Indigo, India’s foremost airline, which cancelled over 2,500 flights in just a few days last month, leading to extensive disruptions, reported a 78% decline in profit for the December quarter, prompting its shares to drop by more than 3%.
After the market closed on Thursday, the company disclosed a provision of 5.8 billion rupees ($63 million) intended for compensation due to flight disruptions in December.
Nonetheless, the greater impact on its profits stemmed from a one-time expense related to the new labor code and foreign exchange losses, collectively amounting to around 20 billion rupees.
The stagnation in the U.S.-India trade agreement has negatively impacted investor trust, leading to capital flight and placing pressure on the rupee, which was deemed Asia’s poorest performing currency last year — falling roughly 5%.
The rupee was last recorded at 91.52, with analysts anticipating a drop to 92 rupees per dollar by the end of March, which could pose additional challenges for forex-exposed enterprises like Indigo.
The forthcoming March quarter for the airline is “predicted to be weaker” despite a 10% increase in available seat kilometers (ASK), a crucial metric for tracking passenger capacity, according to a report from Jefferies released on Thursday.
The brokerage noted that the airline is likely to experience a “moderation” in passenger revenue per available seat kilometer (PRASK) along with rising costs per available seat kilometer as the airline “continues to expand its fleet.”
Jefferies continues to uphold a buy recommendation on the stock, with a target price set at 6,140 rupees per share.
Indian airlines are grappling with pressure regarding both costs and revenues, as about 65% of their income is derived from domestic travel, where passengers pay in Indian rupees, while the majority of expenses are in dollars.
Indigo is increasing capacity because growth is necessary, but the upcoming 6-12 months are expected to be challenging, as indicated by Mark Martin, founder and CEO of Martin Consulting, who stated that the rupee is likely to depreciate further and fuel costs are set to rise.
He informed CNBC that Indigo may need to enhance its international routes to boost dollar earnings, a strategy also alluded to during the company’s earnings call, where management indicated that new seat additions would favor international routes.
Labor challenges
Recent labor reforms in India, which have broadened the scope and qualification for employee social security benefits, have also adversely affected Indigo’s earnings, leading to one-time charges of 9.7 billion rupees.
Several major Indian corporations, including Tata Consultancy Services and ICICI Bank, have reported a one-off impact on earnings resulting from labor reforms during the December quarter.
In November, the Indian administration announced the consolidation of 29 separate labor laws into four comprehensive codes, navigating the balance between business concerns and employee well-being.
Under these new codes, fixed-term or contract workers will now be entitled to the same benefits as permanent staff, encompassing leave, medical benefits, and social security.
Additionally, government regulation changes also affected Indigo over the last quarter.
In November of the previous year, the government instituted flight duty time limitations, which mandated airlines to reduce late-night flights and extended crew rest periods from 36 to 48 hours.
In the first week of December, Indigo cancelled thousands of flights, citing the adjustments to the pilot rest regulations. Early December marked “the most difficult weeks” in Indigo’s history, remarked Pieter Elbers, CEO of Indigo.
Last week, India’s Directorate General of Civil Aviation fined the airline 222 million rupees related to the operational disruptions, which is included in the one-time provisions.
Elbers noted that Indigo is currently operating 2,100 to 2,200 flights daily and has committed to adhering to the government’s flight duty time limitation regulations by February.
In 2025, Indigo served 124 million passengers, reflecting a 9% increase year-on-year, as stated in their announcement.
