Interglobe Aviation Ltd — ZetaVantage Knowledge Base

Business Model & Sector Dynamics

InterGlobe Aviation Ltd, operating as IndiGo, is India's largest airline, structured as a Low-Cost Carrier (LCC). Its business model centers on delivering efficient, no-frills air travel by optimizing operations, utilizing a single aircraft type (Airbus A320 family) for cost efficiencies, and maximizing aircraft utilization. Revenue is primarily driven by passenger ticket sales, supplemented by ancillary services such as cargo, excess baggage, and in-flight sales. IndiGo holds a dominant market share domestically and is expanding its international network.

Macro Sensitivity Map:

Supply-Side & Cost Sensitivities (COGS): IndiGo is highly sensitive to Aviation Turbine Fuel (ATF) prices, which constitute 35-40% of its costs. USD/INR depreciation significantly increases expenses due to dollar-denominated aircraft leases and maintenance. While the company employs hedging strategies for fuel and currency, substantial price swings directly impact COGS and margins.
Demand-Side Sensitivities (VOLUME): Passenger VOLUME is strongly correlated with India's GDP Growth, rising disposable incomes, and the expansion of the middle class, driving demand for air travel. Government investment in airport infrastructure and regional connectivity schemes (like UDAN) further supports VOLUME growth.
Currency & Financial Sensitivities: The company has a substantial net debt comprising dollar-denominated liabilities. Rupee depreciation leads to higher interest expenses and lease costs, impacting profitability. IndiGo actively manages its foreign exchange exposure through hedging and increasing foreign currency revenue streams from international operations.
Geopolitical & Regulatory Sensitivities: Airspace constraints due to geopolitical events can increase flight times and operational costs. Regulatory changes, such as new pilot rest rules or intensified safety oversight, have led to significant operational disruptions, flight cancellations, and temporary market share losses.

Historical Verification: The COVID-19 pandemic severely impacted IndiGo, causing a sharp decline in passenger VOLUME and significant financial losses due to travel restrictions. The company has since shown strong recovery, with passenger traffic exceeding pre-pandemic levels. More recently, operational disruptions in December 2025 resulted in widespread flight cancellations, a notable dip in market share, and a net loss for Q2 FY26, demonstrating sensitivity to execution and regulatory changes.

Key Sector Drivers

The Indian aviation sector is propelled by robust GDP Growth, a burgeoning middle class with increasing disposable incomes, and a vast, geographically diverse nation where air travel offers significant time savings. Government initiatives, including infrastructure development (airport expansion) and regional connectivity schemes like UDAN, are crucial enablers. The sector is inherently cyclical, heavily influenced by economic conditions and fuel price volatility, but India's market is experiencing strong secular growth driven by fundamental demand expansion.

Competitive Position & Moat

IndiGo is the undisputed market leader in India's domestic aviation sector, holding approximately 62-64% market share as of late 2025, with an estimated 18-28% share of international capacity. Its primary competitors include the Air India Group (comprising Air India, Air India Express, and Vistara), Akasa Air, and SpiceJet. IndiGo's competitive moat is built on substantial cost advantages derived from fleet commonality (Airbus A320 family), high aircraft utilization, operational efficiencies, and economies of scale in procurement, leading to lower unit costs (COGS). Its extensive domestic network, high flight frequency, and brand promise of punctuality and hassle-free travel drive passenger VOLUME and customer loyalty. However, the resurgence of Air India Group with aggressive expansion and capacity additions presents intensified rivalry, potentially pressuring PRICING power and margins. Recent operational disruptions have also tested its execution capabilities and highlighted sensitivity to market share shifts.

Management & Governance

IndiGo's management has historically demonstrated strong operational execution and cost leadership, supported by a clear growth strategy focused on fleet expansion and network deepening. Their capital allocation prioritizes investments in new aircraft and capacity growth, maintaining significant cash reserves (around ₹49,000 crore) for resilience and expansion. While management aims for disciplined expansion and operational efficiency, recent events have raised concerns. The company faced significant operational disruptions in late 2025, leading to mass flight cancellations and a temporary market share decline. Furthermore, the Competition Commission of India (CCI) ordered a detailed probe into alleged unfair business practices, indicating potential governance scrutiny. The ability to navigate these execution and regulatory challenges will be critical for maintaining investor confidence.

Financial Health Snapshot

Margins: While revenue has shown strong growth, EBITDA has trended positively, net profit margins can be volatile due to high fixed costs and fluctuating input prices. Q3 FY26 reported a net profit margin of 2.24%, down significantly year-on-year due to exceptional costs and higher expenses.
Leverage (DEBT): Net debt is approximately 2.2 times EBITDA, considered manageable, but interest cover is noted as somewhat low (EBIT at 2.6 times interest expense). The company has substantial liabilities but also significant cash reserves.
Cash Flow: IndiGo has demonstrated strong Free Cash Flow generation, often exceeding EBIT over the last three years.
Working Capital (INVENTORY): Not directly applicable in the same way as manufacturing; focus is on operating cash conversion and efficient cash management.
Capex (Intensity): The company has an aggressive CAPEX program driven by its large aircraft order book and network expansion plans.

News Impact Factors

Aviation Turbine Fuel (ATF) Prices: Direct impact on COGS. Price hikes increase operating expenses, reducing margins if not fully passed on.
USD/INR Exchange Rate: Impacts lease payments, maintenance costs, and other dollar-denominated expenses. INR depreciation raises costs and reduces profitability.
Domestic Passenger Traffic/Load Factors: Key indicator of VOLUME and DEMAND. Higher traffic and load factors directly boost revenue and operational efficiency.
Regulatory Announcements (DGCA, CCI): Changes in safety regulations, operational rules (e.g., pilot rest hours), or competition rulings can lead to operational disruptions, fines, or strategic adjustments.
Competitor Capacity & Pricing: Actions by Air India Group and other rivals regarding capacity deployment and fare strategies directly affect market share and IndiGo's PRICING power.

Investment Thesis

Strong — all assumptions holding Maintaining — minor concerns, thesis intact Weak — key assumptions under pressure Broken — critical assumption invalidated

Status MAINTAINING

Conviction 48 / 100

Time Horizon 3-5 years

Over a 3-5 year horizon, Interglobe Aviation Ltd (IndiGo) will maintain its dominant market leadership and achieve consistent profitable growth by leveraging its LCC cost advantages and India's secular aviation demand growth, despite increasing competitive intensity.

Conviction History

Assumptions

Holding — assumption intact At Risk — evidence weakening Broken — assumption invalidated Critical — if broken, thesis fails

#1 CRITICAL HOLDING 48

IndiGo will maintain its domestic market share at or above 62% and achieve >15% annual passenger volume growth, supported by its aggressive fleet expansion program adding over 50 aircraft annually, driven by India's GDP expansion.

CAPEX 20% GROWTH 40% VOLUME 40%

#2 CRITICAL AT_RISK 35

IndiGo will maintain its LCC cost advantage, keeping unit costs (ex-fuel) growth below 3% annually and improving gross profit margins by at least 150 bps through operational efficiencies and hedging effectiveness, despite ATF volatility.

COGS 70% PRICING 30%

#3 HOLDING 64

IndiGo will navigate intensified competition from Air India Group by maintaining average fare yields at least 5% above the industry average, ensuring pricing power supports revenue growth targets.

VOLUME 30% PRICING 70%

#4 AT_RISK 29

No further widespread operational disruptions or significant regulatory penalties exceeding 1% of revenue will occur, allowing for consistent flight schedules and full capacity utilization, validating management's operational execution capabilities.

VOLUME 40% GOING_CONCERN 60%

#5 HOLDING 70

Net Debt/EBITDA will be maintained below 2.0x, and interest coverage will improve to above 3.0x, through continued strong Free Cash Flow generation and disciplined capital allocation.

DEBT 100%

Recent Developments

Structural Tactical

COGS TACTICAL Feb 21, 2026

Shares of local oil explorers surge on supply disruption fears - The Economic Times

Brent crude prices rose 17.6% over 30 days to $70.50/bbl, while Airbus signaled delivery delays due to engine supplier issues.

GOING_CONCERN TACTICAL Feb 20, 2026

Lessons from the IndiGo disruption: A moment for governance reflection - Fortune India

Brent crude prices rose 17.6% over 30 days to $70.50/bbl, while Airbus signaled delivery delays due to engine supplier issues, impacting IndiGo's cost and capacity outlook.

VOLUME STRUCTURAL Feb 19, 2026

SpiceJet comes to the rescue with 100 additional flights amid IndiGo chaos - MSN

The RBI eased External Commercial Borrowing (ECB) norms, raising per-borrower limits to $1 billion and removing pricing caps on loans with maturities over three years.

GROWTH STRUCTURAL Feb 13, 2026

‘Limit growth prospects’: Federation of Indian Airlines opposes govt’s bid to TIGHTEN cabin crew fatigue rules

Federation of Indian Airlines opposes DGCA proposal to increase cabin crew rest to 48 hours and mandate single-room occupancy, citing severe growth constraints.

VOLUME STRUCTURAL Feb 12, 2026

A reckoning for India’s aviation sector

IndiGo increased pilot deployment to 7.2 crew sets per aircraft, achieving full compliance with revised FDTL norms and restoring operational buffer.

DEBT STRUCTURAL Feb 11, 2026

India's ECB touch USD 44.36 billion in December; Air India, IndiGo emerge as major aviation borrowers - ChiniMandi

IndiGo raised $463.7 million via External Commercial Borrowings (ECB) with 10-12 year maturities for aircraft induction and fleet modernization.

GOING_CONCERN STRUCTURAL Feb 10, 2026

DGCA issued 352 show cause notices to airlines in two years; Indigo, Air India top list

Indian government officially denied proposed rules requiring airline CEOs to be Indian nationals, ensuring leadership continuity for IndiGo.

GOING_CONCERN STRUCTURAL Feb 08, 2026

IndiGo shares fall on CCI probe trigger; here's what analysts advise - MSN

The Competition Commission of India (CCI) has ordered a detailed probe into InterGlobe Aviation (IndiGo) for alleged unfair business practices. The investigation follows concerns regarding the airline's dominant market position and pricing strategies, leading to a sharp decline in share price and increased regulatory risk for the carrier.

Investor Documents

Annual Report (FY25) Quarterly Results (Q3FY26) Conference Call (Q3FY26) Investor Presentation (Q3FY26)