Fasten Your Seatbelts! A Look at India’s Aviation Sector

 If the airport check-in lines feel longer lately, here’s some explanation for you. Since the pandemic, India’s aviation sector has recovered and is climbing to new heights. In fact, it is now the third-largest domestic aviation market in the world (after the US and China). 

This unprecedented growth is being driven by a rising middle class eager to fly, pent-up travel demand, and better connectivity to smaller cities. Also, do not forget revenge travel.

But without any more distractions, let’s get straight into what’s keeping the flight economy afloat.

Overview: India’s Aviation Market

After a few turbulent years, the Indian aviation market has bounced back, and how!

Domestic air travel has rebounded strongly from the pandemic slump, growing in double digits. In FY25, total domestic passenger traffic reached 1,653.8 lakh, up 7.6% from FY24 and 16.8% higher than pre-COVID levels (FY20). While overall capacity grew 6.9% YoY, it saw a modest 4.2% dip month-on-month, indicating some short-term adjustments in scheduling or fleet deployment.

Here’s a snapshot of air traffic growth from 2019-2025.

PS: Passenger Load Factor (PLF), on the chart above, tells you how full the flights are. A higher PLF means more seats are sold and better utilisation of airline capacity. 

The government’s scheme, like UDAN ( which is the short form for Ude Desh ka Aam Nagrik), has over 583 new regional routes, linking 86 airports (including some tiny heliports!). The result? Flying is no longer just for the elite in India’s big metros; it’s increasingly a common mode of travel for millions. 

International air travel is also climbing fast. In FY2024- 25, global passenger traffic grew ~11%, outpacing the ~9% growth in domestic traffic. All this momentum means India could soon handle nearly 450 million air passengers in FY2025- 26, about 7–9% more than in FY2025, industry analysts project, according to news reports.

The Flight and Fleet Status

To keep up with the booming demand, Indian carriers are embarking on massive fleet expansions. Over the past few years, both market leader IndiGo and the Tata-owned Air India have placed mega aircraft orders, essentially betting big on India’s long-term air travel growth. 

IndiGo’s Expansion Plans: In June 2023, IndiGo ordered 500 new Airbus A320neo jets, taking its total orders to 1,330 aircraft, the largest for any Airbus customer worldwide. As of the end of 2024, IndiGo had 437 planes in its fleet, flying to 89 domestic and 34 international destinations. The airline’s order pipeline now extends well into the next decade. 

IndiGo’s better-than-expected results also warrant highlighting. Why?  Because it currently controls about 60–65% of the domestic market. IndiGo reported a 62% jump in its Q4FY25 profit, its first quarterly profit rise in four quarters, helped by robust demand for domestic air travel. Its management says the demand outlook remains positive, and they’ve even expanded into new businesses, such as cargo flights, to pad their earnings. 

Air India’s Makeover and Mega Order: Similarly, in February 2023, Air India announced its intention to purchase 470 new aircraft from Airbus and Boeing. And Air India’s shopping spree didn’t end there. In late 2024, the airline added another order for 100 Airbus jets (90 more A320neo family and 10 additional A350s), bringing its total new orders to 570 aircraft.

The Tata Group also merged its other airlines (full-service Vistara, low-cost AirAsia India, and Air India Express) under the Air India umbrella, aiming to create a single mega-carrier group. 

Importantly for investors, these expansions signal that airlines are confident about long-term demand. They’re effectively banking on India needing hundreds more planes to carry millions of new fliers in the next decade.

FY26 Outlook 

What does the future hold for India’s aviation boom? In the near term, the outlook through FY2025- 26 remains robust. Ratings agency ICRA projects overall air passenger traffic to rise by another ~7–9% in FY26, reaching 440–450 million passengers. That’s on top of an estimated ~10% growth in FY25, which brought traffic to ~415 million. 

Interestingly, international travel is likely to grow even faster than domestic travel in percentage terms. ICRA expects international passengers to rise ~7–11% in FY26, slightly outpacing domestic at 6–8%. 

In FY25, passenger load factors (seat occupancy) have been around 80%, indicating flights are quite full. Airlines expect this healthy demand to “continue in the coming quarters”, as per news reports. 

The Indian government has also played a key role in enabling aviation growth. Over the past decade, India has doubled its number of airports from 74 to 157, and this growth is not stopping there. The government’s long-term goal is to have 350–400 airports by 2047. Over the next 4–5 years alone, more than ₹1 trillion ($ 12 billion+) is earmarked for aviation infrastructure.

However, the start of FY26 saw a few hiccups – higher fuel prices for a brief period, and flight cancellations due to geopolitical tensions between India and Pakistan. For example, demand for some routes operated by IndiGo declined sharply during conflict situations in May. However, the airline is hoping bookings will rebound in June.

Overall, the sector outlook is “stable to positive”, as per ICRA, with industry watchers calling the growth structural. FY26 should continue its upward trajectory unless any major, unforeseen turbulence arises, which also brings us to the next section about challenges in the sector.

Turbulence Ahead: Key Challenges

It’s not all blue skies – the aviation industry faces some headwinds and challenges that investors should keep in mind.

Fuel Costs: Jet fuel is the lifeblood of airlines, and its price can significantly impact profits. In India, ATF (aviation turbine fuel) constitutes about 50% of airlines’ operating costs. Fuel prices are driven mainly by global crude oil prices. When oil prices shoot up, as they did in 2022, airline margins get squeezed hard.

Rupee vs Dollar Volatility: Aircraft leases and maintenance are dollar-denominated, so a weaker Rupee means higher expenses (IndiGo, for instance, faced forex losses when the Rupee fell, hurting its quarterly results). 

Infrastructure Bottlenecks: Air traffic control and airspace management need upgrades to handle the surging flight volumes safely. 

The government’s capex plans aim to solve this. A substantial capex of over ₹ 91,000 crore is planned for airport infrastructure development under the National Infrastructure Pipeline (NIP) during FY 2019-20 to FY 2024-25, with approximately ₹82,600 crore already spent by November 2024. 

Intense Competition (and Consolidation): India’s aviation market, while growing, is fiercely price-competitive. Traditionally, fare wars have driven some airlines out of business (remember Kingfisher and Jet Airways?). Here’s more:

IndiGo’s Market Power: IndiGo remains the market leader, forcing competitors to match its scale and pricing.

Tata Group’s Consolidation: The merger of Air India and Vistara under Tata has created a strong #2 player, challenging IndiGo.

New Entrants Rising: 

• Akasa Air already has 28 Boeing 737 MAX aircraft and has ordered 226 planes over the next 10 years.
• SpiceJet is struggling financially but may bounce back with successful restructuring.
• Jet Airways is attempting a revival under new ownership, but as of 2025, it’s still grounded due to funding issues.

High Costs & Regulatory Hurdles: Other cost challenges are expensive airport fees, excessive taxation (for example, up until 2019, GST on economy-class tickets was 5% but on business class 12%), and costly financing/lease rates due to perceived risk. 

Training new pilots is time-consuming, while crew shortages could impede growth plans (and drive up salaries). 

What Should Investors Watch?

Currently, the sentiment around India’s aviation stocks is largely optimistic. Market experts highlight that India’s expanding airport infrastructure, stable/improving macro factors (like moderating oil prices) create a favourable runway for airlines. 

Here are a few investment tips. 

1. Focus on Growth Drivers

As mentioned, India’s domestic air passenger traffic is expected to double over the next five years. Look for companies — airlines, airport operators, logistics providers — that are well-positioned to benefit from this long-term structural growth.

2. Pay Attention to Airport Infrastructure

India aims to expan the number of its operational airports from 74 in 2014 to over 200 by 2025. This includes major investments in airport modernisation and new construction. Privatization under the National Monetization Plan (NMP) is also creating opportunities in airport management and allied infrastructure.

3. Track the MRO (Maintenance, Repair & Overhaul) Segment

The government is pushing for growth in domestic MRO capabilities under the “Make in India” initiative — a space with long-term potential.

4. Monitor Regulatory and Policy Developments

The aviation sector is heavily influenced by policy decisions. Reforms such as:

1. Bringing Aviation Turbine Fuel (ATF) under GST (currently under consideration)
2. Having 100% FDI in domestic carriers

…can significantly affect costs, funding access, and profitability. Keeping track of these changes is essential.

6. Diversify Across the Aviation Ecosystem

Rather than only investing in airlines, which can be volatile, consider other parts of the ecosystem, such as:

1. Airport developers and operators
2. Ground handling and catering companies
3. Aircraft leasing and financing firms

This helps reduce risk while still capturing sectoral growth.

7. Look at Cost Pressures and Constraints

Despite growing demand, the sector faces challenges like high fuel prices, infrastructure limitations, and global supply chain disruptions. Companies with strong cost control, efficient fleet utilisation, and well-managed operations are likely to perform better over time.

To Wrap Up

India’s aviation sector feels like it’s “cleared for takeoff” on a new growth trajectory. With a booming domestic market, a rising middle class more than willing to fly, and government reforms fuelling the engine, the skies look promising. For investors, this sector could offer an exhilarating ride. Just remember to keep your seatbelt fastened!