Daybreak - The flight refund problem is fixed. The jet fuel problem is just getting started

Episode Date: April 8, 2026

India's civil aviation ministry issued two directives this March that pulled in opposite directions. First, it mandated full refunds for cancelled flights. Three days later, it removed all caps on airfares. The trigger for the second move: the US-Israeli war against Iran has sent jet fuel prices soaring, up nearly 60% in the US, and India is bracing for the impact. Airlines, already running on thin margins, are warning that fares will rise. For Indian flyers, the net result is this: cancellations just got free but flights just got more expensive.How did we get here?Tune in.Get your tickets for the first Zero Shot live event here.Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

India's civil aviation ministry is playing seesaw with low-cost carriers and their customers. My colleague Akriti Bhala wrote in a recent report for the kin. So, imagine you booked a flight and for some reason you had to cancel it the next day. Now usually, unless you've paid extra for zero cancellation, a big chunk of your money would have gone as a fee for the cancellation, right? But in this case, you get every rupee back. Sounds amazing, right? Well, hold on though, because there is obviously a catch.

Turns out, the same flight actually cost you 20% less last month. And that is what Indian flyers are currently dealing with right now. In the span of three days this March, India's Civil Aviation Ministry issued two directives that pulled in completely opposite directions. On the 18th of March, it told airlines to offer full refunds if passengers had cancelled bookings within 48 hours. And then, on 21st March, it decided to scrap all caps on airfares entirely. So, on one hand, you had full refunds and on the other, uncapped fares. Now, these orders were planned.

The full refund directive came after years of growing passenger frustration. Complaints by airline customers had risen by nearly 60% in the financial year 2025, hitting nearly 10,000 filed grievances. Delays and refunds, unexplained deductions were at the top of that list. The angle had been brewing for a while and it was real. So the government did not have a choice but to respond. The fair cap removal, meanwhile, was triggered by the war on Iran. Jet fuel prices had already surged around 60.

in the U.S. India was bracing for the shock to hit its market hot. With fuel expected to account for up to 80% of airline operating costs as the crisis deepens, the ministry decided to let airlines breathe and price their tickets freely. The Federation of Indian Airlines did not mince its words. In a letter to the government, it warned that the financial impact of the refund order would force carriers to recover lost revenues through fair height. The government is clearly walking on a tightrope, trying to protect flyers from getting stranded and also protecting airlines from going bust. And that is basically why we've landed here.

The how of it, meanwhile, is a story about thin margins, jet fuel and one airline that sits at the center of all of it. Welcome to Daybreak, a business podcast from the Ken. I'm your host Nick Das Sharma and I Don't Chase the New Cycle. Instead, every day of the week, my colleague, Rachel Vargheese and I will come to you with one business story that is worth understanding and worth your time. Today is Wednesday, the 8th of April. To understand why the refund rule matters so much to airlines, you need to understand how Indian aviation actually makes money. The model is straightforward in theory. Keep the costs slow, keep planes flying as long as

possible, and make real money not on the ticket, but everything around it. Food, baggage, seat selection cancellations. These are called ancillary revenue. For Indigo, India's largest airline with over 60% of the market share, ancillary revenue is 10% of its total income. For comparison, international peers like Ryanair and Southwest Airlines, that number is 25% to 40% for them. And that gap tells you something. And the single biggest chunk of ancillary revenue, by the way, is cancellation fees. And here is how it works. When a passenger completes a journey, the airline, after paying for fuel, landing fees, parking, salaries might make a profit in the low single digits. But when a passenger cancels, the airline can pocket 50 to 90% of the entire ticket value.

Cancellation fees, according to analysts, are essentially pure profit. A Delhi-Mumbai ticket, for example, April 1st on Make My Trip, was roughly 7,000 rupees. If you cancelled it, you would lose 4,000 rupees. Change the date and another 3,000 rupees gone. That is a deduction of 40 to 60% of what you paid. The new rules of the government bring those deductions to zero, within 48 hours of course. For Indigo specifically, some analysts estimate that cancellation and date change fee account for 30 to 50% of ancillary revenue, though the airline does not disclose this figure. Aviation consultant Sanjay Lazar begs it at around 10% for low carriers broadly.

Either way, the hit is real. And yet, Indian Airlines are already charging more than the low-cost label suggests. Ryanair, for example, sells a London-Dublin ticket for roughly $1,400. A comparable Mumbai-to-Goa ticket in India costs nearly $4,500. As Lizar puts it, the difference between low-cost and full-service carriers in India has almost disappeared. Low-cost carriers, he says, have gone berserk. And a part of that reason is structural.

Unlike Ryanair, which operates out of smaller airports like Stansted, to keep costs down, Indian carriers pay higher landing and parking fees at busier airports. Taxes on jet fuels are also steeper. So the base costs are higher and the margins are thinner and the reliance on ancillary revenue even more critical. Indigo, to its credit, has managed this better than anybody else. It posted a profit of over 7,000 crore rupees on a revenue of 80,000 crore rupees in the financial year 2025.

Its cost-per-available seat kilometre has held steady at around 3.5 rupees since 2019, which is the lowest among Indian carriers. Rivals sit between 4 and 6 rupees. Air India, for comparison, posted a net loss of over 10,000 crore rupees on a similar revenue. Losing cancellation revenue is going to sting. But Indigo has a cushion. Others, particularly SpiceJet, which already sits on a negative net cash flow of 170 crore rupees, face a much higher, steeper pressure. So what can these airlines do? Stay tuned to find out. Hi, this is Rachel, the co-host of Daybreak,

and I'm interrupting this episode to paint a quick picture for you. It's 2027 and you have a surprise guest coming over for dinner. But your regular grocery nun is not going to cut it. It's a busy day, but you have a tool that doesn't require you to do much at all. You set an AI agent onto the task. When it begins assembling your cart, It's not just searching on a single app. It's comparing Blinkets, Zepto, Big Basket, Amazon Now and Instamart

and any other new apps that have come up by now, all at the same time. It's ruthlessly optimizing on the price of each item down to the last rupee. It's looking at how soon the delivery can happen down to the very minute. As a user, it's probably an everyday experience for you by now. It's second nature. But for companies, this is a trigger for yet, another brutal price war. And it's certainly going to put a pressure on every app's margins. Because these agents don't browse like we do. They don't give in to impulsivise or dark patterns.

Brands will have to stop paying for the shelf placements that agents will never see. Ad revenues will drop. All of this is going to happen sooner than you think. The agenti future is already here, agents are proliferating and the questions are multiplying faster than the answers. What does this mean for the businesses and industries we cover? For the people who run them and for you, our listener. To answer these questions, the Ken's podcast Zero Shot is moving off your screens and headphones.

With the panel of experts, operators and decision makers who are on the front lines of adapting to these changes, we are doing a live event. If you value sharp opinions, honest disagreements, and an experience that will trigger new ideas in you, you should be here. Join us this Sunday on April 12th. To buy the tickets, the link is in the show notes. Now, back to the episode. Airlines have one clear lever to pull.

Base fares go up. Lazare expects a 20% real-term fair hike on top of fuel surcharges. Air India and Air India Express have already announced fuel surcharges. The fair environment is shifting quite fast. The mechanism is dynamic pricing. Airlines sell tickets and price buckets. Indigo has 42 of them. Air India has 26.

Each bucket is priced according to the time of the flight, time of the booking, day of the week and seat type. The same Delhi-Mumbai journey can cost anywhere between $2,000 to $54,000 to $54,000 depending on when and how you book. With fair price caps gone, airlines will lean into this system even harder. The early buckets, which were the cheap ones, will shrink. The expensive ones may get priceier faster. Rajin Mehera, the CEO of Club One Air, says that dynamic pricing will become the primary tool for airlines to use to manage revenue going forward. And the macro environment makes this even trickier.

Fuel is already close to 40% of a carrier's total operating cost. A 10 to 15% rise in fuel prices can, in Lazare. Words stress the operational equation. Add a depreciating rupee on it and the costs climb even further. For Indigo, these pressures arrive at an already complicated moment. Credit rating agency ICRA recently flagged the airline for review, citing fuel costs and currency risk. And on top of all of this, the airline is also in the middle of a leadership transition. Its previous CEO, Peter Elbers has stepped down and co-founder Rahul Bhatya has taken charge and a new chief strategy officer is coming in from Air India Express. This comes after Indigo's worst operational crisis

in recent memory. We covered it in a previous episode of Daybreak. I will link it to the show notes of this episode. But to quickly jog your memory, late last year, the airline cancelled 4,500 flights over 10 days after mismanaging new pilot duty rules. At its worst, nearly 70% of daily flights were cancelled. The chaos that followed, including widespread complaints about refund delays, almost certainly shaped the March 18th government order. A former India head of Qatar Airways framed the twin directives from the government this way. They said market forces should set fares.

The government agrees. But it also remembers jet airways, Kingfisher and Co-Air. It cannot afford more airlines collapsing and more. more passengers being stranded. The seat for the Indian flyer is now free to cancel. The flight to get there, though, will cost more than ever before. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform.

What you're listening to is just a small sample of a subscriber-only offerings and a full subscription offers daily, long-form feature stories, newsletters and a whole bunch of premium podcasts. To subscribe, head to the Ken.com and click on the red subscribe button on the red subscribe button on the top of the website. Today's episode was hosted and produced by my colleague, Niktha Sharma, and edited by Radif CN.