Just when the airlines were heaving a sigh of relief as traffic did not show a similar trend the months immediately after, there were more shockers in July and August. Traffic fell by about 5% in July and by even more - over 6% - in August. 

Taken on a standalone eight-month period (January-August), the passenger carriage was in positive territory.  

Incidentally, from 2023 till 2025, the domestic aviation market has seen a growth in passenger numbers, data collated by the Directorate General of Civil Aviation shows.

Captain P. P. Singh, the last Accountable Manager of Jet Airways, says the slowdown in the number of passengers flying by domestic airlines is probably a mirror image of what is happening in the economy now.

"A vast majority of Indian air travellers is from the business or corporate world. At least they are the ones for whom time is money, so they travel irrespective of the airfare. When it comes to ordinary Indians travelling by air, the minute they feel airfares are higher, they look for alternatives or change their holiday destination," Captain Singh says.

For Satyendra Pandey, Managing Partner, Aairavat Technology & Transport Ventures Private Ltd., the situation is akin to Indian aviation being caught in a perfect storm where costs are climbing, capacity is constrained, and passengers are anxious. He adds that the “debate is not if fares will rise, but rather when they will stop rising”.

Mirroring The Economy?

The jury is out.

The head of a foreign airline in India who has been observing the Indian market for over three decades says that, with about 100 aircraft remaining grounded due to various issues, airlines are focusing more on charging higher fares to protect their margins than stimulating demand through affordable pricing. 

“The wider economic environment is important. The withdrawal of over US$ 40 billion by foreign institutional investors from Indian equity markets is another worrying indicator of investor sentiment. While this cannot be directly linked to aviation demand, it reflects broader concerns about the economy. When consumer confidence weakens, discretionary spending, including air travel, is among the first things to suffer,” he argues.

Patrick Sayers, Analyst, Ishka Airfinance Advisory Team, puts the numbers in perspective by pointing out that while Indian aviation holds significant long-term potential, the slowdown in passenger traffic in the Indian market will be squeezing margins. It will be compounded by a lack of manoeuvrability in terms of capacity allocation on the international side – with flows via the Middle East difficult and fewer practical routes available given the closure of Pakistan’s airspace.

“This means carriers will either allocate more capacity in the domestic market than would be ideal, leading to pricing pressures and/or lower load factors (the latter we’ve already seen). More constrained operations will be increasing unit costs owing to there not being a market strong enough for more robust fleet utility. With a significant proportion of an airline’s costs in Dollar, the weak Rupee will further exacerbate the effect of sluggish demand,” he feels. Ishka Airfinance is a global aviation finance intelligence and advisory firm.

Sayers adds that while Indian carriers face headwinds, it should be noted there are nuances between them that are playing a large role in the headline drops in passenger traffic, with domestic declines at Air India obscuring, for example, continued growth (January-August, as per DGCA data) at Akasa Air. 

Another issue that almost all the persons spoken to for this article talk about is the Indian market being largely controlled by low-cost airlines, which are unable to pass on fare increases. 

How Government Can Help

Ishka Airfinance is quick to point out that the Indian government does have a history of supporting the airline sector, providing credit guarantees and other measures during the Covid-19 pandemic. 

“It has also responded to the Middle East conflicts in 2026, and the associated energy shocks. While there is little the government can do to ease the problems caused by closed airspaces and route disruption, it has initiated some airline aid this year, including launching a ₹10,000-crore scheme to stabilise jet fuel prices in June this year. And it was at the directive of the government that airport charges were also temporarily reduced this year, also imposing a limit on pass-through fuel costs earlier this year,” Sayers points out. 

He feels that more extreme measures of government aid include direct cash injections or lending, though this seems less likely in the current environment. “The Indian government has also demonstrated its willingness to let domestic airlines fail, as demonstrated by Go First,” Sayers feels. 

Mayur Patel, Commercial and Industry Affairs Leader, Asia Pacific at OAG, says that rather than relying exclusively on fare controls, policy should focus on reducing structural costs, improving competition and capacity availability, and enhancing transparency in fare components and ancillary charges. 

DGCA could also monitor route-level fare movements against capacity, load factors, and market concentration to identify markets where consumers face persistent affordability concerns.

Captain Singh is of the opinion that higher airfares are also because airlines might be cutting down on the number of flights between two cities even though the time table has been cleared by the authorities for more flights than what are being operated. He feels this is where the government with the help of the regulator should keep a hawk eye.

He opines that the government can step in to try and control ground and equipment handling charges, over flying and aircraft charges at airports, apart from building consensus among states to rationalise and standardise aviation turbine fuel charges. 

Pandey adds that IndiGo and Air India control roughly 90% of the market. “Competition is an illusion at best and if this scenario continues, the choice for the passenger will become binary – to fly or to take an alternative means of transport,” he says.

The head of the foreign airline adds that the government needs to view aviation as an essential economic enabler that supports tourism, trade, employment, and regional development.

What Does Future Hold?

The head of a foreign airline says that for the government, the priority should be to make flying affordable and airlines financially sustainable. But for Pandey, the October-December quarter is the real test. He adds that “at current fare levels, year-on-year growth looks improbable.”

Patel says that India has the potential to expand domestic aviation substantially, but sustainable growth cannot be measured by passenger numbers alone. “It requires an appropriate balance between affordable fares, commercially viable airlines, effective competition, reliable operations, and wider regional connectivity,” he points out.

Patel adds that the way forward is to address the structural costs of operating in India, improve capacity availability, strengthen consumer protection, and target government support where it delivers clear public benefits. A coordinated, data-led approach by DGCA, the Ministry of Civil Aviation, state governments, airports, and airlines can help broaden access to air travel while building a more financially resilient domestic aviation ecosystem.

So, what can the government do to make sure that domestic fares become affordable? 

Pandey sums it up beautifully: “The government is stuck between intervening and merely nudging. Even if fare caps are imposed, there is no enforcement mechanism and no recourse for the passenger. A cap without an enforcement mechanism is only a cap on paper.”