely competitive market.

Data from the International Air Transport Association (IATA) , as reported by ET on Tuesday, reveals that domestic airfares in India remain close to or below their 2015 levels, even as jet fuel prices and inflation soar.

“The Indian market is one of the most price-sensitive markets in the world,” said Pieter Elbers, CEO of IndiGo.

“The market will continue to stay competitive.

Both airlines will eventually have to deal with their shareholders and make sure that they offer a price which is in line with their costs.

” Earlier in June, soon after assuming office, Union Minister of Civil Aviation Kinjarapu Ram Mohan Naidu had said that he wants to make airways the new railways while he was talking about the fluctuations in airfares.

"My target is to make India the largest civil aviation market in the world and to achieve that, the prices have to affordable.

We are going to hold a policy meeting to take necessary steps.

" The low fares have persisted despite industry consolidation.

The closure of Jet Airways and Go First has not eased price competition.

Instead, IndiGo, Air India, and Akasa Air have rushed to add over 90 planes in response, further intensifying the price wars.

“Due to the competitive dynamics of the aviation business, the ticket price will remain comfortable for the customer as we all have to fill up our planes,” said Air India CEO Campbell Wilson.

Despite the challenges, there is optimism about improving operational metrics.

ICRA anticipates better passenger traffic in the latter half of FY2025, potentially improving yields.

Airlines are also focusing on cost control and expanding international operations to tap into higher-margin markets.

Still, the path to profitability will require strategic fare adjustments and operational efficiency, ICRA said.

“The spread between revenue per available seat kilometre and cost per available seat kilometre saw some moderation in H1 FY2025 over FY2024.

Nonetheless, the same is expected to pick up in H2 FY2025,” Shah said.

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