IndiGo ticket prices likely to rise due to 67.2 percent surge in fuel costs

India's largest airline, IndiGo, may increase ticket prices. IndiGo CEO Willie Walsh stated on Thursday that the airline has no other option but to raise ticket prices due to the massive surge in fuel costs. In the September quarter, the airline reported a net loss of ₹ 1,879 crore, along with a significant increase in fuel bills.

According to a report by the Hindustan Times, IndiGo's fuel bill has increased by 67.2 percent compared to last year, reaching approximately ₹ 9,967 crore. The airline has been able to offset only about 60 percent of this additional cost through ticket prices and other measures. According to Willie Walsh, they have not been successful in fully coping with this very large increase in fuel bills. He added, "We have not been able to offset the very significant increase in fuel bills. Like many other airlines, we have been able to recover about 60 percent of the amount, so we have only been partially successful in covering fuel costs, which has resulted in a net loss of 19 billion this quarter."

IndiGo has already revised fuel charges on domestic and international routes as jet fuel prices continue to rise. The company's revenue from operations has increased by 25.9 percent compared to last year to ₹ 23,364 crore. However, the financial situation remains under pressure due to high aviation fuel prices and the depreciation of the rupee. The net loss of ₹ 1,879 crore in the September quarter is lower than the ₹ 2,582 crore reported in the same quarter last year.

According to Willie Walsh, this increase in fuel costs is not only due to crude oil prices but also due to the massive increase in the difference between jet fuel and crude oil, i.e., the 'crack spread'. He stated, "I have been in this industry for 47 years. I have never seen fuel cost trends like the ones I have seen." He further clarified that the crack spread, which historically averaged 21-22%, is expected to average 65% this year. He attributed this increase to constraints in refining capacity and also said that fuel prices might remain high for some time.

IndiGo's costs have also increased due to the depreciation of the rupee, as a large portion of the company's expenses are paid in US dollars. According to Walsh, "50 to 60 percent of our non-fuel costs are in dollars, so we are significantly affected by the depreciation of the rupee against the dollar."

IndiGo will try to minimize the ticket price hike so as not to affect passenger demand, according to Walsh, but increasing ticket prices will be necessary to meet the additional costs. He also said that airlines around the world are facing similar challenges due to unusually high fuel prices.

When asked about the possibility of joining the government's fuel price stabilization scheme, Walsh said that discussions are ongoing and the airline will consider participating if it seems appropriate.

In the September quarter, IndiGo served 2.75 crore passengers, which is 4.7 percent less than last year. The airline's capacity decreased by 1 percent and the passenger load factor fell by 2.2 percent to 80.3 percent. However, yield (which measures earnings per passenger kilometer) increased by 34.3 percent.

Walsh stated that passenger demand is strong and expressed optimism for the December quarter, as this period is known for festive travel. He said, "We are entering the current quarter, the third quarter is traditionally strong during the festive season, so we will take appropriate steps but I am optimistic about long-term growth opportunities."

The airline expects capacity, measured as Available Seat Kilometers (ASK), to increase in the low single digits in the December quarter. According to Willie Walsh, IndiGo will review its network and capacity to manage high fuel costs, but will continue to invest in aircraft and pilots for future growth. He expressed confidence that their low-cost base and strong cash position would help them overcome these challenges.

Walsh described the increase in fuel prices as a temporary problem and clarified that IndiGo will not delay its long-term expansion plans. He added, "We are not going to delay any of our long-term plans because history shows that the industry will adapt to fuel prices regardless of what they are right now."