India’s airlines stared down steeper red ink for FY2026. A fresh Icra report pins the blame on IndiGo’s massive December cancellations, forex hits from a weak rupee and grounded planes. Passenger numbers ticked up in January, but profitability stayed grounded.

The ratings firm now sees industry-wide losses ballooning to Rs 170-180 billion. That’s a jump from the Rs 56 billion net loss in FY2025 and well above Icra’s prior call of Rs 95-105 billion for the year. IndiGo, run by InterGlobe Aviation, took the biggest blow. Flight chaos in early December 2025 forced refunds and slashed operations. A rupee slump against the dollar piled on unrealized forex losses in the year’s second and third quarters.

Domestic traffic offered a bright spot. January 2026 saw 154.4 lakh passengers board flights, up 5.6 percent from 146.1 lakh a year before. That marked a 7.9 percent bounce from December’s lows, post-IndiGo meltdown. Through the first 10 months of FY2026, domestic volume hit 1,391.8 lakh passengers, a slim 1.7 percent gain year-over-year.

Capacity edged down 0.2 percent in January to 98,108 departures compared to last year. Month-to-month, it climbed 5.1 percent. Load factors surged to 94.5 percent, beating January 2025’s 89.2 percent. Yields held firm too. Still, Icra slashed its full-year domestic growth view to 0-3 percent, or 165-170 million passengers. Cross-border flare-ups early in the year, a June 2025 crash, U.S. tariff drag on business trips and IndiGo’s December woes forced the cut from 4-6 percent.

International growth got trimmed as well. Carriers now eye 7-9 percent expansion, off the earlier 13-15 percent bet. Fuel costs eased the pain somewhat. Aviation turbine fuel dropped 4.1 percent year-on-year and 1 percent from January in February 2026. FY2025 averaged Rs 95,181 per kilolitre, down 8 percent. From April 2025 through February, prices fell 4.2 percent annually.

Fuel still chews 30-40 percent of operating costs. Add dollar-based leases and maintenance, and 35-50 percent of expenses ride the greenback. International routes bring some dollar revenue, but most carriers run net payables. Rupee swings sting hard.

Supply snags compounded the mess. Pratt & Whitney engine woes—failures and powder metal faults—idled 133 planes as of March 31, 2025. That equaled 15-17 percent of the fleet, better than September 2023’s 20-22 percent. Groundings jacked up lease bills, forced wet-leasing of gas-guzzling relics and spiked maintenance tabs.

IndiGo’s December crisis peaked December 5 with 1,600 cancellations—70 percent of its schedule. Stricter flight duty limits, bad weather and tech glitches collided. Regulators eased rules temporarily until February 10, 2026. IndiGo ate a Rs 22.2 crore fine in January for skirting norms.

Icra holds a stable sector outlook. It bets disruptions fade and demand holds. Interest coverage slips to 0.7-0.9 times in FY2026, signaling cash squeeze. Some airlines lean on parent cash and liquidity buffers. Others stretch thin despite recent gains.

FY2027 looks marginally better. Domestic traffic could rise 6-8 percent to 175-182 million passengers. That’s off a depressed base, missing loftier aims.