* July-Sept loss down 32 pct to 1.64 bln rupees
* Accumulated losses bigger than company's net worth - auditor
* Fuel costs, falling rupee remain concerns - CEO (Adds detail, comment)
NEW DELHI, Nov 12 (Reuters) - SpiceJet, India's second-biggest budget carrier by market share, reduced its second-quarter losses by 32 percent, benefiting from massive cuts in capacity by rival Kingfisher Airlines.
The losses still reflect the fiercely competitive Indian aviation industry, which lost a combined $2 billion last year. All but unlisted IndiGo lost money, hurt by high state taxes on jet fuel, expensive airports and regulatory uncertainty.
"Fuel costs and a weakened INR (Indian rupee) continue to be a cause of worry for the aviation sector," SpiceJet Chief Executive Neil Mills said in a statement.
Kingfisher has stopped flying since having its licence suspended last month because of safety concerns. Even before then the carrier operated only about a fifth of its aircraft, enabling rivals to push up fares.
SpiceJet said it lost 1.64 billion rupees ($30 million) in the three months to Sept. 30, compared with a forecast loss of 961 million rupees and after a 2.4 billion rupee loss in the same period last year.
Accumulated losses were more than the company's net worth at Sept. 30, its auditors said on Monday.
A SpiceJet spokeswoman was not immediately available to comment.
Operational revenue jumped 57 percent in a quarter that is relatively lean because Indians tend to fly more during the festive season that begins in October. Passenger yields jumped 37 percent, reflecting a big increase in air fares.
Jet Airways, India's biggest airline, this month beat estimates with an 86 percent reduction in its second-quarter losses thanks to a jump in operating income.
SpiceJet is widely seen as a potential target for foreign carriers looking to invest in India after the government relaxed takeover rules this year.
The airline has said that it was in preliminary talks with cash-rich Gulf carriers for a potential investment.
The company's shares closed the day 2.68 percent higher at 36.35 rupees, having gained more than 50 percent in the past 12 months. By contrast, shares of AirAsia, Asia's largest budget carrier, have lost 23.4 percent in the same period. (Reporting by Anurag Kotoky; Editing by Muralikumar Anantharaman and David Goodman)
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