Moody's has flagged Indian airline IndiGo as "credit negative" due to its failure to plan effectively for the country's new aviation staffing regulations.
In light of its failures, India's Directorate General of Civil Aviation (DGCA) has directed IndiGo to cuts its capacity by 10% and to focus these cuts on high-demand, high-frequency routes.
The authority has requested a revised schedule from the airline by tomorrow. The authority had initially directed the airline to cut its capacity by 5% before it was doubled later in the day.
The disruption saw Indigo cancel hundreds of flights last week, including all of its flights from Delhi on December 5, leaving thousands of travellers stranded during a busy travel season.
The issue stemmed from a new rest requirement regulation put into place by the DGCA last month. The new rules included a floor on the number of off-days per week and limits on consecutive working days.
This means that pilots cannot be rostered as frequently as before, potentially causing cancellations.
However, Moody's said IndiGo failed to appropriately plan for the new regulations, with them first being communicated in January 2024. The ratings agency cited its “significant lapses in planning, oversight and resource management” as the root cause.
Moody's said IndiGo could face “significant financial damage”, with revenues losses from cancellations, refunds, and compensation. Additionally, the DGCA said it will launch an investigation into IndiGo and situation, which could result in penalties for the airline.
“We do deeply apologise and understand how difficult the past few days have been for many of you,” IndiGo said in a statement to its customers.
“While this will not get resolved overnight, we assure you that we will do everything in our capacity to help you in the meantime and to bring our operations back to normal at the earliest.”
The rules had left IndiGo grappling with a staff shortage in its efforts to comply. Local media has reported that IndiGo initially reduced its scheduled flights to strike a balance with the new rules.
Amid IndiGo's struggle to comply with the weekly rest order, the DGCA had withdrawn the new rules with immediate effect to ensure operational stability for airlines.
The authority said it is reviewing the weekly rest order.
Over the past five days, IndiGo's shares fell over 12% as of today (December 9) at 11:00am London time.