Costs and capacity cuts prompt downward revision of IndiGo's FY26 profits

Operational disruptions, higher pilot costs and softer yields hit sentiment

The severe disruption in IndiGo’s flight operations since the start of December, cut in its daily scheduled flights by 10 per cent, weak revised guidance for the December quarter and expected increase in costs have weighed on its stock price.

 

The stock of the country’s largest airline, which has two-thirds of the Indian domestic aviation market share, is down by 19 per cent since the start of the month as brokerages are cautious on the outlook and have sharply cut their earning estimates for FY26.

 

Though the stock has been trending down since the start of the month, it ended Thursday’s session with a minor (0.3 per cent) gain at ₹4,819 per share. The pressure on the stock was largely due to disruptions of the newly mandated flight duty time limitation by the DGCA, with effect from November 1, 2025. 

This led to cancellation of about 1,600 flights on December 5. The airline’s on-time performance dropped to 68 per cent in November from 84 per cent in October. There were 1,200 cancellations in November. 

 

The airline revised its December quarter capacity growth guidance downwards from a high-teens growth to high-single or early-double digit growth. It has also cut its passenger unit revenues from flattish or slight growth projection in November to mid-single digit fall now.

 

What could significantly increase its costs is hiring of new pilots. Given the large indemnity bonds/long notice periods, it will be difficult for the airline to get pilots from its rivals such as Air India and Akasa quickly. Analysts believe that it may have to hire expat pilots at a significantly higher salary and the pilot shortage issue could remain for the next one year.

 

Analysts led by Aditya Mongia of Kotak Institutional Equities have reduced their FY26 earnings estimates by as much as 20 per cent, following the directive of the DGCA to curtail its daily flights. 

The DGCA has asked IndiGo to curtail its daily flights by 10 per cent or about 200 flights daily until March 28, which is higher than the brokerage estimates of 100 flight cancellations every day until February 10.

 

The brokerage has also built in a 1 per cent lower yield for FY26. However, the downward revisions for FY27 and FY28 are much lower at 9 per cent and 6 per cent, respectively. It has lowered its fair value of the stock to ₹5,350 from ₹5,700 to reflect higher pilot costs, the impact of the loss of slots from Q4 continuing into a large part in FY27 and lower yield.

 

The company highlighted on Thursday that it continues to strengthen its operations and improve its services and is now operating 1,900+ flights connecting all 138 destinations across its network. The airline pointed out that it has increased the flights operated from over 1,700 on December 8 to more than 1,955 (estimated) on December 11. Despite this, there were reportedly over 220 flights which were cancelled, including at major airports in Delhi, Mumbai and Chennai on Thursday.

 

While the company has not guided for Q4FY26 capacity or yields, Morgan Stanley Research points out that passenger support services for recent operational disruptions are likely to add to near-term cost pressures. The brokerage expects near-term earnings to be weak, but believes that the long-term growth story remains intact. The stock trades at 8 times its FY27 enterprise value-to-operating profit, while the pre-Covid median valuations are at 8.5 times. 

 

Going ahead, the Street will focus on the cost escalation, negative brand perception and longer term impact on the airline due to the ongoing crisis.

 

In a recent note, Moody’s Ratings, said that the disruptions are credit negative for IndiGo. The airline, according to Nidhi Dhruv and Vikash Halan, could face significant financial damage from loss of revenue because of flight cancellations, refunds and other compensation to affected customers, along with potential penalties imposed by the DGCA.

 

In addition to compensation for flight cancellations, according to DGCA norms, the company has announced that it will offer travel vouchers worth ₹10,000 to every passenger severely impacted during the crisis between December 3 and 5.

 

In addition to the airline’s profitability being negatively impacted for FY26, the credit rating agency points out that there will be some reputational damage for IndiGo, which may hurt the company, especially in its code sharing arrangements.

The airline’s international capacity accounts for 30 per cent of its overall capacity.

 

It has, however, retained IndiGo’s Baa3 rating, given dominant market share, low penetration rates for air travel in India, sustainable long-term leverage below 3.5 times and strong macro growth fundamentals.