Record flight cancellations and a weak Indian rupee threaten to slam the financials of IndiGo in the December quarter, analysts said.
Concerns are also rising that India's largest airline may struggle to hire enough pilots, potentially forcing it to reduce flights to comply with the rules. One analyst also raised the possibility that a leadership change may be on cards.
“The airline’s revenue could take at least a 5% (revenue) hit in the December quarter after factoring in the cancellations in the first week, the rupee depreciation and additional pilots' costs,” said Gagan Dixit, senior vice-president, oil & gas and aviation, Elara Securities. “The profit expectations for the quarter are likely to be trimmed.”
The developments unfold during India's travel-heavy winter season, which accounts for a third of IndiGo's full-year profits. On Monday, IndiGo shares ended 8.3% down, wiping off nearly ₹17,193 crore of investor wealth.
Shobit Singhal, associate director at Anand Rathi Institutional Equities, agreed that the disruption could result in a 5-7% revenue hit during the quarter. "There will be some effect on employee costs due to additional rostering requirements, but the impact on Ebitda is expected to be minimal."
If IndiGo fights are disrupted for a total of 15 days, FY26 revenue may fall by 8-9%, JM Financial said. “Regulatory action, including a show-cause notice to the CEO (possible management change) is likely to further dampen stock performance besides possible impending one-time penalty,” analysts Ashutosh Somani, Anirudh Nagpal and Anuj Khandelwal wrote in a 7 November note.
The December quarter, which has many holidays, is a seasonally strong one for airlines. IndiGo, which reported a 7% revenue growth in the April-September period compared to the first half of last year, was expecting a “capacity growth in the high teens” in the second half of the current year. That guidance is almost certainly going to be revised lower.
The disruption due to revenue loss from cancellations, refunds, compensation and potential penalties is "credit-negative", ratings agency Moody's said on Monday. “[T]he airline's profitability will be negatively impacted in the current fiscal year ending 31 March 2026. Moreover, there will be some reputational damage for IndiGo, which may hurt the company, especially in its code-sharing arrangements. However, Moody's did not put a number to potential losses, as IndiGo's operations evolve to comply with FDTL regulations.
Some analysts also see higher costs as IndiGo scrambles for pilots. The regulator wants all commercial airlines to have more pilots, as it does not want a pilot to fly a plane more than twice consecutively between midnight and 6 a.m. This rule came into effect on 1 November, although IndiGo, due to the airline's poor preparedness to comply, has been given until 10 February.
“Structurally, crew requirements could go up given higher bench strength needs leading to higher cost per available seat kilometre (CASK). One-time costs are also expected to increase,” the December note by analysts Ashutosh Somani, Anirudh Nagpal and Anuj Khandelwal of JM Financial said, pointing out that this will be a “transient shock.”
CASK shows how much it costs to fly one seat-kilometre; lower CASK indicates better cost control.
Analysts and industry executives are sceptical that IndiGo will be able to hire 150 pilots in the next two months, leading one senior executive to believe it is a “given that the airline would cut its daily flights.”
“The only way they can comply with the new norms is to cut down their daily flights,” an executive said on the condition of anonymity. “You cannot hire such a large number of pilots during this time.”
“Typically, the DGCA will look to reduce slots for IndiGo and provide them to other airlines. That’s a standard practice. May be a 200-300 flight reduction is what IndiGo could expect. This means reduced flying and lower earnings from ticket sales,” said Mark D. Martin, chief executive, Martin Consulting.
An email sent to IndiGo on Sunday on the potential impact of the disruption went unanswered.
Some analysts are also concerned about rising costs to keep up with the new norms.
An IndiGo pilot earned an average salary of around ₹66 lakh in FY24, against the ₹62 lakh industry average (barring IndiGo), according to the Incred Equities report dated 6 December.
“Assuming a 20% rise in pilot salaries, it would raise employee costs by 12%. This event impacts IndiGo, not other players who have slack as far as pilot usage is concerned,” analyst Rajarshi Maitra said. InCred calculates that employee cost is 10% of CASK, and this is likely to rise by 1-1.5%, while the dent in revenue to profitability could be 15%.
For IndiGo, which reported a loss in the July-September period due to rupee depreciation, higher wage costs could eat into its profits. Since the airline leases most of its 417 aircraft, when the rupee falls, its lease payments in dollar terms increase. The rupee fell to ₹90 last week.
IndiGo loses ₹900 crore for every Re 1 depreciation, chief financial officer Gaurav Negi said during the 4 November earnings call. In the September quarter, IndiGo had a net loss of ₹2,582 crore, led by a forex loss of ₹2,892 crore.
“With the rupee at 90, forex losses for IndiGo will be another concern and investors will ask the same too,” Martin said.
IndiGo had 4,134 pilots scheduled in October and 4575 pilots in November, when the new norms kicked in, and 4,551 in December, according to the airline’s submission to the DGCA, seen by Mint. It requires an additional 900-odd pilots to comply with its size and new rules, and to ensure cancellation-free operations, Mint reported on 7 December.