Shares of InterGlobe Aviation, which operates IndiGo, plunged after the government signalled it will penalise India’s largest airline after mass flight cancellations last week caused one of the country’s worst air disruptions.
The stock dropped as much as 9.8 per cent on Monday, its biggest plunge in more than a year, and marked a seventh day of selling that has cumulatively cut $4.8 billion from the company’s market value.
The Narendra Modi government’s statement follows local aviation regulator’s demand over the weekend that its chief executive, Pieter Elbers, explain what lead to the fiasco.
IndiGo is facing increasing pressure for the mass cancellations that left thousands of passengers stranded last week after the airline failed to adequately handle new rules around staff rest, leaving it with a pilot shortage. The airline has about 66 per cent domestic market share.
About 3,000 IndiGo flights were cancelled last week. More than 1,000 flights were scrapped on Friday, making up about half of IndiGo’s services on a normal day.
India will take strict action 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, Mr Naidu added, as rising scrutiny around IndiGo’s massive market share.
Social media posts last week were flooded with videos of passengers clashing with IndiGo front desk staff and demanding updates. In some cases, they just wanted their checked-in bags back.
In a show-cause notice issued on Saturday, the director general of Civil Aviation said Mr Elbers had “failed” in his duty to “ensure timely arrangements for the conduct of reliable operations and the availability of requisite facilities to the passengers”.
Significant lapses
The local regulator held Mr 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, chairwoman at the 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 on Sunday that it was expecting operations to return to normal by Wednesday, as it increased the number of flights and on-time performance improved to 75 per cent.
The carrier, which runs a “lean, high-utilisation 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 disruption, which started on Tuesday last week, was largely caused by a 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 stabilise – a move that has drawn criticism from some Indian politicians.
Other operational challenges, including minor technology glitches, winter schedule changes, adverse weather and air congestion, compounded the situation, the airline said last week.
Mr Naidu emphasised that IndiGo had enough time to prepare for managing the crew and roster. The new pilot duty guidelines came into force from November 1 and the regulator had clarified to airlines that these rules must be followed, the minister said.
