IndiGo’s three-pronged strategy to tackle forex volatility – Firstpost

IndiGo swung into losses for the full year FY26 with a loss of Rs 2,393.6 crore, with Q4-FY26 registering a loss of Rs 2,536.9 crore. Last year, Q4 was powered by once-in-a-lifetime events like the Maha Kumbh, which powered the airline to a profit of Rs 3,067 crores.

A large share of these losses was driven by foreign exchange fluctuations, with the airline saying that it would have made a profit of Rs 7,502 crore, excluding the impact of foreign exchange and exceptional items. The airline has classified the December debacle of its operations as an exceptional item.

Over the years, IndiGo started focusing on International operations to ride over the slide in rupee and climb of oil prices. The rupee depreciation this year was far higher than in previous years, with the rupee losing 10 per cent of its value to a dollar. The increase in international operations cannot keep up to this level, and coupled with the current challenges in West Asia, international operations have actually scaled down.

IndiGo has come up with a varied plan to sustain and grow in current times to minimise the impact of foreign exchange, as it cannot really mitigate the impact completely.

Buy not lease

The airline ended FY26 with 36 owned aircraft. This is four times what the airline had at the end of last financial year. The cash balance in the bank has been used to acquire the asset, which helps reduce the payouts and strengthen the balance sheet.

To this effect, the airline has infused Rs 82 crores into its GIFT city-based entity, which deals with lease and purchase transactions. Barring the damp-leased planes, the airline has added 14 aircraft at the end of FY26 as compared to the same period last year. However, its operating leases have gone down by 13 aircraft with an increase in owned planes.

The move towards the owned and finance lease model will see the airline have a book value of Rs 9500 crore on the balance sheet, which would help the airline later if needed. The benefit of having aircraft on books was well seen by Jet Airways during bad times when the airline could raise cash by executing Sale and Leaseback for these aircraft.  

Will the dreamliner dream fly away?

On the analyst call, the management hinted at renegotiation with the ACMI partner to evaluate the partnership going forward in view of the current situation in the middle east. IndiGo has progressively inducted six 787-9 Dreamliner aircraft from Norse Atlantic, which are deployed to London Heathrow, Manchester and Amsterdam, the majority of the capacity being from Mumbai.  

The west asia crisis has added flying time, which could make breakeven difficult for these operations. The damp-leased planes, where the Aircraft, Cockpit Crew, Maintenance and Insurance is taken care of by the operating carrier while the selling of seats, fuel, cabin crew and airport costs are taken care of by the marketing carrier, in this case IndiGo.

The airline has already pulled out of Copenhagen, which was its first route to Europe, barring Istanbul, which sits on the cusp of Asia and Europe. IndiGo is expected to get its own A350 towards the end of 2027 or early 2028. Until then, how IndiGo will continue operations and in which cities will be keenly watched.

Expensive planes to go on?

IndiGo is also evaluating replacing or returning damp leases from its fleet and exploring opportunities to phase out older A320ceo. Apart from the six 787-9 Dreamliners, the airline is also operating five each of the B737s and A320ceo, along with four A321neos. Damp leases are expensive and work well at times when fares are higher and serve as temporary capacity augmentation.  

The airline also has 26 A320ceo planes, some of which are flying without the full IndiGo livery as they were reinducted for shorter periods towards the end of their lease terms. At higher fuel prices, which is the regime right now, the older technology hurts further due to the 15-18 per cent higher fuel burn than the “neo” family.  

Planes still grounded

The Pratt & Whitney issue continues to impact the airline, with over forty groundings at the moment. The airline expects these numbers to drop below forty by the end of this year. IndiGo inducted the Pratt & Whitney-powered A320neo family aircraft in 2016 and has faced one problem after another since then with major groundings over the last two to three years.

Initially it was expected that all planes would be back in the air within a year or two, which clearly hasn’t happened. IndiGo has since shifted to CFM powered planes, and less than 30 per cent of its A320 family fleet is now powered by Pratt & Whitney.

Tail Note

Going international was a wise way to hedge the costs naturally. The foreign exchange earned due to foreign points of sale would create the right buffer for the foreign exchange loss. However, geopolitics has something else in store for the airline, which will make IndiGo take another path to grow.

The airline expects a modest growth between 3-4 per cent in Q1-FY27 as many destinations in the middle east remain disconnected, with the entire CIS network still out of bounds. What turn this situation takes will dictate the trajectory of the airline more than ever.