IndiGo set for strong gains in FY26 on lower costs, capacity boost

While IndiGo posted a strong Q4 and has promising FY26 prospects due to falling fuel costs and capacity gains, Q1 may face pressure from geopolitical disruptions

InterGlobe Aviation, India’s largest airline and the operator of IndiGo, posted its highest-ever consolidated net profit in Q4FY25, bolstered by lower unit costs and higher yields.

 

The airline’s healthy operating performance was largely driven by a 24 per cent year-on-year (Y-o-Y) increase in revenue, with passenger revenue rising 25 per cent and ancillary income growing at a similar pace.

 

Operating profit margins before rentals and adjusted for forex changes stood at a robust 30.8 per cent. This was underpinned by a 2.2 per cent increase in yields to ₹5.32, aided in part by strong demand during the Maha Kumbh. Passenger volumes surged 20 per cent Y-o-Y, while revenue passenger kilometers rose 23 per cent.

 

A key contributor to the margin expansion was a 6.6 per cent drop in fuel unit costs to ₹1.60 per seat kilometer, thanks to a 9 per cent decline in aviation turbine fuel (ATF) prices.

 

Analysts led by Aditya Mongia of Kotak Research noted that this marks the second consecutive quarter in which IndiGo has retained the full benefit of falling crude prices — a trend that may persist as current ATF prices remain 10 per cent below the Q4 average.

 

Despite the robust Q4 showing and encouraging medium-term prospects, some brokerages remain cautious in the near term. The ongoing India-Pakistan conflict has triggered a wave of flight cancellations and weakened booking trends, which are likely to impact the June quarter (Q1FY26).

 

Passenger traffic outlook remains uncertain, though capacity is expected to grow in the mid-teens year-on-year. 

 

Jal Irani of Nuvama Research expressed concern that capacity expansion may outpace demand in the short term, exerting pressure on yields. Nuvama has trimmed its FY26 operating profit forecast by 3 per cent, citing the expected adverse impact on demand and pricing. The brokerage maintains a “hold” rating, suggesting current valuations limit upside potential despite underlying positives.

 

On the other hand, Prabhudas Lilladher remains upbeat with a “buy” rating. Analysts led by Jinesh Joshi highlight several long-term growth levers, including IndiGo’s strategy to deepen international operations — with global capacity set to rise 40 per cent by FY30 — and its focus on premium offerings. The recent rollout of ‘IndiGo Stretch’ across five routes and the decreasing count of grounded aircraft are also seen as key enablers for growth and margin improvement.

 

While short-term turbulence remains, IndiGo’s structural strengths and strategic initiatives continue to position it well for long-term gains.

 

Elara Securities is positive on the stock given the softening crude oil price, higher primary aircraft delivery to IndiGo, capacity expansion at major airports, and the return of the grounded Pratt & Whitney fleet.

 

On the other hand, competitors face constraints to aggressively add capacity unless Boeing improves its global operations in a sustained manner. Analysts led by Gagan Dixit have reiterated a “buy” rating and increased earnings by 14 per cent in FY26 and 13 per cent in FY27.