Why Even Falling Crude Oil Prices May Not Save IndiGo's Profits?
IndiGo has spent years building a business around one simple advantage, keep costs low, fill aircraft and use scale better than almost anyone else in Indian aviation. But its latest numbers show why even a large and efficient airline can struggle when several costs move against it at the same time.
In Q2FY27, IndiGo’s total income increased 24 percent year-on-year to Rs. 24,312 crore. Passenger yield jumped 34.3 percent, while revenue per available seat kilometre rose 26.4 percent. These are normally the kind of numbers that should make an airline more profitable.
Instead, IndiGo reported a net loss of Rs. 1,879 crore. Even after excluding foreign exchange effects, the company still reported a loss of Rs. 724 crore, compared with a profit of Rs. 104 crore in the same quarter last year.
At first glance, the explanation looks obvious. Fuel became much more expensive, and airlines are highly sensitive to fuel prices. So if crude oil prices start falling, it may seem reasonable to expect IndiGo’s profits to recover as well.
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But the latest filings suggest the answer may not be that simple. Because the pressure on IndiGo’s profitability is now coming from places that falling crude oil prices alone may not fully solve. So what exactly has changed, and why might cheaper crude still not be enough?
Crude Oil Is Only Half The Fuel Story
The first thing to understand is that airlines do not buy crude oil. They buy aviation turbine fuel, or ATF, which is produced after crude oil is refined.
Normally, crude oil and jet fuel prices move in the same direction. If crude becomes cheaper, jet fuel should also become cheaper. But the difference between the price of crude and the price of refined jet fuel can change sharply. That difference is commonly called the crack spread.
In the latest earnings call, CEO Willie Walsh pointed to this as one of the biggest problems for airlines. He said the jet fuel crack spread has historically been a little above 20 percent. In 2026, however, he expected it to average around 60-65 percent. Management linked part of this unusually high gap to disruption in refining capacity.
So crude oil can moderate, but if the premium on jet fuel remains unusually high, an airline may not receive the full benefit. The latest quarter shows how painful this became. IndiGo said the benchmark Singapore jet fuel index was around 60 percent higher year-on-year. Its fuel cost per available seat kilometre increased roughly 69 percent.
Aircraft fuel expense consequently jumped from Rs. 5,962 crore in Q2FY26 to Rs. 9,967 crore in Q2FY27, an increase of about 67 percent. That is an increase of roughly Rs. 4,005 crore in the quarterly fuel bill alone.
For perspective, IndiGo’s total income grew by about Rs. 4,712 crore during the same period. In other words, a large part of the extra revenue generated by the business was effectively being matched by the additional fuel burden. This is why simply watching crude prices can give an incomplete picture of IndiGo’s profitability.
The Cost Problem Started Before Q2
Q2FY27 was not the first warning. In Q1FY27, management said average Brent crude prices were around 50 percent higher year-on-year, but benchmark Singapore jet fuel prices were nearly 120 percent higher. That difference again showed how much the refining spread was hurting airlines.
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There was even temporary support. The government and oil marketing companies helped moderate domestic ATF prices during April, May and the first eight days of June. Management said this allowed IndiGo to keep operating largely according to schedule and pass some of the benefit to passengers through a lower fuel charge.
Despite that, fuel cost per available seat kilometre still increased around 80 percent year-on-year. The impact was visible in profitability. Q1FY27 total income increased around 19 percent to Rs. 25,600 crore and passenger yield increased 21.3 percent. But EBITDAR dropped from Rs. 5,740 crore to Rs. 3,830 crore, while the margin fell from 28 percent to 15.6 percent.
IndiGo reported a net loss of around Rs. 240 crore against a profit of Rs. 2,180 crore a year earlier. Even excluding currency movements, it was almost at break-even compared with a profit of roughly Rs. 2,300 crore in Q1FY26.
The contrast with the previous year is important. In Q2FY26, IndiGo’s fuel cost per unit had actually fallen around 16 percent year-on-year, helped by lower fuel prices and the redelivery of some older-generation damp-leased aircraft. A year later, that tailwind had become a major headwind.
This means cheaper jet fuel would clearly help IndiGo. The problem is that fuel is no longer the only cost moving in the wrong direction.
The Rupee Is Making Almost Everything More Expensive
A large airline may earn most of its ticket revenue in rupees, but many of its costs are linked to the US dollar. IndiGo has previously said that more than 60 percent of its total expenses, including fuel and maintenance, are directly or indirectly dollar-denominated.
That matters when the rupee weakens. In Q2FY27, the average exchange rate moved from Rs. 87.06 per dollar a year earlier to Rs. 95.09. Management said the rupee had depreciated around 9 percent over the previous 12 months, increasing the rupee cost of its dollar linked expenses.
The currency impact does not stop with normal operating expenses. IndiGo also carries long-term lease liabilities and maintenance obligations in dollars. This can create large reported foreign exchange gains or losses whenever the rupee moves sharply.
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In Q4FY26, for example, the rupee depreciated around 5 percent against the dollar during the quarter, leading to Rs. 4,820 crore of foreign exchange losses. Management explained that these were largely mark-to-market losses on lease liabilities and maintenance accruals that are payable over many years.
That distinction is important because not every forex loss represents an immediate cash outflow. But a weaker rupee still creates a real cost problem because fuel, maintenance and several other expenses become more expensive in rupee terms.
So even if jet fuel prices fall in dollar terms, part of the benefit can be reduced if the rupee remains weak.
Fuel Is Falling? Other Costs Still Need To Cooperate
The other warning in IndiGo’s latest results is that costs were increasing even after taking fuel and foreign exchange out of the picture. CASK excluding fuel and forex rose from Rs. 3.01 in Q2FY26 to Rs. 3.45 in Q2FY27, an increase of 14.6 percent.
The pressure can be seen across several areas. Supplementary rentals, aircraft repair and maintenance increased about 10 percent. Depreciation increased 16 percent. Finance costs increased 13 percent. Aircraft and engine rentals increased 33 percent, while airport fees rose 9 percent and employee costs increased 11 percent.
Management pointed to three major reasons for the rise in underlying unit costs, rupee depreciation affecting dollar-denominated expenses, lower aircraft utilisation after capacity was reduced, and normal contractual increases.
The utilisation point is especially important. An airline carries many costs whether an aircraft flies a lot or a little. When flying is reduced, those fixed costs are spread across fewer available seat kilometres. The result is that the cost of producing each unit of capacity goes up.
That is exactly what has been happening. In Q2FY27, IndiGo had 442 aircraft at the end of the quarter, 25 more than a year earlier. Yet available seat kilometres fell 1 percent year-on-year to 40.8 billion. Revenue passenger kilometres fell 3.7 percent, while load factor declined from 82.5 percent to 80.3 percent.
This is not simply a fleet-size problem. Management deliberately reduced capacity during a seasonally weaker period and in response to the operating environment. But financially, lower utilisation can still make each unit of flying more expensive.
And management expects some of this pressure to continue. For FY27, it guided for non-fuel and non-forex CASK to increase in the high-single-digit to early-double-digit range, largely because of rupee depreciation and normal escalations. That means cheaper fuel alone does not automatically take IndiGo back to its old cost structure.
Can IndiGo Just Charge Passengers More?
To an extent, that is already what has happened. IndiGo’s passenger yield increased 34.3 percent year-on-year in Q2FY27. Passenger revenue per available seat kilometre increased about 31 percent, beating management’s earlier guidance of more than 25 percent.
Lower industry capacity and IndiGo’s own decision to cut some flights helped support ticket prices. But the stronger revenue was still not enough to cover the sharp rise in costs.
There is another limitation. Higher fares can help profitability, but airlines cannot keep increasing ticket prices endlessly without affecting demand.
In Q2FY27, load factor fell by 2.2 percentage points to 80.3 percent. Available capacity declined 1 percent and traffic measured through revenue passenger kilometres fell 3.7 percent.
This does not prove that higher fares alone caused lower traffic. The quarter is seasonally soft and network decisions also mattered. But it shows why pricing cannot be treated as an unlimited solution.
IndiGo is therefore attacking costs as well. In Q1FY27, management said it was prioritising more fuel-efficient aircraft, avoiding older-generation CEO aircraft where commercially sensible, tightening discretionary spending and deferring increments for senior employees.
It has also made harder network decisions. IndiGo decided to end its Boeing 787 damp-lease operation from November 1. Management said high fuel prices, currency depreciation and geopolitical issues made the economics unattractive and expected removing those widebodies to improve the spread between revenue and costs.
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The move is particularly notable because those Dreamliners were being used as a bridge into long-haul international flying before IndiGo’s own Airbus A350 aircraft arrived from 2028.
The long-term international strategy remains. But the near-term message is clear, growth has to make financial sense.
So, Will Falling Crude Oil Prices Save IndiGo?
Falling crude oil prices would undoubtedly be positive for IndiGo. Fuel is one of its biggest expenses, and the increase in the fuel bill has been the single largest pressure on recent profitability.
There is also a reason for some optimism. Willie Walsh said he does not expect the jet fuel crack spread to remain around the unusually high 60-65 percent level indefinitely and expects some refining disruption to correct over time.
If the crack spread normalises at the same time as crude prices moderate, IndiGo could get meaningful relief on fuel. But the latest numbers show why that alone may not be enough to restore the profitability investors were used to.
The rupee remains an important variable because a large part of IndiGo’s cost base is linked to the dollar. Non-fuel unit costs are already rising. Lower aircraft utilisation is spreading fixed expenses over fewer kilometres. Airport, maintenance, employee and financing costs have also moved higher. And despite a 34 percent increase in passenger yield in Q2FY27, IndiGo still made a loss even after excluding foreign exchange effects.
The positive case is straightforward. Fuel prices and crack spreads normalise, demand stays strong, higher fares hold, aircraft utilisation improves and IndiGo’s scale starts working in its favour again. The risk is that only one part of that equation improves.
If crude oil falls but jet fuel remains expensive, the benefit will be limited. If both fall but the rupee weakens further, some of the gain disappears. And if fuel and currency both improve while utilisation and other costs remain elevated, margins may still take time to recover.
So cheaper crude oil can certainly help IndiGo. But after the changes visible in FY27, it probably cannot do all the work by itself.