ICRA Limited has downgraded its outlook on the Indian aviation sector to negative from stable, citing disruptions in international airspace due to escalating geopolitical tensions in West Asia.

The agency also highlighted the sharp depreciation of the rupee against the US dollar and a likely rise in aviation turbine fuel (ATF) prices as key concerns impacting the sector.

According to ICRA, these factors are expected to significantly increase cost pressures for airlines, while demand growth may face downside risks. Domestic passenger traffic growth is projected to remain modest at 0–3 percent for FY26.