Moody’s flags IndiGo crisis as 'credit negative' due to poor planning and flight cancellations

New Delhi: Moody’s Ratings on Monday called the widespread IndiGo flight disruptions a "credit negative" due to the airline's failure to plan effectively for new aviation regulations communicated over a year in advance, leading to major flight cancellations and operational challenges.

IndiGo faced over 1,600 flight cancellations on December 5, following more than 1,200 cancellations in November, and more than 500 flights were cancelled on Monday as disruptions continued amid peak winter schedules.

The rating agency highlighted IndiGo’s "significant lapses in planning, oversight and resource management" as the root cause. These issues have caused revenue loss from cancellations, refunds, compensation, and potential penalties from the Directorate General of Civil Aviation (DGCA).

Despite a temporary exemption from DGCA’s Flight Duty Time Limitation (FDTL) rules until February 10, 2026, IndiGo’s lean operations couldn’t absorb stringent new rules that limited night duties and reduced permissible landings per day, prompting a system-wide schedule reset.

DGCA issued show-cause notices to IndiGo’s CEO Pieter Elbers and COO Isidro Porqueras amid concerns over leadership continuity. The Ministry of Civil Aviation has ordered IndiGo to process all passenger refunds by December 7 without levies, with penalties still possible.

IndiGo’s on-time performance dropped from 84% in October to 68% in November, with worsening cancellations due to routine winter fog.

Following schedule adjustments, IndiGo gradually restored flights, operating 1,650 of 2,200 daily services, aiming for full normalcy by mid-December.

DGCA requires IndiGo to submit biweekly operational reports and a 30-day roadmap for full compliance with FDTL regulations, detailing crew usage, availability improvement plans, and revised scheduling.

Moody’s downgraded IndiGo’s human capital score due to slower hiring, noting that while IndiGo lacks employee unions, pilots have significant collective bargaining power. The governance score also reflects management’s inadequate preparedness for regulatory changes.

Though the Baa3 rating fundamentals remain stable, given IndiGo’s market dominance, India’s low air travel penetration, and strong macroeconomic growth, the airline’s profitability is expected to suffer in the fiscal year ending March 31, 2026.

Reputational damage may also affect IndiGo, especially in code-sharing partnerships. The quantitative impact remains uncertain as operations adjust to comply with new rules.

With inputs from PTI