Analysts now expect IndiGo’s financials to be hit worse than they thought

The Directorate General of Civil Aviation (DGCA) on Wednesday formed an eight-member team, including two officials who will be based at the airline’s Gurugram headquarters, to monitor IndiGo’s day-to-day operations. The team will submit daily reports to the aviation regulator on IndiGo’s fleet, average stage length, number of pilots, network details and crew utilization, among other details.

Despite a 10% cut in daily flights that IndiGo ordered on Tuesday, the airline may find it difficult to keep costs under control given that it needs to hire more pilots, an unsettling situation for investors. Shares of InterGlobe Aviation Ltd, which operates IndiGo, fell 17% between December 1-10, when the BSE Sensex fell 1.5%.

“There is a flat revenue impact of 10% that we are currently projecting. The airline will continue to cover maintenance costs, lease payments and fuel costs. These will increase. So, the Ebitda impact is around 30-35% for the full year,” said Gagan Dixit, vice president of oil, gas and aviation at Elara Capital. In FY25 the airline recorded revenue of: ₹80,803 crore.

IndiGo doesn’t offer full-year guidance beyond stating that the company expects capacity growth in the “mid teens.” An email sent to IndiGo asking whether the airline would revise its revenue or profitability guidance went unanswered.

“Information from the Southwest Airlines incident in December 2022 points to sharp earnings cuts for Indigo in the near term,” analysts at Kotak Institutional Securities said in their Dec. 8 report.

Kotak analysts cut IndiGo’s after-tax profit forecast by 25% ₹6,196 crore; However, this figure may increase as the 10% cut announced on Tuesday is not taken into account. IndiGo reported ₹Profit of ₹7,258.4 crore was made last year; This suggests that the airline’s net income may be lower this fiscal year than in the year ending March 2025.

“As of now, we estimate a 17% cut in pre-FX PBT due to a 2% impact on volume and yield,” Emkay Research analysts Sabri Hazarika and Arya Patel said in a Dec. 9 note.

The airline may also see its CASK (cost per available seat kilometer), a metric that measures operating cost per seat, increase. But the situation remains fluid, the broker adds. The research firm’s December 9 note now forecasts IndiGo’s FY26 revenue to be 3% lower and revises it as follows: ₹87,508 crore as per earlier estimate ₹90,346.5 crore.

“There is an 8-10% hit to revenue for FY26, we expect airlines to continue operating 10% fewer routes. And unless a commensurate ticket price hike is initiated by Indigo, we see a 20-30% impact on profitability in the next quarter (January – March),” said Prashanth Tapse, Research Analyst at Mehta Equities, a brokerage.

For Indigo, aircraft lease payments, maintenance costs and fuel make up 70% of its costs. Pilot recruitment is usually part of employee costs and accounts for approximately 10% of total costs.

“You will need these pilots, if not now, then within the next year. Also, hiring pilots is not an overnight process due to long and strict notice periods,” said Elara’s Dixit.

IndiGo, which accounts for two-thirds of the country’s daily flight schedules, reported more than 4,000 cancellations in December; This has left hundreds of thousands of passengers stranded at airports, leaving glitzy airports looking like bustling train stations during rush hour. This led the regulator to reduce the number of flights by 2200 per day and Civil Aviation Minister Ram Mohan Naidu warned of strict action against the airline. on wednesday, PTI It said it canceled around 220 flights at three major airports, including Delhi and Mumbai.

The uproar sparked criticism from the Delhi High Court on Wednesday. The court, hearing a public interest litigation (PIL), questioned the Center as to why the situation was allowed to turn into a crisis.

“Available ticket ₹increased to 5,000, prices ₹30,000 to ₹35,000. If there was a crisis, how could other airlines be allowed to benefit? How can (ticket price) increase? ₹35,000 and ₹39,000? “How can other airlines start charging?” asked the bench, which heard the matter for over an hour and a half. The counsel for the Center and the DGCA informed the court that the legal mechanism was fully in place and a show-cause notice had been issued to IndiGo.

On Wednesday, IndiGo chairman Vikram Singh Mehta said the airline was sorry for the inconvenience caused to passengers.

Mehta, former CEO of Shell India, said, “The board has been paying close attention to this issue for months. Both the board and the risk management committee have received relevant information from the management regarding the implementation of the rules.”

“What happened last week is a stain on the pure and clean record of the airline. The company made a mistake. There is no denying it. It needs to rebuild your trust now. This will not be easy. It will depend on actions, not words. This will be a journey,” Mehta added.

On Wednesday, the DGCA said it had summoned the airline’s CEO Pieter Elbers and his top executives for another review meeting. Analysts at JM Financial Regulatory noted that a “token notice to the CEO” suggested a “possible management change”, a point echoed by rating agency ICRA. In a statement on Wednesday, ICRA said it would continue to monitor “continuity of senior leadership in the context of show cause notices issued by DGCA to IndiGo’s Chief Executive Officer and Chief Operating Officer”.

On December 6, the DGCA issued a show-cause notice seeking an explanation from Elbers and Chief Operating Officer Isidre Porqueras regarding the disruption in the airline’s operations.