InterGlobe Aviation Ltd, which runs IndiGo airlines, has had a wobbly start to FY26, although that was not unexpected. The June quarter (Q1FY26) began on a strong note but was soon marred by external headwinds, including geopolitical tensions, airport closures, conflict in West Asia and the tragic Air India 171 crash. This triggered caution among travellers and led to increased cancellations.
Sure, cost efficiencies offered some cushion to IndiGo. Fuel costs declined in Q1, benefiting from the lower crude oil prices, reduced deployment of fuel-inefficient damp-leased aircraft and some pricing negotiations with oil marketing companies. Cost per available seat kilometre (Cask) fell about 7% year-on-year in Q1. IndiGo’s passenger volume growth of 12% surpassed the industry average of 6%.
Yet, there were some sore spots. Yield, a pricing measure for aviation companies, dropped at a more-than-expected rate of 5% year-on-year to ₹4.98. Weak demand and dull yields meant 1% drop in Ebitdar to ₹5,739 crore. Earnings before interest, taxes, depreciation, amortization, and lease rentals (Ebitdar) is a key profitability metric for airlines.
Airline capacity, measured by available seat kilometres (ASK), rose 16.4% year-on-year, in line with the management’s guidance. IndiGo maintained its double-digit ASK growth target for FY26.
That said, ASK in Q2 is expected to grow at a mid-to-high single-digit due to seasonal softness in domestic demand. So, IndiGo has strategically suspended some underutilised routes and undertaken structural inspections and modifications of certain aircraft.
Yields stabilised in July, and improvement is expected in August and September. Overall, Q2 yield is expected to be flat year-on-year. Stronger growth is anticipated in Q3 and Q4, with ASK growth returning to double digits. To meet the potential jump in demand, IndiGo has a robust order book of over 900 aircraft and expects no challenges in ramping up capacity in H2FY26.
In a bid to control non-fuel cost, IndiGo has reduced its fleet size in the past two quarters. It is returning the high-cost damp-lease fleet and replacing them with upcoming delivery of aircraft from Airbus. Also, IndiGo’s aircraft on ground (AOG) situation has improved from 70s at peak to 40s currently.
The company’s progress on international penetration with recent entry into the long-haul flight segment is worth tracking. IndiGo is scaling up its overseas network starting September since customer feedback on wide-body international operations has been encouraging.
It plans to increase the frequency of recently launched direct flights to Amsterdam and Manchester. It would soon launch London and Copenhagen flights.
To tap into the long-haul market, IndiGo has signed a pact with Airbus for an order of 30 units of A350 aircraft, with deliveries slated to begin in 2032. A worry here is that low-cost long-haul operations have yielded mixed results globally, plus there is relatively higher competition in this space than IndiGo has experienced in the domestic market.
Also, it is in the process of introducing its business class offering, ‘Stretch’ – a premium seating option on international routes with phased rollout to Bangkok, Phuket, Singapore and Dubai. This can be a medium-term margin driver.
IndiGo’s shares rose over 2% on Thursday, pushing the gains so far in 2025 to 25%, significantly ahead of the Nifty50 index. On FY27E EV/Ebitdar, IndiGo is trading at a multiple of 9.4x which is a premium to global aviation peers, said Nuvama Research.
Despite the positive factors, valuation looks lofty. The near-term outlook looks challenging as growth in capacity outpaces demand, hurting yields, said the Nuvama report dated 30 July.
