Flight cancellations will hurt, but IndiGo has other worries too

Concerns are also growing that India’s largest airline may struggle to recruit enough pilots, forcing it to reduce flights to comply with the rules. One analyst also noted that the possibility of a leadership change was also raised.

“The airline’s revenue could take a hit of at least 5% (revenue) in the December quarter, factoring in first-week cancellations, rupee depreciation and additional pilot costs,” said Gagan Dixit, senior vice president of oil, gas and aviation at Elara Securities. “Profit expectations for the quarter are likely to decrease.”

The developments come during India’s peak travel winter season, which accounts for a third of IndiGo’s full-year profits. On Monday, IndiGo shares closed 8.3% lower and were almost wiped out. ₹17,193 crore investor wealth.

Shobit Singhal, associate director at Anand Rathi Institutional Equities, admitted that the outage could lead to a 5-7% drop in revenue in the quarter. “There will be some impact on employee costs due to additional staffing requirements, but the impact on EBITDA is expected to be minimal.”

JM Financial said FY26 revenue could fall by 8-9% if IndiGo fights are disrupted for a total of 15 days. “Regulatory action, including a show-cause notice to the CEO (possible management change), is likely to further dent stock performance, along with possible one-time penalty,” analysts Ashutosh Somani, Anirudh Nagpal and Anuj Khandelwal wrote in a Nov. 7 note. he wrote.

The December quarter, with many holidays, is a seasonally strong period for airlines. IndiGo, which reported a 7% revenue increase in the April-September period compared to the first half of last year, was expecting “capacity growth in the high teens” in the second half of this year. This guidance is almost certain to be revised lower.

Ratings agency Moody’s said on Monday that the loss of revenue from cancellations, refunds, compensation and potential penalties is “credit negative.” “[T]The airline’s profitability will be adversely affected in the current financial year ending March 31, 2026. Moreover, IndiGo will also suffer some reputational damage that could harm the company, especially in code-sharing arrangements. However, Moody’s did not put a figure on potential losses as IndiGo’s operations evolved to comply with FDTL regulations.

Some analysts also think costs are higher because IndiGo is scrambling 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 in a row between midnight and 6am. This rule came into effect on November 1, but IndiGo was given until February 10 due to the airline’s poor preparations for compliance.

“Structurally, crew requirements may increase, leading to higher cost per available seat kilometer (CASK). One-off costs are also expected to increase,” JM Financial’s Ashutosh Somani, Anirudh Nagpal and Anuj Khandelwal wrote in a December note. he said and pointed out that this would be a “temporary shock”.

CASK shows how much it costs to fly one seat-kilometer; Lower CASK indicates better cost control.

Analysts and industry executives suspect that IndiGo could hire 150 pilots in the next two months, leading one senior executive to believe this is “given that the airline will be cutting daily flights.”

“The only way to comply with the new norms is to reduce daily flights,” said an executive on condition of anonymity. “You can’t hire that many pilots during this time.”

“Generally, DGCA will try to reduce the number of slots for IndiGo and make them available to other airlines. This is standard practice. There may be a 200-300 reduction in flights that IndiGo can expect. This means fewer flights and lower earnings from ticket sales,” said Mark D. Martin, CEO, Martin Consulting.

An email sent to IndiGo on Sunday regarding the potential impact of the disruption went unanswered.

Some analysts are also concerned about rising costs to keep up with new norms.

An IndiGo pilot averages approx. ₹66 lakhs in FY24, ₹According to the Incred Equities report dated December 6, the industry average is 62 lakhs (excluding IndiGo).

Analyst Rajarshi Maitra said, “Assuming a 20% increase in pilot salaries, employee costs will also increase by 12%. This incident affects IndiGo and not other players who have slack in terms of pilot utilization.” he said. InCred calculates employee cost at 10% of CASK, which is likely to increase by 1-1.5%, while the drop in revenue could be 15%.

For IndiGo, which reported a loss in the July-September period due to the depreciation of the rupee, high wage costs may adversely affect its profits. Since the airline leases most of its 417 aircraft, lease payments in dollar terms rise when the rupee falls. Rupee fell ₹90 last week.

IndiGo loses ₹900 crore for every depreciation in Re 1, finance chief Gaurav Negi said in the earnings call on November 4. IndiGo recorded net loss in September quarter ₹2,582 crore led by Forex loss ₹2,892 crore.

“With the rupee at 90, forex losses will be another concern for IndiGo and investors will want the same,” Martin said.

According to the notification submitted by the airline to the DGCA, IndiGo had 4,134 pilots in October, 4,575 pilots in November when the new norms came into effect and 4,551 pilots in December. Mint. More than 900 pilots are needed to adapt to its size and new rules and to ensure cancellation-free operations, Mint It was reported on December 7.