InterGlobe Aviation Ltd., operator of IndiGo (NSE: INDIGO), has warned that the fallout from the Iran conflict and the resulting surge in crude oil prices will weigh on summer travel demand, even as the carrier pushes through fare increases to offset rising costs. The caution comes as the airline continues to stabilize operations following disruptions late last year that forced a temporary capacity pullback.

Consensus revisions across Indigo’s key operating metrics suggest that, for now, demand remains broadly intact. Capacity growth, measured by available seat kilometers (ASK), has been trimmed only marginally for Q4 FY 2026 (ending March), and more noticeably through FY 2027, while load factors remain firm pointing to limited demand elasticity.

Pricing trends reinforce this view. Passenger revenue per ASK and yields are moving higher, indicating that IndiGo retains sufficient pricing power to pass on at least part of the cost burden.

The strain, however, is overwhelmingly on the cost side. Aircraft fuel, which accounts for over 30% of Indigo’s operating expenses, has emerged as the key swing factor. While expectations for Q4 FY 2026 are largely unchanged, fuel cost estimates have been revised sharply higher from Q1 FY 2027 (ending June) onwards. Q1 fuel costs are now nearly 33% above pre-conflict expectations and are expected to remain elevated through the year. Fuel cost per ASK has also been revised up, pointing to a structurally higher cost base rather than a volume-driven increase.

Currency movements are compounding the pressure. A weaker rupee has pushed foreign exchange loss estimates for Q4 FY 2026 up by nearly 58% versus pre-conflict levels, reflecting the dollar-linked nature of fuel and leasing expenses. This is expected to create an immediate drag on earnings, even before the full impact of higher fuel prices feeds through.

As a result, profitability is set to deteriorate sharply despite relatively stable revenue expectations. Operating income forecasts for Q4 FY 2026 have been cut by 77%, with further steep downgrades in early FY 2027. Consensus now points to sharply lower operating profit in Q1 and a swing to losses by Q2 (ending September), while net income projections show even deeper cuts, with losses widening materially in the first half of FY 2027.

IndiGo’s dominant market position and strong demand backdrop offer some insulation. But the scale of cost inflation, driven by fuel and exacerbated by currency weakness, is overwhelming pricing gains. The result is a pronounced downgrade cycle for earnings through FY 2027.

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