Why IndiGo's DGCA Capacity Curbs Signal an Earnings Reset, Not a Structural Threat

Widespread IndiGo flight disruptions in December 2025 led to significant regulatory action by the Directorate General of Civil Aviation (DGCA). The DGCA mandated a reduction in the airline’s domestic capacity following a wave of cancellations. This regulatory intervention has forced a reset of the airline’s near-term financial outlook.

Capacity and Earnings Outlook Reset

Brokerage firm Avendus Spark has revised its growth and earnings estimates for InterGlobe Aviation, the parent company of IndiGo. The revision follows the DGCA’s directive to cancel 10% of domestic slots for the winter schedule, according to the brokerage. This action impacts the airline’s ability to execute its planned expansion.

Avendus Spark now projects the airline’s Available Seat Kilometers (ASK) growth for Fiscal Year 2026 (FY26) at approximately 6.5%. This is a sharp reduction from the earlier forecast of 14% growth. The domestic airline capacity growth is expected to decline by about 1% year-on-year in FY26, down from a previous estimate of 7% growth.

In contrast, the outlook for international operations remains strong. International ASK growth is projected to climb by 23%. This reflects the carrier's increasing focus on overseas routes. The domestic market remains constrained by the recent regulatory action.

Impact of Stricter FDTL Norms

The core of the operational crisis was a pilot shortage exacerbated by new Flight Duty Time Limitation (FDTL) norms. These rules mandate increased rest periods for pilots to enhance safety. To comply with the tighter FDTL requirements, IndiGo plans to hire approximately 900 pilots by December 2026.

This hiring spree will lead to a structural rise in employee costs. Avendus Spark estimates an 18% Compound Annual Growth Rate (CAGR) in employee costs between FY25 and FY28. Pilot expenses are expected to account for roughly 55% of the total employee costs. This will push employee costs as a share of revenue higher by about 100 basis points over the next two years.

Reflecting the slower capacity growth and higher staffing expenses, Avendus Spark has cut its FY26 Earnings Per Share (EPS) estimate by 31% to ₹132. EPS estimates for FY27 and FY28 were also trimmed by 6% each. The firm cited higher execution risks for reducing its target valuation multiple.

Structural Story Unchanged: Market Dominance

Despite the near-term financial hit, the brokerage maintains a positive long-term view. The IndiGo earnings reset is seen as temporary, not a structural impairment. The analysis draws parallels to past operational crises at major global airlines, such as Ryanair and Southwest Airlines. These events typically result in temporary earnings pressure rather than lasting market share loss risk.

IndiGo currently controls about 60% of the Indian domestic aviation capacity. Avendus Spark does not expect the regulatory action to cause a meaningful loss of this dominant position.

• Competitor Capacity Constraints: Competing airlines face significant financial and aircraft supply challenges. They would need to add nearly 80 aircraft to absorb the incremental demand if IndiGo’s domestic ASK remained flat for two years. This outcome is viewed as unlikely.
• Airfare Impact: Further restrictions on the dominant carrier could lead to higher airfares. Competitors lack the necessary capacity to absorb the displaced demand.

Avendus Spark has retained a BUY rating on the InterGlobe Aviation stock with a target price of ₹5,500. The brokerage expects a recovery supported by the airline’s scale, cash generation, and international expansion once operational stability is restored. This story, and others like it, are key to understanding commercial aviation news across the globe. For more on this, visit our dedicated aviation news section at flying.flights.

This situation highlights the delicate balance between rapid growth and regulatory compliance for major carriers. The DGCA capacity curbs serve as a clear signal that safety and operational integrity remain paramount in India’s fast-growing air travel market.