InterGlobe Aviation’s stock trades at Rs 4,909, with divergent analyst views on its path forward amid capacity constraints and rising costs
India’s aviation bellwether IndiGo is navigating choppy skies as operational challenges, regulatory penalties, and cost pressures test the resilience of the country’s dominant airline operator.
InterGlobe Aviation reported a muted third quarter for FY26, with adjusted profit declining 16% year-on-year to Rs 20.5 billion, missing analyst estimates. The carrier faced a perfect storm of challenges: forex losses of Rs 11 billion, operational disruptions in early December due to Flight Duty Time Limitation (FDTL) norms compliance issues, and one-time adjustments totaling Rs 14.7 billion.
“INDIGO’s EBITDA excluding forex loss stood at Rs 64.7 billion, down 2% YoY, as forex loss stood at Rs 11 billion versus Rs 14.6 billion in 3QFY25,” says Motilal Oswal in its latest report, which maintains a Buy rating with a target price of Rs 6,100—implying 24% upside from current levels.
Headwinds and Capacity Cuts
The airline’s troubles deepened following DGCA’s diktat imposing a 10% cancellation of domestic slots for the winter schedule—a regulatory response to IndiGo’s failure to meet pilot rostering requirements under new FDTL norms. The December 3-5 operational meltdown, when the airline struggled to maintain its flight schedule, exposed underlying crew management challenges.
The capacity restrictions mean IndiGo can operate up to approximately 1,800 domestic flights along with around 300 international flights—a significant comedown for an airline that was operating 2,100-2,200 daily flights at its peak.
Cost Pressures Mount
Adding to IndiGo’s woes, unit costs are rising across multiple fronts. Motilal Oswal highlights that “FY26 CASK excluding fuel and forex is expected to rise by a mid-single-digit percentage YoY, reflecting a combination of external and operational factors.”
The culprits are familiar: a roughly 5% depreciation of the rupee against the dollar inflating USD-denominated expenses like leases and maintenance, reduced capacity limiting fixed-cost absorption, and continued reliance on expensive damp and wet leases to manage aircraft-on-ground constraints from supply chain bottlenecks.
More structurally concerning is the sharp uptick in employee costs. Avendus Spark projects “an 18% CAGR (FY25-FY28) increase in employee costs factoring in higher requirements of pilots (~55% of overall employee costs) in addition to inflation and expected increase in the buffer.”
The brokerage draws parallels to Ryanair’s 2017 rostering crisis, which “exposed underlying pilot shortages and stress, leading to demands for pay raise (around 6.6% agreed upon) and better working conditions.” IndiGo plans to hire approximately 900 pilots through calendar 2026 to address the shortage—an expensive proposition in a tight labor market.
Elara Capital views the pilot shortage as temporary rather than structural. “During CY24, the government issued licenses to 1,342 pilots, which is 80% more than 2019; hence, there is no industry-wide pilot shortage, but company-specific bottleneck in the near term,” the brokerage notes in its report, maintaining a Buy rating with a target price of Rs 6,020.
Silver Linings in the Sky
However, IndiGo’s dominant market position in Indian aviation—operating roughly 60% of domestic capacity—provides a moat.
“We do not factor an artificial market share decline for Indigo by way of measures to curb/takeaway slots over a long term,” says Avendus Spark. The brokerage notes that competitors would need approximately 80 additional aircraft to fill any void left by IndiGo restrictions.
The capacity shortage could actually work in IndiGo’s favor. “Any further restrictions on Indigo’s flight schedule could result in yields moving up given the supply shortage,” Avendus Spark suggests.
Motilal Oswal strikes a similarly constructive long-term tone: “Despite near-term challenges in the form of reduced capacity, capped prices, rupee depreciation, and rising damp leases, Indigo remains confident in its growth strategy as India’s domestic network remains the backbone, with expanding international connectivity.”
Strategic Moves
IndiGo is taking steps to strengthen its position. The airline announced a USD 820 million investment in its GIFT City entity for aviation asset acquisition, increasing owned aircraft to 28 from just 6 a year earlier—a move toward reducing lease dependency and controlling costs.
Management expects ASK growth of approximately 10% in Q4, driven primarily by international destinations, though yields may face pressure from tough year-over-year comparisons due to Maha Kumbh-related travel last year.
Motilal Oswal projects revenue, EBITDAR, and adjusted profit to grow at CAGRs of 12%, 13%, and 10% respectively over FY25-28, valuing the stock at 9x FY28E EBITDAR. Earlier, Avendus Spark’s revised EPS estimates stand at Rs 157/223/254 for FY26/FY27/FY28, valuing the stock at 23x September 2027 P/E.
India’s aviation market remains structurally attractive with strong long-term growth prospects, and IndiGo’s competitive advantages—route network, operational efficiency, and brand strength—remain intact.
Elara Capital’s view is perhaps most emphatic: “We reiterate our positive medium-to-long-term view: India’s aviation demand cycle remains intact; competitive supply is structurally constrained; and INDIGO remains the only airline with assured aircraft deliveries for next 4-5 years.”
