Kathmandu- Nepal's largest private airline, Buddha Air, has reported an operating income of Rs 10.316 billion in the first nine months of fiscal year 2025-26, but rising engine maintenance expenses, higher aviation fuel (ATF) prices, and declining passenger traffic have significantly squeezed profitability.

Reflecting these challenges, ICRA Nepal has placed the airline's bank debt ratings under 'Watch with Developing Implications.'

According to ICRA Nepal, Buddha Air's long-term debt rating of LA and short-term debt rating of A-1 have been placed on the watch list amid concerns that elevated aviation fuel prices—driven by geopolitical tensions in West Asia—could continue to weaken passenger demand, reduce operating profits, and affect the company's debt servicing capacity.

The report noted that Buddha Air's passenger traffic in April 2026 fell by around 33 percent compared to the same month last year, primarily due to higher airfare resulting from increased fuel costs. However, ICRA Nepal expects the airline's performance to improve more quickly than that of its peers as fuel prices gradually ease.

Operating Margin Falls Sharply
Buddha Air's operating profit margin dropped to 8.2 percent during the first nine months of the current fiscal year, down from 19.4 percent in the previous year and 10 percent a year earlier.

The decline was attributed to significantly higher-than-expected engine overhaul and maintenance expenses, along with increased operating costs driven by rising fuel prices.

Although the airline's revenue per available seat kilometre (RASK) has recovered to the pre-pandemic level of around Rs 21.2, its cost per available seat kilometre (CASK) has also climbed because of higher employee expenses, maintenance costs, and fuel prices.

As a result, the gap between revenue and cost has narrowed to Rs 2.8 per available seat kilometre, the lowest level in the past five to six years. In comparison, the gap stood at Rs 8.9 in 2019.

Passenger Numbers Decline, Market Leadership Intact
During the first nine months of review period, Buddha Air carried around 10 percent fewer passengers than during the same period last year.

Passenger load factors have remained between 83 and 85 percent in recent years, compared with approximately 92 percent in 2022.

Despite the decline, Buddha Air has retained its dominant position in Nepal's domestic aviation market with an estimated 57 percent market share, slightly lower than about 60 percent a year ago.

The airline currently operates a fleet of 15 aircraft, comprising one ATR-42 and 14 ATR-72 aircraft, after retiring and selling three aircraft earlier.

Financial Position Remains Comfortable
Despite the pressure on earnings, ICRA Nepal said Buddha Air's financial profile remains satisfactory.

The airline has strengthened its reserves by distributing only about 1 percent of net profit as dividends in fiscal years 2080/81 and 2081/82. It has also continued reducing debt through regular repayments using surplus operating cash flows.

According to the report, Buddha Air also repaid part of its short-term borrowings ahead of schedule using insurance proceeds received following the Bhadrapur aircraft accident.

As of April 2026, the company's net working capital stood at around 9 percent of operating income, while 71 percent of its sanctioned borrowing capacity remained unutilized, indicating a comfortable liquidity position.

Foreign Currency Debt Remains a Key Risk
Buddha Air currently has outstanding bank borrowings totaling Rs 3.126 billion and USD 13.75 million.

Revenue Growth Continues
Despite the recent pressure on profitability, Buddha Air's operating income has grown steadily over the past several years.

Operating income increased from Rs 3.336 billion in fiscal year 2020/21 to Rs 10.98 billion in 2021/22, Rs 12.169 billion in 2022/23, Rs 13.226 billion in 2023/24, and Rs 13.673 billion in 2024/25.

In the first nine months of the current fiscal year alone, the airline has already generated Rs 10.316 billion in operating income.

Founded in 1996, Buddha Air is Nepal's largest and longest-serving private airline, operating flights to major domestic destinations as well as scheduled international services from Kathmandu to Varanasi and Kolkata in India.