IndiGo Schedule Cut Could Erode Q3 Bottomline By Rs 250 Crore, But There's A Silver Lining

Budget airline IndiGo has been directed by the Civil Aviation Ministry to cut its winter schedule capacity by 10%, reducing daily departures from the planned 2,145 flights to around 1,930. The move comes amid a pilot shortage in India's largest airline triggered by new regulatory norms.

While the curtailment caps IndiGo's capacity growth until the March quarter, there could be a silver lining for the company in terms of improved aircraft utilisation and higher fares, as other carriers are unlikely to fill the gap.

Fare caps remain significantly above normal rates, allowing room for price hikes. The ripple effect will hit passengers through costlier tickets, and hotels and travel agencies through lower occupancy and bookings.

With an average of 190 seats per flight and an average distance of 1,000 km, the notional revenue loss per cancelled flight is estimated at Rs 10.3 lakh, based on the airline's performance in the third quarter of last year.

However, the actual impact on profit is lower since the airline saves on variable costs. After accounting for these savings, the loss per flight is approximately Rs 4.8 lakh.

So far, IndiGo has already cancelled about 5,200 flights during the current quarter, incurring an estimated loss of Rs 250 crore. With 109 days left in the winter schedule and 215 flights cut daily, the notional revenue loss could reach Rs 2,414 crore, as per NDTV Profit's calculations. This highlights the substantial financial strain caused by operational disruptions during the quarter.

IndiGo CEO Pieter Elbers on Tuesday announced that the carrier’s operations are "fully stabilised", confirming that the airline is "back on its feet" following a major operational disruption that led to mass cancellations and stranded thousands of passengers.

In a direct address to customers, Elbers expressed a "profuse apology" for the distress caused by the cancellations. "We have let you down when a major operational disruption happened, and we're sorry for that," he stated.

The airline confirmed that its initial focus was on swiftly getting all stranded and delayed passengers to their destinations. Simultaneously, a "no questions asked" refund process was initiated, with "lakhs of customers" already receiving full refunds and the process continuing daily. Furthermore, teams have been working to return "most of the bags stuck at airports," with remaining deliveries expected soon.

Elbers detailed the rapid restoration of the flight network, which was undertaken "on a war footing". Starting from a low of only 700 flights on Dec. 5, the carrier steadily improved its schedule: 1,500 on Dec. 6, 1,650 on the Dec. 7, and over 1,800 on Dec. 8 and Dec. 9.