IndiGo Faces Earnings Reset After Flight Disruptions; Structural Story Unchanged

Brokerage firm Avendus Spark has cut its growth and earnings estimates for InterGlobe Aviation (IndiGo) after regulatory action forced the airline to scale back domestic operations following widespread flight cancellations in December.

Based on DGCA’s directive to cancel 10% of domestic slots for the winter schedule, Avendus Spark now estimates FY26 ASK growth at ~6.5%, sharply lower than the earlier 14% forecast and well below the ~12% growth recorded in the first half of the year.

Domestic Capacity to Shrink, International Expansion to Drive Growth

The brokerage expects IndiGo’s domestic ASK to decline by around 1% year-on-year in FY26, compared with an earlier estimate of ~7% growth. In contrast, international ASK is projected to grow 23%, reflecting IndiGo’s increasing focus on overseas routes as domestic operations remain constrained.

IndiGo is expected to operate roughly 2,000 flights per day in Q3 FY26, rising to about 2,100 flights per day in Q4, compared with a December average of ~1,950 flights per day.

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Higher Pilot Costs to Pressure Margins

A key fallout of the disruption is a structural rise in employee costs. To comply with tighter Flight Duty Time Limitation (FDTL) norms, IndiGo plans to hire around 900 pilots by December 2026.

Avendus Spark factors in an 18% CAGR in employee costs between FY25 and FY28, with pilot expenses accounting for roughly 55% of total employee costs. This is expected to push employee costs as a share of revenue higher by about 100 basis points over the next two years.

Earnings Estimates Slashed, Valuation Multiple Cut

Reflecting slower capacity growth and higher staffing costs, Avendus Spark has cut its FY26 EPS estimate by 31% to ₹132, while trimming FY27 and FY28 EPS estimates by 6% each.

The brokerage has also reduced its target valuation multiple to 23x September 2027 earnings, from 25x earlier, citing higher execution risks. Despite this, it has retained a BUY rating on the stock with a target price of ₹5,500.

Market Share Risks Seen as Limited

Avendus Spark does not expect regulatory action to result in a meaningful loss of market share for IndiGo, which currently controls about 60% of domestic capacity. In a scenario where IndiGo’s domestic ASK remains flat for two years, competing airlines would need to add nearly 80 aircraft to meet incremental demand, an outcome the brokerage sees as unlikely given financial constraints and aircraft supply challenges.

Any further restrictions on IndiGo, the report adds, could instead lead to higher airfares, as competitors lack the capacity to absorb displaced demand.

Global Parallels Support Long-Term View

Drawing parallels with Ryanair’s 2017 pilot rostering crisis and Southwest Airlines’ 2022 scheduling failure, Avendus Spark notes that such disruptions typically lead to temporary earnings hits rather than lasting market share losses.

Avendus Spark views IndiGo’s current disruption as an earnings reset rather than a structural impairment. While FY26 growth and margins will remain under pressure, the brokerage expects IndiGo’s scale, cash generation, and international expansion to support a recovery once operational stability is restored.

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