IndiGo posts ₹1,879 crore loss, CEO signals more fare hikes as fuel bill rises

IndiGo CEO Willie Walsh on Thursday indicated that higher ticket prices were unavoidable after the airline reported a net loss of ₹1,879 crore in the September quarter mainly due to pressure from elevated jet fuel prices and the depreciation of the rupee.

The loss narrowed from ₹2,582 crore in the year-ago quarter but the airline’s fuel bill rose 67.2% year-on-year to nearly ₹9,967 crore, even as revenue from operations increased 25.9% to ₹23,364 crore. Walsh, who took over as CEO in August, said despite raising fares and adding fuel surcharges, the airline had been able to recover only about 60% of the increase in the fuel bill.

Walsh said IndiGo would have to consider raising fares further to offset the rise, while trying to limit the impact on passengers. Walsh also said the airline would review its network and capacity as part of its efforts to offset the fuel price surge.

“I think the performance in the second quarter was very encouraging. Obviously we want to try and minimize the increase in fares that we are encountering... But we have no choice but to look to increase fares in an effort to offset some of the very significant increase that we’ve seen in the fuel bill,” Walsh said.

Airlines are facing higher oil prices linked to the Middle East conflict, with aviation turbine fuel accounting for a significant share of operating expenses.

Walsh blamed an unusually high premium for jet fuel over crude oil, known as the crack spread, which he believes could persist. “I’ve been in this industry 47 years..I’ve never seen anything like this and people need to understand it’s not just the impact of an elevated crude price which is impacting everybody. What we’ve seen in our industry is the highest crack spread, the premium between crude and jet that we have ever seen. Historically it averages about 21-22%...This year it’s looking like it’s averaged around 65%.”

“I think we’re looking at a period of elevated fuel costs for some time to come. So we’ll keep all of the measures that we’ve taken to take responsible action,” the CEO said.

The depreciation of the rupee has added to the pressure on the airline, Walsh said, with foreign exchange swings adding to costs.

Walsh said the airline would have to balance fares against passenger demand as it decides how much of the cost increase can be passed on to customers. “I think we’ve got to continue as we did in Q2 effectively to balance fares against load factor. As you know our airlines have a number of levers that will focus on yield and focus on loan factor but in effect the critical issue is to focus on the combination of those two to maximize the revenue that we can generate. So we’ll look at all of the options then to us and take whatever action we believe is appropriate as we go through the next quarter and the rest of the year.”

IndiGo carried 27.5 million passengers during the quarter, down 4.7% from a year earlier. Capacity fell 1%, while the load factor declined 2.2 percentage points to 80.3%. The airline’s yield, a measure of revenue earned per passenger kilometre, increased 34.3%.

Walsh said demand remained robust despite higher prices, although the September quarter was seasonally soft. He said the festive season was expected to support demand in the current quarter.

IndiGo expects capacity, that is measured in available seat kilometres (ASK), to grow by low single digits in the December quarter.

“So you’ve got to remember that IndiGo starts with a position of a very low effective cost base ...but we’ll be clearly looking at our network plans and our capacity as we go through the quarter and through the rest of the year and take any appropriate steps that are within our control to continue to try and minimize the impact of the highly escalated fuel costs.”

However, he ruled out significant cost-cutting measures, citing the airline’s existing cost structure and liquidity.