IndiGo loses $4.5 billion value as govt signals strict action

About 3,000 Indigo flights were canceled last week. Over 1,000 flights were scrapped on Friday making up nearly half of IndiGo’s services on a normal day.

India will take strict actions against IndiGo “to set an example for the sector,” Aviation Minister Kinjarapu Rammohan Naidu said in a reply in parliament on Monday. The government would like more airlines to come in as India’s growing aviation market has the capacity to absorb five big carriers, Naidu added.

Social media posts last week were flooded with videos of fliers clashing with IndiGo front desk staff demanding updates. In some cases, they just wanted their checked-in bags back.

In a show-cause notice issued Saturday, the Director General of Civil Aviation said the CEO Elbers had “failed” in his duty to “ensure timely arrangements for conduct of reliable operations and the availability of requisite facilities to the passengers.”

‘Significant Lapses’

The local regulator held Elbers accountable for the severe disruptions that have roiled the carrier’s operations, asking him to explain the “significant lapses in planning, oversight, and resource management.”

“IndiGo will definitely be taken to task by the government,” Vandana Singh, chairperson at Federation of Aviation Industry in India told Bloomberg Television on Monday. The government “is putting things in bold font that this kind of abuse of dominance or artificial adjustment is not going to work.”

The airline said in a statement Sunday it’s expecting operations to return to normal by Wednesday, as it increased the number of flights and on-time performance improved to 75%.

The carrier, which runs a “lean, high-utilization model” has been hit hardest by new pilot rules that bar airlines from substituting weekly rest with leave, according to a note by Jefferies analysts including Prateek Kumar.

IndiGo is facing rising costs from last week’s flight cancellations, compounded by pressures from a weaker rupee and higher crew expenses, Jefferies’ note said.

“The disruptions are credit negative because IndiGo could face significant financial damage from loss of revenue” because of flight cancellations, refunds to customers and potential regulatory penalties, Moody’s Ratings said in a statement Monday. There will be some reputational damage too, especially in its code-sharing arrangements, it added.

The disruption, that started late Tuesday night last week, stemmed largely from the pilot shortage due to new rules that extended mandatory rest periods and reduced the number of permitted night landings. Those rules have been put in abeyance by the Indian government to help the airline stabilize in a move that has drawn criticism from some Indian lawmakers.

Other operational challenges including minor technology glitches, winter schedule changes, adverse weather conditions and air congestion compounded the situation, the airline had said last week.

Naidu emphasized that IndiGo had enough time to get a handle on managing the crew and roster. The new pilot duty guidelines came into force from Nov. 1 and the regulator had clarified to airlines that these rules will have to be followed, the minister said.