Indian airline IndiGo has managed to offset only about 60% of the significant rise in its fuel expenses, with CEO Willie Walsh indicating that costs are likely to climb even higher in the third quarter (December quarter) of the fiscal year. This ongoing pressure on fuel costs could continue to affect the airline's profitability and lead to adjustments in airfares.
During the Q2 FY27 earnings call, Walsh explained that despite measures taken, IndiGo had been unable to fully counter the steep increase in fuel prices. The airline is contending with elevated crude oil prices and an unprecedented surge in jet fuel crack spreads—the premium of jet fuel over crude oil—which have substantially inflated operational costs.
Persistent High Fuel Costs Expected
Early forecasts suggest that fuel expenses will be higher in the third quarter, with Walsh predicting that elevated fuel costs are here to stay for some time due to disruptions in refining capacity. Historically, crack spreads averaged around 21-22%, but they are now expected to average approximately 65% this year, contributing significantly to the airline's cost burden.
Walsh noted that IndiGo has “no choice” but to consider increasing fares to mitigate some of its substantial fuel bill, while simultaneously striving to minimize the impact on passengers. The airline has already implemented fuel surcharges and adjusted existing fares, yet these measures have not been enough to recover the entire increase in costs.
Balancing Fares and Demand
Despite the necessity for higher fares, Walsh confirmed that air travel demand remains robust. He described the September quarter as seasonally the weakest period, with the December quarter traditionally benefiting from festive season travel. While some passengers may have deferred trips due to increased prices, the overall demand outlook remains encouraging.
IndiGo’s capacity saw a slight decline of about 1% in the September quarter, contrasting with an approximate 5% fall across the industry. The airline projects low-single-digit capacity growth for the December quarter, continuously reviewing its network and capacity in response to fluctuating fuel prices.
Future Strategy and Outlook
Walsh stated that IndiGo does not foresee significant cost-cutting initiatives, citing its already efficient cost base and strong liquidity. The airline plans to continue investing in pilots and aircraft to support future expansion, particularly in international markets. IndiGo is also evaluating the government’s fuel price stabilization scheme for potential participation.
Reiterating his confidence, Walsh affirmed that the current fuel-cost pressures are temporary, and India’s long-term aviation growth prospects remain strong.