Indian Aviation Grapples with Turbulence From Heavy Rains and US Tariffs

(INDIA) India’s airlines are facing one of their hardest months in years, as a one-two punch of heavy monsoon rains and US tariffs takes hold in August 2025. ICRA, a top credit rater, now expects the Indian aviation sector’s net losses to widen to ₹9,500–10,500 crore in FY2026, up from ₹5,500 crore in FY2025.

Passenger traffic growth has slowed to a crawl, yields are slipping, and cancellations have piled up after weeks of bad weather. The shock comes on top of the June 12 Air India crash that rattled flyers and pushed July domestic traffic down 2.94% year‑on‑year. With dampened business sentiment after tariff hikes on Indian exports to the United States 🇺🇸, airlines and airports are preparing for a leaner demand curve through the peak of the monsoon period.

Demand and traffic trends

Q1 FY2026 passenger growth was just 4.4% year‑on‑year, and domestic traffic is now forecast at 172–176 million for the full year — a modest 4–6% rise that is well below earlier projections of 7–10%.

Yields (average revenue per passenger) fell by 4–5% in the first quarter, reflecting softer pricing power and cautious booking patterns. Prolonged weather disruptions in July and August have continued to:

• Ground flights
• Reroute aircraft
• Extend duty hours for crews

Together, these setbacks have squeezed cash flows in a sector still paying for earlier expansion.

Tariffs deepen the demand shock

The trade hit is immediate. Under a new tariff regime that took effect at 12:01 a.m. EDT on August 27, 2025, most Indian‑origin goods entering the U.S. now face a combined rate near 50% — the existing base duty plus a new 25% surcharge under Executive Order 14329.

Key points for exporters and shippers:
– Effective date and time: August 27, 2025, 12:01 a.m. EDT.
– Typical combined tariff: near 50% (base duty + 25% surcharge).
– Transit exemption window: Shipments already in transit before August 27 and cleared by September 17, 2025 are exempt.
– Category exemptions: steel, aluminum, autos, humanitarian donations, and informational materials.
– Surcharge tariff code: HTSUS 9903.01.84, administered by U.S. Customs and Border Protection.
– For tariff classifications, CBP relies on the Harmonized Tariff Schedule: https://hts.usitc.gov/

Exporters face a sudden, steep cost surge on U.S.‑bound goods, threatening margins and contract terms. The shock is spilling into travel behavior: firms are reassessing trips, and business travelers are more cautious about near‑term travel. This chill is feeding into weaker international bookings for carriers with U.S. exposure.

Diplomatic and defence spillovers

Diplomatic tension is adding to uncertainty. New tariffs come amid a U.S.–India standoff, which Indian officials have called “unfair, unjustified and unreasonable.” The dispute is linked to India’s continued Russian oil purchases and its push for strategic autonomy.

In defense trade, India has paused procurement of six additional Boeing P‑8I maritime patrol aircraft after the price tag rose by nearly 50% under the new tariff regime. The Ministry of Defence says no existing deal has been canceled, but a broader review of high‑value acquisitions is underway.

Weather and safety setbacks at home

Back home, heavy monsoon rains through July and August have amplified day‑to‑day strain on Indian aviation. Airlines have:

• Scrubbed flights
• Logged rolling delays
• Juggled crew and maintenance schedules as storms closed runways or reduced visibility across multiple hubs

Disruption has a direct effect on demand: many travelers delay trips or choose trains over short‑haul flights when weather is unreliable.

The June 12 Air India crash further dented confidence. Consequences include:

• July domestic passenger traffic fell 2.94% year‑on‑year
• Air India lost nearly 1 percentage point of market share
• Air India carried about 400,000 fewer passengers compared with July 2024

These shocks arrived just as the sector was counting on steadier growth. With yields down 4–5% year‑on‑year in Q1 FY2026, airlines were already facing weaker pricing power before the full force of August’s weather and trade curbs.

Capacity build‑out and financial strain

Airlines expanded capacity by about 5% in FY2025, ending March with a combined fleet of 855 aircraft. Over the next decade, they have more than 1,600 aircraft on order, much of it aimed at renewing fleets with more fuel‑efficient jets.

Infrastructure pipeline:
– Navi Mumbai and Noida International airports slated to open in mid‑to‑late 2025
– Plans for around 50 new airports by 2030

Financial outlook and risks:
– ICRA projects FY2026 net losses of ₹9,500–10,500 crore, nearly double FY2025 losses
– Interest coverage likely to ease to 1.3–1.5x, down from 1.5–1.7x
– Competitive intensity is pushing fares down while weather and trade headwinds depress demand

ICRA flags deteriorating credit strength: rising finance and lease costs, yields under pressure, and the mismatch between scheduled aircraft deliveries and slower passenger growth are the core risks weighing on profitability.

“Losses are set to shoot up principally because passenger traffic growth will be slowing down amid a period of rising aircraft deliveries,” said Kinjal Shah, Senior Vice President and Co‑Group Head at ICRA.

Several analysts describe the mix of external shocks — trade, weather, and the recent accident — and internal expansion as a “perfect storm” for carriers.

Operational stresses and short‑term actions

Operationally, crews and ground staff have borne the brunt of weather‑related shifts. When storms shut down a runway, knock‑on effects ripple across the network:

• Aircraft and pilots end up in the wrong city
• Maintenance slots slip
• Customer service teams work overtime to rebook delayed passengers

With aircraft deliveries already scheduled, fixed costs will continue to rise. Combined with softer yields and slower traffic growth, this leaves little cushion for airlines trying to stabilize balance sheets.

Practical reminders for U.S. trade coordination:
1. Note the effective date/time: August 27, 2025, 12:01 a.m. EDT.
2. Prepare for a combined tariff near 50% on most Indian‑origin goods.
3. Use the transit exemption window for shipments clearing U.S. customs by September 17, 2025.
4. Confirm whether items fall under the exempt categories or are subject to HTSUS 9903.01.84 surcharge.
5. Monitor bookings and cargo flows closely if operating U.S. routes or handling exports.

Near‑term timeline and outlook

Two near‑term dates to watch:
– August 27, 2025 — surcharge takes effect at 12:01 a.m. EDT.
– September 17, 2025 — deadline for transit exemptions to clear U.S. customs.

The heaviest monsoon rains typically linger into late August, prolonging operational disruptions. Later in 2025, openings of Navi Mumbai and Noida International are expected to add capacity and routing options, even as airlines tread carefully on schedules and pricing.

Exporters and business groups are pressing New Delhi for relief, warning the new U.S. measures could trigger job losses and supply chain disruptions. Industry associations are urging targeted support and faster customs facilitation on exempt categories while diplomatic talks seek a path out of the tariff standoff.

According to analysis by VisaVerge.com, the cautious corporate travel tone — layered on top of domestic weather disruption — is already feeding a more guarded outlook among airline planners for late 2025.