IndiGo Q2 preview: Can higher airfares protect margins as fuel costs surge?

Summary

IndiGo's September-quarter earnings will test whether higher fares and fuel surcharges can offset rising jet-fuel prices, a weaker rupee and slowing passenger demand.

NEW DELHI: InterGlobe Aviation Ltd, the parent of IndiGo, faces a test of how much pricing power it can exert as rising jet-fuel costs, a weaker rupee and slowing passenger demand threaten profitability. Its September-quarter results for fiscal year 2027 (Q2FY27), due on 29 October, will show whether higher fares and fuel surcharges have kept pace with mounting cost pressures.

The earnings will also offer an early reading of chief executive Willie Walsh's priorities as the airline reassesses its international expansion and seeks higher-paying passengers. Walsh is due to hold his first interaction with analysts since taking charge.

The airline reported a consolidated net loss of ₹238 crore in Q1FY27, despite a nearly 20% increase in operating revenue to ₹24,584 crore. Fuel expenses surged 86% year-on-year to ₹10,833 crore, outpacing revenue growth. The September-quarter results will show whether higher fares and cost-control measures have begun to ease the pressure.

Elara Securities expects InterGlobe Aviation to report revenue of ₹24,191 crore in Q2FY27, about ₹1,181 crore higher than Nuvama Institutional Equities' forecast of ₹23,010 crore.

Elara expects the airline to remain profitable, forecasting a net profit of ₹580 crore after accounting for an estimated ₹280 crore foreign-exchange loss. Nuvama, by contrast, expects a net loss of ₹2,490 crore.

Mint looks at four things to watch in the September quarter results.

Can higher fares cover rising costs?

Aviation turbine fuel (ATF) prices in Delhi climbed from about ₹110 a litre in July to ₹137 on 1 October, a 25% increase in three months. With fuel accounting for about 40% of airline operating costs, the surge has put margins under pressure. IndiGo responded by raising fuel surcharges from 6 October.

Fare increases have been substantial. Elara Securities estimates domestic airfares rose 19% year-on-year in the June quarter and 32% in the September quarter. International fares increased 40% in the June quarter and are estimated to have risen 47% in September.

Yet fare increases may not fully offset the higher fuel bill. Elara expects IndiGo's unit fuel costs to rise 52% year-on-year in the September quarter, while Nuvama estimates a 71% increase in fuel cost per available seat kilometre (ASK). On international routes, Elara estimates ATF costs rose 142% year-on-year.

Capacity constraints across the industry have helped support fares. The operating fleet of Tata Group airlines Air India and Air India Express shrank 13% year-on-year, according to Elara, while SpiceJet also faced fleet constraints.

But weaker traffic points to a demand problem. Domestic departures fell 8% in September and available seat kilometres declined 7%, according to brokerage firm Equirus Securities' 26 October note. Passenger traffic fell 6%.

Equirus estimates Indian airlines carried 93.1 million passengers in the first half of FY27, down 5% year-on-year. Domestic traffic fell 2%, while international traffic declined 19%.

Revenue still trails costs

The gap between revenue per available seat kilometre (RASK) and cost per available seat kilometre (CASK) shows whether revenue from each unit of capacity covers its operating cost. In three of the past four quarters, costs exceeded revenue.

The deficit stood at ₹0.61 per available seat kilometre in the September quarter of FY26 before reversing to a ₹0.47 surplus in December. It swung back to a ₹0.48 deficit in March. In the June quarter, RASK rose to ₹5.66 from ₹5.30, while CASK eased to ₹5.71 from ₹5.78. The deficit narrowed to ₹0.05, but costs still edged out revenue.

IndiGo's passenger load factor (PLF), the proportion of available seats filled, rose from 82.5% in the September quarter of FY26 to 85.8% in March, before slipping to 83.3% in June.

Elara expects passenger load factor to fall to 80.1% in the September quarter, against 82.5% a year earlier. The forecast suggests further pressure on seat utilisation as passenger demand weakens.

IndiGo has historically not hedged fuel. Investors will look for an update on whether it has adopted hedging measures.

International ambitions face a cost test

IndiGo's domestic passenger market share rose to 65.2% in September, up 102 basis points year-on-year, according to Equirus. Its share of international passengers carried by Indian airlines slipped to 47.4% from 49.3% in August, while Air India Group's share climbed to 46.8%.

IndiGo has ended its damp-lease arrangement with Norse Atlantic Airways, which supplied six Boeing 787-9 aircraft. Mumbai-Amsterdam services are transitioning to A321XLR aircraft, while London Heathrow flights will be suspended until IndiGo's own A350-900s arrive.

The transition could reduce reliance on leased wide-body aircraft, but its implications for the pace and profitability of international expansion remain to be seen.

Walsh's priorities in focus

Walsh, who took charge on 3 August after Pieter Elbers, must balance mounting cost pressures with the airline's ambitions to move upmarket.

IndiGo is pushing its Stretch offerings and plans to introduce business class and premium economy on wide-body aircraft. Its A350-900 fleet, expected from 2027, is central to its long-haul ambitions.

Premium seating could increase revenue per passenger, but returns will depend on demand, route economics and aircraft utilisation.

Investors will look to Walsh for clarity on aircraft delivery schedules, international expansion, fuel and foreign-exchange risks, and the airline's ability to defend margins if demand remains weak. His assessment of the economic outlook will also be in focus.

IndiGo shares on the BSE closed at ₹4,619 on 27 October, recovering from recent lows but remaining below their June peak of ₹5,467.