There were concerns that investors may turn bearish on IndiGo when India’s largest airline by market share informed stock exchanges on the evening of 10 March that its chief executive, Pieter Elbers, would step down with immediate effect.
However, on the morning of 11 March, the airline’s shares opened about 1% higher and hit an intraday high of ₹4,466 during mid-day trading, mirroring a broader market rebound. The stock eventually closed 0.7% lower, but still outperformed the Sensex, which ended the day down 1.7%.
Behind the renewed investor faith lies the return of founder and managing director Rahul Bhatia as interim chief executive.
Bhatia, who co-founded the airline with his friend, Rakesh Gangwal, in 2006, minced no words in his first email to the staff on Tuesday evening. “What happened last December should never have taken place…Our customers didn’t deserve it, and nor did all of you, especially the frontline employees who bore most of the brunt for no fault of theirs,” wrote Bhatia, signing off the email with “Main Hoon Na” (I am here)—a reference to the 2004 Shah Rukh Khan hit.
Comfort in familiarity
However, analysts and aviation consultants appear to be taking a cue from Bhatia’s assurance, stating that they don’t expect much change in the airline’s strategic approach. However, there could be risks to the airline’s profitability in the coming months due to soaring crude prices and potential churn in the senior leadership.
“Overall, we don’t believe there will likely be any change of strategy here,” said Karan Khanna, lead analyst for hotels, real estate, and aviation at financial services firm Ambit Capital.
“IndiGo has a history of founder-led oversight complemented by professional CEOs. Prior transitions—from Bruce Ashby to Aditya Ghosh, Ronojoy Dutta—have been largely smooth, with promoters maintaining strategic control,” wrote Prateek Kumar, analyst at Jefferies, in his 10 March report.
Kumar also wrote, importantly, that past management changes have not disrupted IndiGo’s operating model, cost leadership, or market share leadership, reflecting strong institutional depth.
“ needs to be rebuilt. Bhatia stepping in a second time is basically telling passengers that they will be a priority again. It is also about rebuilding employee confidence and telling the workforce that he remains in charge,” said Balraj Bhullar, an independent aviation expert and pilot with a non-scheduled operator.
Bhullar’s comments underscore how IndiGo bungled up its operations in the first week of December, when the airline cancelled about 4,500 flights as it struggled to streamline a new pilot rostering system.
To be sure, at least one proxy advisory firm, Institutional Investor Advisory Services India Ltd (IiAS), had faulted Bhatia for not leading from the front to address the
“Bhatia’s return is about ensuring operational continuity and signalling to investors that organic growth will continue. The immediate focus will be on how IndiGo stabilizes operations and maintains growth momentum while the board searches for a new CEO,” said Mark D. Martin, CEO of Gurugram-based Martin Consulting.
Wait and watch
Nonetheless, for now, IndiGo’s shareholders will be watching to see whether the airline is rocked by further senior leadership exits.
Two executives, chief operating officer Isidre Porqueras, who was brought in by in September 2022, and senior vice-president operations control centre Jason Herter, have faced the ire of the country’s civil aviation regulator.
After a two-week probe in January, the Directorate General of Civil Aviation stated that deficiencies in systems implemented by IndiGo led to the airline’s operational disruptions.
The regulator said the carrier had failed to adequately support the new pilot rest and night-flying norms that came into effect in November, contributing to the operational meltdown.
The disruptions were primarily caused by “over optimization of operations”, inadequate regulatory preparedness, deficiencies in system software support, and shortcomings in the airline’s management structure and operational control, along with the absence of sufficient operational buffers to absorb disruptions, according to the regulator.
It would be very surprising if no top leadership changes occur, according to Bhullar.
Meanwhile, IndiGo’s international expansion strategy and efforts to buy aircraft are expected to continue as part of its long-term growth plan. “The process is gradual and unlikely to change as a result of the leadership transition. It is also likely that the airline had already begun searching for a new CEO,” said Gagan Dixit, senior vice-president for oil, gas and aviation at brokerage Elara Securities.
IndiGo declined to comment on the airline’s roadmap.
The war worry
The development follows a sharp sell-off in shares of InterGlobe Aviation, which have fallen about 11.81% since the joint US-Israel strikes on Iran began on 28 February, making it the fifth-worst performer in the BSE Sensex after Maruti Suzuki India Ltd, UltraTech Cement Ltd, Larsen & Tourbo Ltd, and Bajaj Finance Ltd.
It was probably this uncertainty that led the Government of Singapore, the third-largest public shareholder in the airline, to sell 0.107% stake on Wednesday evening. The Government of Singapore now owns 2.405% stake, behind SBI Mutual Fund and ICICI Mutual Fund, which hold 3.24% and 5.96%, respectively, according to Bloomberg.
“The timing of the stake sale may reflect broader caution among foreign institutional investors (FIIs) following the exit of Elbers. Investors may also be wary of geopolitical tensions in the Middle East pushing up crude oil prices and the weakening rupee, both of which could affect the near-term outlook for aviation stocks,” Dixit said.
The key things to watch in the near term would be operational stability amid West Asia crude turbulence, clarity on summer schedules, and clarity on CEO succession, according to Jefferies.
On Thursday, IndiGo shares closed 2.28% lower, underperforming the benchmark Sensex, which fell 1.08%.