Airspace closures, rising jet fuel costs to hit IndiGo, SpiceJet’s profitability as cancellations mount
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Geopolitical tensions between Israel and Iran have forced Indian airlines to cancel flights to the Middle East and parts of Europe, impacting up to 40% of Air India’s capacity.
- Israel-Iran tensions force Indian airlines to cancel many flights
- Indigo, SpiceJet, Air India face major capacity, revenue losses
- Rising oil prices may further impact airline profitability
The conflict between Israel and Iran has impacted the Indian airline carriers’ capacities, as geopolitical tensions have caused cancellations of all flights to the area and some parts of Europe. According to an HSBC report, the cancellations will account for 20 percent of capacity at Indigo, 32 percent at SpiceJet, and around 40 percent or more at Air India. Further, apart from the direct losses due to cancellations, any spike in oil prices could also impact profitability.
Due to geopolitical tensions in the Middle East, all Indian carriers have been forced to cancel all flights to the region and most flights to Europe because they need to fly over the Middle East or Pakistan and both airspaces are closed.
“While airlines could operate some of the flights using alternate, longer routes, this could add a significant burden on cost and profitability. Yet, Air India is planning to operate a few flights to Europe using alternate routes,” noted HSBC.
According to the international brokerage’s calculations, 19-20 percent of Indigo‘s capacity, which is around 60-65 percent of its international capacity, 30-32 percent of SpiceJet’s and 40 percent of Air India’s could be cancelled, assuming all flights to the Middle East, most flights to Europe, and a few flights to the US are cancelled.
In terms of the financial impact, the brokerage believes a daily revenue loss of Rs 45-50 crore and a daily profit loss of Rs 4-5 crore for Indigo. For SpiceJet, HSBC forecasted a daily revenue loss of Rs 5-5.5 crore and a daily net profit loss of Rs 25-35 lakh.
Further, the rising prices of crude oil could add pressure to the cost of jet fuel. The brokerage projected that with all else equal, a rise of $1/bbl change in jet fuel prices would have a Rs 300 crore impact on Indigo’s full-year fuel bill and Rs 27.5 crore impact on SpiceJet.
Additionally, an increase of $5/bbl in the jet fuel price could have an impact of Rs 12 crore over seven days. Indigo’s Q4 PBT could be impacted by Rs 42-45 crore, assuming an unchanged INR versus USD. “Airlines may pass on some burden to customers, resulting in less impact on profitability,” added the brokerage.
The capacity scheduled for the Middle East, certain European and American destinations are unlikely to be deployed to other locations at such short notice. “However, if these cancellations persist for a longer period, then airlines can plan and deploy the capacity elsewhere. We think SpiceJet may face a much larger impact as it has taken planes on expensive wet leases, which need to be paid irrespective of usage,” said the report.
In the near-term, if the cancellations persist for seven days, they will erase Rs 32 crore of Indigo’s profit before tax (PBT), equal to around six percent of HSBC’s Q4FY26e estimate and 1.2 percent of the full-year FY26 PBT estimate.
However, the brokerage maintained that the long-term thesis for Indigo remains intact. “We acknowledge the near-term risks that could have a negative impact on investor sentiment, but we don’t see any major risk to Indigo’s long-term thesis, which, in our view, remains intact.”
HSBC has a ‘buy’ rating on Indigo, while keeping its ‘reduce’ call on SpiceJet unchanged.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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