Why airfares in India are going up, IndiGo's Q2 loss and the jet fuel bill explained

If your last flight booking felt expensive, the airline would like you to know it feels the same way about its fuel bill. IndiGo's results on Thursday turned a vague complaint into a set of numbers, and its new chief executive was unusually direct about where those numbers lead.

The quarter in figures

IndiGo narrowed its consolidated net loss to Rs 1,879.1 crore in the July to September quarter, from Rs 2,582.1 crore a year earlier, The Hindu reported. Revenue from operations rose 25.9% to Rs 23,363.8 crore. That sounds healthy until you see the other line. Fuel expenses climbed 67.2% to Rs 9,966.8 crore.

Passenger yield, the revenue earned per passenger kilometre, rose 34.3% to Rs 6.30. In ordinary language, each passenger paid a lot more. Fewer of them flew, though. Passenger traffic fell 4.7% to 2.75 crore and the load factor slipped to 80.3% from 82.5%. Rupee depreciation added to costs that are billed in dollars, such as leases and maintenance.

Mint reports this was IndiGo's third consecutive quarterly loss, and that fuel made up 37.8% of total expenses.

What Willie Walsh said

Walsh, who took over as chief executive in August, did not reach for soothing language. "I've been in this industry for 47 years. I've seen what I thought were high fuel costs. I've never seen anything like this," he said, according to Mint.

On fares, CNBC-TV18 quotes him saying the airline has "no choice but to look to increase fares." He estimated that fare hikes and other measures have recovered only about 60% of the rise in the fuel bill.

The more technical point is the one worth remembering. Walsh said the jet fuel crack spread, the premium of jet fuel over crude oil, "historically averages about 21-22%" and this year looks set to average around 65%. Refining disruption, in other words, is costing airlines more than crude itself. He also said early indications are that the December quarter will see higher fuel costs still.

It is not just IndiGo

The rating agency ICRA expects Indian airlines together to post a net loss of Rs 36,000 to 38,000 crore this financial year, up from Rs 28,000 to 30,000 crore, the Economic Times reported citing PTI. ICRA also warned that cost increases may not be adequately passed on through fares.

Demand is softer too. DGCA data reported by Swarajya shows domestic traffic fell 6.49% month on month to 1.18 crore passengers in September, and January to September traffic slipped 0.82% year on year. IndiGo still held 65.4% of the domestic market.

What it means for your ticket

Higher fares and fewer passengers is usually a short story with an unhappy ending. Airlines get around it by trimming seats where demand is weak. IndiGo expects low single-digit capacity growth in the December quarter, with cuts concentrated on international routes, according to Mint. CNBC-TV18 reports its Middle East flights have already fallen from about 140 a day to roughly 100.

Domestic festive demand is the bright spot. IndiGo expects passenger revenue per available seat kilometre to grow more than 25% year on year, based on October trends. That is an airline's way of saying the seats you want in November will not be cheap.

Our reading is simple. With most of the market in one airline's hands and that airline openly recovering only part of its fuel bill, the floor under domestic fares is rising. Book holiday travel early, compare nearby airports where you can, and treat any sale fare as a lucky break rather than a trend.

IndiGo is not shrinking its ambitions, though. Walsh said the A350 is still expected to enter service in the second or third quarter of 2028. Long-haul plans survive. Cheap short-haul fares, for now, are the thing on hold.