IndiGo stares at ‘significant’ financial damage due to flight crisis, Moody's says

IndiGo is staring at “significant” financial damage due to the ongoing crisis stemming from rampant flight cancellations, Moody's Ratings said, thereby raising questions on the “too big to fail” status of India's largest airline by passengers carried.

IndiGo's rampant flight cancellations raises questions on the “too big to fail” status of India's largest airline by passengers carried. (HT_PRINT)

“The disruptions are credit negative because IndiGo could face significant financial damage from loss of revenue because of flight cancellations, refunds and other compensation…,” Moody's Ratings analysts Nidhi Dhruv and Vikash Halan wrote in a 8 December note. The show-cause notice to CEO Pieter Elbers “could ultimately affect continuity of senior leadership at IndiGo.”

IndiGo is facing increasing heat for the mass cancellations that left thousands of passengers stranded last week after the airline failed to adequately handle new rules around staff rest, leaving it with a pilot shortage. The airline has nearly 66% domestic market share.

About 3,000 Indigo flights were cancelled last week. Over 1,000 flights were scrapped on Friday making up nearly half of IndiGo’s services on a normal day. According to an HT.com report, the airline operated 1,800 flights on Monday, as against 1,650 flights on Sunday.

IndiGo's lean operations, which provide cost efficiencies in stable times, lacked the resilience needed for this change in regulations, leading to the need for a system-wide reboost that led to cancellation of 1,600 flights on 5 December.

To be sure, the airline's OTP—on-time performance—was suffering for months prior. It stood at 84% in October and 68% in November, before operations came to a virtual standstill in early December.

“We have downgraded IndiGo's issuer category score for human capital to 4 from 3, reflecting the adverse impact of slower hiring (of pilots) on the airline's operations,” Moody's Ratings said. “Although the fundamentals of IndiGo's Baa3 rating remain intact…its profitability will be negatively impacted in the current fiscal year ending 31 March 2026.”