An improved method of forming an abradable thermal barrier coating comprises providing a spray-dried powder of M-CrAlY and a solid lubricant, such as CoNiCrAlYnullBN. Unlike powders provided for use with plasma spray guns, the powder is essentially free of polyester or other organic fugitive additives provided to increase porosity. The powder is applied using a combustion spray process and results in a M-CrAlY abradable coating that has an average porosity comparable to that of a plasma-applied coating but with smaller and more uniform pore distribution, and without requiring post-application heat treatments to remove fugitive materials. Deposition efficiency is also increased.