The domestic aviation industry is expected to register an operating profit of 11-14% this financial year (FY26), translating into about Rs 20,000-21,000 crore, as per a report published on Thursday.
Crisil Ratings pointed out that the second half of the financial year, which generally gets 50-55% of annual passenger traffic, will see higher growth.
But overall performance this year will probably be moderate in relation to the last fiscal, when airlines posted Rs 23,500 crore as operating profit. This moderation is due to weak demand in the first quarter and expected pressure on yields, the report added, in contrast to the strong bounce witnessed in the three fiscals after the Covid-19 pandemic.
The report pointed out that though decreased operating profits will moderate airlines' debt metrics in this fiscal, overall credit profiles are likely to remain stable, underpinned by strong liquidity and scheduled equity injections by certain carriers.
In Q1 of FY26, the sector was disrupted by two significant events. Firstly, tensions at the western border of India prompted the temporary shutdown of many airports for one week, with airspace restrictions compelling diverted international flights and increased flight times.
"Second, a serious aircraft incident in June subdued demand sentiment, causing the concerned airline to cut capacity in the wake of increased safety checks," the report further stated.
These disruptions led to weaker demand and lower capacity deployment, slowing the growth in passenger traffic to 5.2% year-on-year in Q1 from 7.1% in the prior-year corresponding quarter.
Going forward, Crisil views traffic growth picking up in H2 of FY26 as these dislocations abate and is projecting overall passenger traffic growth of 7-9% for the fiscal, similar to last year's 8.1% growth.
“Despite steady traffic growth, maintaining passenger load factors will require concessions on yields this fiscal, largely due to weak demand in the first quarter,” said Gautam Shahi, Director at Crisil Ratings.
Passenger yields are projected to decline by 2-4% compared to a 3% increase in the previous fiscal. Additionally, costs associated with rerouted flights due to airspace restrictions will also impact airlines’ operating profitability.
Read also| S Jaishankar Urges Russian Firms to Engage 'Intensively' With India Amid Trump Tariffs
