Indian Air Travel Shows Signs of Fatigue as Passenger Traffic Declines for Third Month

India's once booming domestic air travel market is showing signs of cooling down. Data from the Directorate General of Civil Aviation (DGCA) indicates that domestic passenger traffic has fallen for three straight months up to September 2025. This marks the first continuous decline since 2022, signaling a phase of consolidation for the aviation sector after two years of rapid recovery from the Covid-19 slump.

Monthly growth rates, which previously hit double and triple digits, have now slowed to single digits, and in July, August, and September 2025, they entered negative territory (-2.9%, -1.4%, and -2.9% respectively). Despite this recent slowdown, the industry is still performing better than before the pandemic, with passenger volumes in 2025 remaining above 2019 levels. This suggests the market is stabilizing at a higher base rather than a reversal of demand.

The second quarter (July-September) was particularly difficult for airlines. Factors such as cross-border tensions leading to temporary airport closures and airspace restrictions, coupled with a fatal aircraft accident in June that affected passenger confidence and caused temporary capacity reductions for safety checks, contributed to a 2.4% year-on-year decline in domestic air traffic during this period. Heavy rainfall also played a role.

Globally, a similar trend was observed. The International Air Transport Association (IATA) reported a slowdown in worldwide passenger traffic growth. Both India and the US, the world's largest domestic markets, recorded contractions in revenue passenger kilometres (RPK) in September.

Analysts attribute the decline in RPKs to a combination of external and domestic factors, including an unusually long monsoon season and economic challenges like US tariffs affecting business sentiment. Looking forward, the aviation ministry's preliminary estimates show a 4.5% year-on-year rise in domestic passenger traffic in October 2025, potentially ending the three-month slide. Icra expects the Indian aviation market to grow by 4-6% in 2025-26, supported by festive and leisure travel demand in the latter half of the fiscal year.

Impact This news has a moderate impact on the Indian stock market, primarily affecting airline stocks and related sectors like hospitality and tourism. A sustained slowdown could lead to reduced revenue and profitability for airlines, potentially impacting investor sentiment. However, the underlying demand remaining strong above pre-pandemic levels provides some reassurance. Rating: 6/10

Difficult Terms: Directorate General of Civil Aviation (DGCA): The regulatory body for civil aviation in India, responsible for safety, standards, and operations. Revenue Passenger Kilometres (RPK): A key industry metric measuring the total distance flown by paying passengers. It is calculated by multiplying the number of revenue passengers by the total distance flown in kilometres. International Air Transport Association (IATA): A trade association of the world's airlines, representing, leading, and serving the airline industry. Crisil Ratings: An Indian analytical company providing ratings for financial institutions, companies, and governments, as well as research. Icra: An Indian research and credit rating agency.