Earnings Call: Q1 2021

Jul 29, 2020

Evening, ladies and gentlemen, and welcome to Indigro's conference call to discuss the Q1 of fiscal year 2021 financial results. My name is Aman, and I'll be your coordinator. At this time, the participants are in listen only mode. A question and answer session will follow today's management discussion. As a reminder, today's conference call is being recorded. I now hand the conference over to your moderator, Mr. Ankur Goyal, Head of Investor Relations for Indigo. Thank you, and over to you, sir. Good evening, everyone, and thank you for joining us for the Q1 fiscal year 2021 earnings call. In light of the developments regarding COVID-nineteen, we hope that you and your families are safe. Also, our thoughts are with those affected by the virus. We have with us our Chief Executive Officer, Ronu Datta and our Chief Financial Officer, Aditya Pandey to take you through our performance for the quarter. Vuzgan Tokshavo, our Chief Operating Officer and Sanjay Kumar, our Chief Strategy and Revenue Officer are also with us and are available for the Q and A session. Before we begin, please note that today's discussion may contain certain statements on our business or financial, which may be considered as forward looking. Our actual results may be materially different from these forward looking statements. The information provided on this call is as of today's date, and we undertake no obligation to update the information subsequently. A transcript of today's call will also be archived on our website. We will upload the transcript of today's prepared remarks within an hour. The transcript of the Q and A session will be uploaded subsequently. With this, let me hand over the call to Ronan Datta. Thank you, Ankur. Good evening, everyone, and thank you for joining us on this call. The last few months have been very difficult for the aviation industry. As you all know, our operations were pretty much grounded from March 25 to May 24, 2020, except for charter and cargo flights. As the government allowed partial resumption of flights starting May 25, we resumed operations with much fewer flights than our pre COVID capacity. We ended the quarter at about onefour of our personnel capacity, and we hope to slowly build this up in a phased manner in the coming months. Due to these ongoing COVID-nineteen related disruptions, we reported a net loss of INR 28,000,000,000 during the quarter. I think it will be helpful if we structured our discussions along 4 topical areas: 1st, health and safety of our customers second, the revenue situation in these difficult times third, our liquidity position and finally, the cost reduction measures. Let me first talk about health and safety. Ensuring the health and safety of our customers is of paramount importance to us. Our teams have worked together with planning and discipline to ensure the highest level of hygiene in our aircraft, our airports and our offices. In this context, we believe that the risk of transmission of COVID-nineteen from one passenger to another on board is very low because the use of HEPA filters in Airbus aircraft cabin and the direction of the airflow onboard from ceiling to floor ensures that the virus is not recirculated. The customers sit facing forward and not towards each other with seat backs providing a barrier. Frequent deep cleaning procedures are executed at all touch points. There is limited movement on onboard our aircraft once passengers are seated. And finally, safety gears for customers and crew is mandatory on board. We have seen a very positive response from our customers with respect to the procedures which we have adopted. We are very pleased that despite the complex new procedures, our operations are proceeding very smoothly with industry leading on time performance. The customer confidence as captured by our Net Promoter Score is at an all time high and the customer feedback is also very encouraging. Now let me take you through the revenue situation and the various changes that we have done operationally to adapt to the current environment. We maintained a low scale operation in the form of some cargo flights and domestic passenger charters till May 24. Post resumption of operations, we have also started international charters and Vande Bharat flights. The contribution of our charter flights after covering for variable costs has been quite encouraging. We intend to continue with charter flights even as we ramp up our capacity for scheduled flights. As the largest airline in the country, we take our national responsibility very seriously. We undertook more than 290 repatriation flights, evacuating around 44,000 passengers. We transported 3 95 tons of medical cargo, and we will continue to help in times of distress. We have witnessed a great deal of potential in the cargo business. To explore this opportunity further, we have converted 10 aircraft to all cargo airplanes. We continue to revoke domestic routes, keeping in mind the guidelines issued by state authorities. We maintained our aircraft and flight ready conditions at all times that allowed us to resume operations seamlessly with 1582 scheduled flights operated within the 1st week of operations. We have kept our crews current in this new environment and reworked the standard protocols. We started a scheduled passenger service from 25 May, and we are encouraged by the early signs. Our unit revenues are reasonably strong, although at very low capacity levels. Some of the specifics that I'd like to share are: Our average load factor was more than 60% for the month of June, with a peak load factor of around 70% during the period. Our unit revenue, RASK, has outperformed during the quarter at INR 4.19, an improvement of 2.2% year over year. This was driven both by the initial surge in demand and passenger and cargo charters. We have seen a 11.1% improvement in yield during the quarter as compared to the same period last year, which as you know was also the debt average shutdown period. On the Slide 3 operated, we remain significantly contribution positive, which has helped us offset part of our fixed costs. On the basis of current trends and the pool of resources available to us in the form of aircraft, crews, operating staff and infrastructure. We aim to deploy around 60% to 70% of our capacity in the Q3 of 2021 on a year over year basis. This is, of course, subject to the government lifting the capacity restrictions currently in place. Now to the all important question of liquidity. We ended the quarter with a total cash of INR 184,000,000,000 and a free cash of INR 75,000,000,000, which is a reduction of INR 14,000,000,000 of free cash from March end. Through all our efforts of cost reduction and revenue generation, we have managed to reduce our fixed cash burn. Aditya will talk about this in great detail. We are focusing on strengthening our liquidity by optimal working capital management, obtaining additional liquidity to various sources and most importantly, by adding capacity. We are working on our cost structure and taking various initiatives to reduce our fixed costs. The major components of our fixed costs can be categorized into the following three areas: number 1, our leasing costs. As we have mentioned previously, we view our relationship with our lessors as one of our key success factors. We are therefore managing our leasing costs from a long term perspective and honoring all our commitments. The second important bucket relates to the payroll costs. Here, we have 2 objectives to consider. We, of course, have no choice but to reduce our payroll cost given the current situation. But at the same time, we know how important it is to enhance our employee motivation and engagement. We are a customer service company, and we know how critical it is to have an enthusiastic and motivated workforce in order to deliver high levels of service. Under these circumstances, this is clearly a difficult balancing act. But our long term employee culture is very important for us, and therefore, we are going about this exercise in a very thoughtful and prudent manner. Number 3, other costs make up 20% to 25% of our fixed costs. We are reducing our costs in areas such as maintenance costs, non aircraft rentals and IT cost. In summary, we are clearly in uncharted territory. However, we also recognize that the industry is going through a very disruptive phase, which presents us with the unique opportunity to strengthen I align in the key areas of customer preference, cost reduction, employee motivation and network optimization. Our business fundamentals remain strong. Our optimism in the future is undiminished, and we are fully confident that we'll emerge from this crisis in a stronger position. As you can see, we are using this opportunity to focus and strengthen each one of our business fundamentals. And with that, let me hand over the call to Ajit Dev to discuss the financial performance in further detail. Thank you, Rupt, and good evening, everyone. For the quarter ended June 2020, we reported a net loss of INR 28,400,000,000 compared to a profit after tax of INR 12,000,000,000 on a year over year basis. We reported an EBITDA of negative INR 14,200,000,000 compared to an EBITDA of INR 27,800,000,000 during the same period last year. As a result of the government imposed lockdown, we did not operate our flights till 24th May. We resumed our flights from 25th May with roughly 200 flights a day. We have since doubled that number to over 400 flights a day. While the load factors have been understandably low, we have seen better yields in the quarter. We had load factors of 61.3 percent during the quarter. Our yields increased by 11% to INR 4.53 and RAS increased from INR 4.10 in the same period last year to INR 4.19 in the quarter, an increase of 2.2%. Our passenger and cargo charter flights have contributed to our performance. Looking at the current booking trend, most of July was strong, but the trend has weakened somewhat in the last few days. We attribute this weakening to the spike in COVID-nineteen cases, sporadic lockdowns in various states and the seasonality in demand. This volatility in the numbers is what is making our future revenue trends hard to predict. The flights that we have been operating have been contribution positive and are therefore helping us partly cover our fixed costs. Given that we are not operational for almost 2 thirds of the quarter, our unit costs have been inflated as we did not see as we did not have enough ASKs to offset our fixed costs. We reported a cash of INR 17.7 in the quarter and a cash excluding fuel of INR 17.1. Since the unit cost comparisons will not be relevant in the quarter, let me talk about some specific line items in the P and L. Employee costs. Compared to the March quarter, employee costs have reduced by 70.5% in the quarter. We have taken various cost reduction measures such as salary reduction, leave without pay, etcetera. Unfortunately, given the volatile revenue environment, we also have had to take the painful decision of employee separation. This is all the actions that we have taken, we expect to end the current fiscal year with about 30% lower employee costs and the pre COVID levels. Supplemented rentals and maintenance costs. Compared to the March quarter, this cost was lowered by about 56%. Supplemented rentals are largely variable in nature and given that we operated very limited capacity during the quarter, our supplementary rentals have correspondingly been lower. Going forward, as our capacity is fully redeployed, supplementary rentals would increase and this overall cost item should reach back to the number that we have been seeing in the past. In March 2020, our cash fixed cash burn was roughly INR 400,000,000 a day. In June 2020, this has been reduced to around INR 300,000,000 a day because of the various cost reduction initiatives and cash contribution from our limited operations. As our operations scale up, we expect the cash contribution to further increase further, helping our liquidity position. Managing cash continues to remain our primary focus and we continue to work with all our stakeholders to raise liquidity. We spoke about these initiatives in the last quarter, which were expected to provide us further liquidity of INR 30,000,000,000 to INR 40,000,000,000 In addition to these initiatives, we are working on sale and leaseback of our unencumbered assets, which are in the advanced stages of discussion. We are also in discussion with export credit agencies for obtaining moratorium towards principal repayment for aircraft and finance leases. We expect that these actions will help us raise additional liquidity of approximately INR 20,000,000,000. So in summary, the following is our cash position. Our free cash reduced by INR 14,000,000,000 during the quarter, and we ended with a free cash balance of INR 75,300,000 in the quarter. If you recall, we had a free cash balance of INR 89,300,000,000 in the previous quarter. This is despite the fact that we were shut down for a large part of the quarter. We have started phase wise operations of flights and we are currently running over 400 flights a day. These flights are contribution positive and will help us set off our fixed costs partially. We have taken a number of actions to reduce our fixed costs and a number of additional measures are underway. As stated before, our daily fixed cash burn has reduced from INR 400,000,000 to INR 300,000,000. We have capitalized on new business opportunities and are profitably pursuing repatriation flights, charter flights and cargo flights. We spoke about certain initiatives in the last call such as taking deliveries of new aircraft, freezing our supplementary rentals and negotiating favorable terms with our suppliers, which is expected to help us generate liquidity of INR 30,000,000 to INR 40,000,000,000. As explained earlier, we are further working on raising additional INR 20,000,000 of liquidity. We have a strong balance sheet and we remain laser focused on reducing costs and shoring up liquidity. Our cash balance remains healthy and our debt levels remain manageable. We ended the quarter with capitalized operating lease liability of INR 211,800,000,000 and total debt including the capitalized operating lease liability of INR 235,500,000,000. Before I close my remarks, let me give you our broad capacity guidance for the coming two quarters. Subject to the government lifting the capacity restrictions, we expect our second quarter fiscal year 2021 capacity to be at around 40%, Q3 fiscal year 2021 capacity to be 60% to 70% on a year over year basis. However, the external environment is very is highly volatile and therefore our planning horizons are short and we are continuously making cost corrections as we navigate through this uncertainty. With this, let me hand it back to Ankur. Thank you, Ronan and Arita. To answer as many questions as possible, I would like to request that each participant limit themselves to one question and one brief follow-up question if needed. And with that, we are ready for the Q and A. Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. The first question is from the line of Manish Osman from Nirmalbank Securities Private Limited. Please go ahead. Yes, Thank you for the opportunity. I have only one question on the capital raise. So how much we are looking to raise? And secondly, how long this will be sufficient for all set of operations? Thank you. So this is a matter that we are discussing at the Board meeting tomorrow. So the Board needs to deliberate on that matter. And as soon as we know what our next steps are on that, everybody would get to know. Thank you. Thank you. The next question is from the line of Deepika Munther from JPMorgan. Please go ahead. Hi, good evening and thanks for taking the questions. Just on the liquidity base, you mentioned some numbers actually, you mentioned RMB30 1,000,000,000 to RMB40 1,000,000,000, which was similar to last quarter's call and additional $20,000,000,000 So could you just clarify on the same or $20,000,000,000 are offset of that SEK 30,000,000,000 to SEK 40,000,000,000 mentioned earlier? And how much of that was already tapped into in the previous quarter? Right. So the SEK 30,000,000,000 to SEK 40,000,000,000 that we mentioned continues and the SEK 20,000,000,000 is an addition to the SEK 30,000,000,000 to SEK 40,000,000,000 So overall, you can read that as RMB50 1,000,000,000 to RMB60 1,000,000,000 from our perspective, from a liquidity perspective. Sorry, can I follow-up on that? So the $20,000,000,000 is the sale and leaseback of the old aircraft and some moratorium on lease rental. So could you tell us what the $30,000,000,000 to $40,000,000,000 is then? RMB30 1,000,000,000 to RMB40 1,000,000,000 as we mentioned earlier was our supplementary rental benefits that we're getting, our sale and leaseback that we continue to do on our assets and all other vendor payments that we are negotiating with them. So that's the breakup of the $30,000,000,000 to $40,000,000,000 The $20,000,000,000 are the assets that we own that we are bank structure. Got it. And just lastly, was any of this tapped into in the quarter? Yes. Out of the RMB30 1,000,000,000 to RMB40 1,000,000,000 we've tapped about 35% of that in the quarter. Thank you so much. Thank you. The next question is from the line of Sunil Gupta from UBS. Please go ahead. Yes. Hi. Thanks for taking my question. Good evening, everyone. Just on the fixed cash burn number that you gave, so just to clarify, so this is the absolute fixed cash burn in terms of when you have no revenues or I mean how do you read this? So $40,000,000 the $400,000,000 that we mentioned was our fixed cash burn at the time of the pandemic. With the contribution that we are making so far on the flights that we are operating and the cost actions that we are taking, as of 30th June, that fixed burn was down to €30,000,000,000 300,000,000 a day. So but if you were to sort of look at fixed versus fixed, then I mean how much reduction is there? So as we mentioned, I mean most of our reduction is coming out of employee costs and employee costs on a year over year basis. Earlier, we had mentioned from a pre COVID levels, we've mentioned the number would be down about 25%. We expect from pre COVID level now the number to be down 30%. So that's on the employee side. On lease rentals that we've mentioned, we are continuing to honor all the lease rentals, so continue to pay them. And all other fixed costs, we are seeing about a 15% to 20% reduction on all other fixed costs. The other fixed costs which you'll define as 20% to 25% of overall fixed costs. Yes. Okay. Sure. Thanks. I'll join back with you. Thank you. The next question is from the line of Vinay Singh from Morgan Stanley. Please go ahead. Hi team. Thanks for the opportunity. Just for clarification, Mark, is my understanding correct, Continuing with the earlier question, your cash burn per day was around INR 300,000,000 in end of June, And that number incrementally will go down as you as the recent staff cost cut comes in. And you also further cut down on fixed costs on the maintenance and IT side. So could you give us around the cash burn per day that you see at a similar capacity level, like 2 quarters down the line? And linked to that, what will be the cash where do you see the cash burn breaking even? I know it depends a lot on yields and all also, but if yields were to remain at current level, then at what percentage capacity would you see cash burn taking even? So the $300,000,000 that we mentioned, as we continue to deploy flights and those continue giving us contribution, that fixed burn is expected to go down. You're right, as the employees actions come into play that fixed burn will go down further. Given the fact that the market is very volatile, it's very tough to give an estimate right now as to how much will it go down by. But we are confident as we put more flights out there and they all are contribution positive, that number will keep on improving month over month. And then just a clarification, you said 25% to 30% of your costs are fixed within which you are targeting a 15% to 20% cut. How much of that is already built into the June number that we are talking about? So most of that is already built in, but we are continuing to work on incremental measures. Great. Okay. Thanks. I'll come back in the queue. Thank you. The next question is from the line of Varun Ghanodia from Ambit Capital. Please go ahead. Thank you. Thank you so much. Good evening, everyone. So my first question is on the maintenance cost provisions on your older aircraft. So as I see, 1Q there was no return of those aircraft to the lessors. So how do you see that from 2Q onwards? And is it fair to assume the INR 400 crores per quarter charge that you were taking on these older CO aircraft, they won't continue from 2Q onwards? So that is my first question. And my second question is from the resource in U. S. And Europe. We are hearing that the spreads between older generation and newer generation lead rates on narrow body aircraft have gone down significantly in the recent months. So are you hearing the same from your own leasing rates go down on 321neos that are coming into the service? These are my 2 questions. So our supplemented rentals, as I mentioned, I mean, we expect all our returns to go on as per track. We've got 106 planes to return between now December 2022. Yes, there was a little bit of a disruption because of pandemic in 1Q, but we expect all that to come on track as we go ahead and those will continue to be on schedule. So therefore, those will remain the way we've mentioned earlier. Those costs will remain the way we mentioned earlier. On your second point Sorry. So the maintenance cost provisions that you booked per quarter of INR 200 crores that will continue on those aircraft. Because we're not flying them right now, I thought you won't need to book those provisions in a post pandemic world. So we will return yes. No. It doesn't work that way. We have certain return conditions under which we need to return those aircrafts. And those return conditions will warrant us to maintain those aircrafts and therefore those provisions will continue. So we don't expect any significant savings coming out of that. Quarter on quarter, those numbers will obviously keep going down as we keep returning the aircraft, but it's not as if we'll have a write back associated with them. And that number is there in your June quarter as well in this numbers. So INR 400 crores number is there in this INR740 odd crores number as well, right? Right. It's not INR 400 crores. For this quarter, that number is about INR 230 crores. The number keeps on going down, but the number is definitely there. Okay, okay. Thanks a lot. And the second question, yes, you were answering to that, yes. So from whatever we see in the marketplace, what you're mentioning on the lease spreads changing is largely on the wide body aircraft. The Neo family of aircraft, just because of where the market is in terms of no other similar kind of aircraft available in the market, we're not seeing any major changes in the lease rates over there. Also, we have a long term contract with Airbus, which is something that we like, and we continue to work with Airbus on that No. You are not seeing that on that? Okay. And that is the market as well, yes, as we understand. Okay. Thank you so much. Thank you. The next question is from the line of Birpal Gharug from Kotak. Please go ahead. Thanks for the question. First part, first question is that you told the cash balance of RMB300 1,000,000 per day. So if we take for this 90 days quarter, then the cash balance itself would be RUB 2,700 odd growth, but same is not reflected in the cash depletion from March numbers to June numbers. Right. And as I mentioned, beyond the cash bond that we're talking about, we're also working on the $30,000,000,000 to $40,000,000,000 of old items that I mentioned that we're generating cash on and the $20,000,000,000 additional items that we're generating cash on. So beyond what you see, those items are also throwing cash back to us. So you won't see that burn at the same rate. And that's the reason why you don't see that depletion. Pardon, sir? How the gap has been reached? So if you recall, I'd mentioned that we have RMB30 1,000,000,000 to RMB40 1,000,000,000 of additional currency that we are getting and there's another $20,000,000,000 that we're working on. So that quarter on quarter also accretes on our cash results. So therefore, we are when we're talking about the $30,000,000,000 just to clarify, it's clearly the it's only our fixed costs. John. On top of that, we have liquidity measures that help us get more cash in. So the net cash flow that you see on the numbers will be smaller than that. Okay, thanks. Thank you. The next question is from the line of Pulkit Patni from Goldman Sachs. Please go ahead. Yes. So thanks a lot for taking my questions. So my first question is you mentioned about 30% expected reduction in employee costs. If you look at the Q1, this is about 17%. When you say 30%, should we assume that the FY 2020 number would go down by 30%? Or this is incrementally for the other three quarters, we should assume a 30% lower employee cost? So it will be 30% lower cost from the pre COVID level. So if you look at your March number from that level, it will be 30% lower. While you see it's only down 15%, if you recall, we started taking those employee cost actions only from the month of May. So there is only a partial impact of that for the quarter. And then incrementally, we've taken more actions as we go into July, including the separation that we've talked about earlier. So therefore, you'll see that playing out over the next three quarters. Sure. Fair point. My second question is just on yields. Given that right now we are operating in an environment where there are gaps and flows and the fact that it seems it's continued till November, does it work well for us in yields in the current scenario? And what would be your comments on that particular front? We would like the fare caps to be removed as quickly as possible. Markets are very dynamic. It's directional. It's seasonal. It's impossible for anyone to predict and decide what the right level of fare should be. So we would like to see this removed quickly, and we think we can do a better job in managing the revenues without the fare caps. And that will work to the advantage of the customer as well. Understood. That's it from my side. Thank you. The next question is from the line of Achal Kumar from HSBC. Please go ahead. Hi. Good evening, everyone. So I had a couple of questions. One was about the forward bookings. Previously, you mentioned that bookings are taking place now a week or so in advance and not beyond that. And that is creating problems for you to manage fares and capacity. So how the situation looks like? I mean, has that changed or that remained same? What sort of challenges are you facing because of that? And similar to that, just on the previous point, you said that you want the fair value to go already. But generally, if I see, I mean, the fares are anyway low, so how the fare capping has been impacting your fare levels? Okay. So regarding this volatility in demand, how is it shaping up? So the 1st 20, 22 days of July were, in our mind, quite strong. And then it becomes very news dependent. So if people say, oh, the virus is spiking, Kokatha is closed for a few days, Mumbai may not open its cap, Lucknow shut down for a day, Patna shut down for a few days. The forward bookings reacted very strongly to that. Mostly, I would think because of the uncertainty. Should I book? Should I not book? Will I be able to fly? And obviously, as they keep making these changes, the cancellations also go up. So all that, I believe, is affecting the last 7, 8 days because in the last 7, 8 days, as you know, there have been all this sporadic lockdown in different cities. Once that stabilizes, I do believe it will improve. Now as to the fare cap ratio, the question clearly is a measure of capacity, fare, direction, time of day. So many things are affected by it, right? As you know, morning fare should be so different from an afternoon fare. One way fare out of Rachi is very different from an incoming fare into Rachi. All those factors are playing out. And we I mean, no one knows, as I said, what the right level should be. But we'd like to be able to leverage those changes and say, okay, afternoon, let me put a real low fare. In the morning, let me put a real high fare and use that both to our advantage and, as I said, to the customer's advantage, too. If we can have some lower fares, we can also have some higher fares as a result. And so it's a very I mean, it's a very flexible environment, as you well know, in pricing. And I think in opening it up is let people get creative with it, let people experiment with it and let's see what the right answer is. But let's not have a dictate by someone by saying this is what the pay should be. Right, right. That's very clear. My second question was around the cost. I mean, you have cut down your cost by 52% and your other expenses are down by 65%. Now going ahead, as you increase your capacity, don't you think some of these costs would come back? So rather than just one way going down, don't you think there will be a pressure on the cost and that could have an impact on the profitability given that revenues are anyway uncertain. So that is my second question, please. Well, the pressure on cost, as we know, many of our employee costs are fixed. Now we have reduced them both to pay cuts and through some leave without pay. But clearly, our employee utilization is not high. Most important thing is aircraft utilization. We've got all these leasing costs. And if these things are sitting on the ground, our leasing costs are absorbed by 50% of our capacity. If we can improve that direct capacity to 50%, then the leasing costs, which as you know is the most important cost, gets spread out over a bigger base. So no, our costs don't go up. Our unit costs for sure go down a lot. Even the other cost, which is 25 percent of the total cost you said? Well, other costs are what? The IT cost, maintenance cost, so IT costs are not going down just because we have flying less. I mean, most of these network costs are also truly fixed. So basically, the most important dynamic is this, locking the denominator in terms of the capacity, right? You know how important the denominator is in setting unit cost. Our denominator is very small now. That's why you see this big spike in unit cost. If we could make a denominator bigger with more capacity, our unit cost would go down significantly. Ultimately, it's a game of unit revenue minus unit cost, right? That's the only math that really matters. And right now, our unit revenues are good and our unit costs are pathetic, terrible, obnoxious. So we need to get our unit cost down. Absolutely. Absolutely. No, the last question I had about so even the A320neos and A321neos, I could see that the prices are down by 10% to 15%. So just wanted to understand whether do you have possibility or do you have an opportunity to renegotiate your prices with OEM or that's all fixed? Nothing is fixed. But I think we've stressed this many times. We take a long term view of this whole equation. We can get some short term gains with some long term pain or we can reverse that and get some short term pain with long term gain, etcetera, etcetera. So we are continuously in discussions with the OEMs and we look at our full long term horizon and say what's happening in each year and how do we manage the overall net present value, if you will, of that whole relationship? So actually, you could say, okay, today you can get a lower lease cost maybe, but I have this fleet of plane order that's coming and I need to place them with the lessors at the right price. So we look at the whole long term horizon and do the best net present value of that. Thank you, Mr. Kumar. Request you to join the question queue for any follow ups as we have several participants waiting for their turn. Thank you. The next question is from the line of Atul Mehra from Motilal Oswal Portfolio Management. Please go ahead. Yes, good evening and thanks for the opportunity. So if you could broadly split up the travel between leisure and business prior to COVID in terms of how is the split light? I'll ask Sanjay Kumar to answer it. The travel between laser and corporate or business travel, I used to be almost 50%, 50% prior to the COVID situation. But post COVID, of course, we are seeing travel from the corporate is not coming back right now. They are taking much longer time than what we would otherwise expect. So it is basically the travelers who are kind of traveling for need or urgency or medical or shifting, whatever reasons they have, they are trying for that reason. So it is not post COVID, still we have to see the business trend coming back. Right. And sir, as a follow-up on this point, just want to understand at a company level, how are we thinking about longer term implications on travel, both business as well as leisure, given that nowadays like especially like post COVID, a lot of us have been at business also being accustomed to digital means of communication and so on and so forth. So as you think about the long term and also as you plan your fleet going forward, how do you think about longer term implications for this? And at the same time, I just want to check on whether we have any exit clauses for our contracted for fleet. If, say, for example, if you're not seeing demand to improve quite materially and coming back to normalcy, Do we have an exit clause with whatever penalty, but to actually modulate our fleet to the extent of our demand expectation? Okay. I love the first part of your question because it's something very near and dear to my heart. What is the long term view of the airline? Well, the long term view of Indigo in particular is highly bullish. And again, I say long term. So people say, are you pessimistic? Are you optimistic? Near term, meaning in the next 10 months, things are obviously tough. But going further out, 18 months out, very bullish about Indigo, and I'll tell you why. Yes, corporate travel is going down. So we're going to lose customers at the top end. However, we think we'll gain a whole lot of customers at the bottom end. India has about 140,000,000 passengers a year by air. It has 1,600,000,000 passengers by train, and I'm just counting the top two classes of train. And given the issue of safety, you can fly somewhere in 3 hours or you can fly or you can travel by train somewhere in 2 nights. I think there'll be a lot of substitution into airlines from trains, particularly because of safety and also because the cost of flying is coming down with lower fuel, our cost structure is going down, etcetera, etcetera. So very bullish about growth at the bottom end despite the fact that we lose corporate travel. I understand that. Secondly, I think the competitive structure will change in favor of us. We've had too much capacity, chasing too little demand, especially internationally when there have been a lot of overbuilt hubs all around us in the Southeast Asia and the Middle East. And I think a lot of that capacity will come down. And as Saman mentioned earlier, white body prices are a reflection of that. If they're all disconnecting people from Amsterdam to somewhere to Calicut, people will be sort of cautious about taking one stops. They'd rather take non stops or they'll take a one stop through an Indian hub because they say I have an aunt in Delhi and I'd rather connect in Delhi than go to some other destination where I don't know if I get stuck for 14 days for coronavirus. All that helps narrow body. It helps Indian carriers. And therefore, overall, I'm very bullish about our prospects long term. What was the second question again? 2nd question has to do with, if at all you have any exits, like how you're planning your fleet accordingly and your upcoming fleet? And if at all you would like to in terms of recapture or push like maybe delay some of the incoming fleet and so on and so forth? So look, we really see this as long term profit of most, if you will, of, let's say, Airbus manufacturing airplanes, us buying them, the lessors getting doing a sale leaseback in between. And we want this whole pipeline to work and work well. If one of us upsets this, then the other two guys also don't gain, they lose. So we are in very close relationship with our vessels, with Airbus and ourselves saying how does this whole pipeline work effectively. So is there negotiations? Of course, there's negotiation. But again, I'm trying to tell you it's not a transaction based negotiation. It's a relationship based negotiation. Right, right. And then maybe one final question, if I may. The competitive environment domestically, how are you seeing that? Because we've always seen Indigo as the largest player and the most efficient player. And the current times are such that even the efficient player is having issues given the way the scenario is at this point in time. So how do you see the competitive environment after the dust settles down and also in the middle as we are in at this point in time? So how do you see that angle as well? Thank you, sir. Really to a large extent, we focus on what makes sense for us and how do we maximize our revenue, our profitability and so forth. So very much Indigo focused. And the rest of it is news that I read in the paper just like you do. So I don't really know what's going to happen to anyone else. But the competitive situation is such that we feel the best thing we can do is to grow fast and get some of our capacity back. That's what we'd like to do, and that's what we're focused on. Right. Great, sir. Thank you and wish you all the best. Thank you. We did that. Thank you. The next question is from the line of Vinay Bhandari from Nippon India. Please go ahead. Yes, hi. Thanks for the opportunity. Just two questions. So one is on this €20,000,000,000 additional liquidity, which you said would be arranged by selling the own aircraft and putting them on leaseback model. Just to understand how much of gross block goes out of this exercise and how much would be the increase in rentals and capitalized lease liability because of this? I don't have the number of what gross block goes down by. But economically, this sale and leaseback is not going to cost us anything materially. I mean, we've done that analysis and we don't those numbers are not material from a materiality perspective, but it's important from a liquidity perspective and therefore we're going forward with it. Sure. Any ballpark number on the number of claims that would help us to do the reverse Okay, okay, okay. Sure. The second one was on how are we progressing on that engine replacement issue that we had? Wolfgang can take that question. Wolfgang, yes, hello. Yes. Right now, we are coming close to finish this whole exercise. We and we have all the airway builds from the replacement engines already visible. So by end of August, we will have everything will be done and the whole fleet will be refurbished. Right now, we have still 14 aircraft as we speak, which need to be refurbished. And we can see from the pipeline of incoming engines, it's finished by end of August. Sure. Thank you. That's all from my side. Best wishes. Thank you. The next question is from the line of Prashant Kotari from Bikpet. Please go ahead. Yes. Hi. Two questions. One is, do you have any undrawn working capital lines from the banks which can share the amount there? And the second question is, I think on the competition side, we kind of were expecting that during this pandemic, some of your competitors who won't have enough balance sheet to Sprint might actually fall down. We don't see anything of that sort of happening in the domestic space. Do you have any insights into why that is the case? On your second question, we definitely do not have any insight. You should call them. We have no idea. And what was the first question? On undrawn working. So we do not have any undrawn working capital lines. In fact, we do not have a working capital line. We are working on building those right now, but there's nothing undrawn right now. Okay. Thank you. Thank you. The next question is from the line of Arvind Sharma from Citi. Please go ahead. Hi, am I audible now? Ajmal, yes. Great. Thank you so much and apologies for this. Sir, quick on the capacity front, the guidance that you've given that hopefully the regulations permit in 2Q and 60% to 70% in 3Q. Is that the guidance for only the domestic part? Or does that include the international ASK as well? Because that would then include that you are hoping some improvement or some relaxation in industrial traffic as well. I just wanted your future answer. The answer is it does include some international. Now the fact is we are doing a fair amount of international with all these charters. And between Kuwait, Saudi Arabia and now UAE is opening up, we're doing a fair amount of charters. So yes, we're expecting that some of these charter flights get converted into schedule and that some amount of international does happen in that period. This 42% to 72% to 70% is the ASK guidance that you're giving for the entire operation? Yes, for the whole network, yes. Thank you so much. And then just on capacity, will you be in a position to give any guidance on your fleet strength for FY 2021, 2022? Or is it just too early to surmise that at the moment? I think it is too early to go there. I mean, we continue to work on our fleet plan. And as we get towards the latter half of the year, we can talk about it. Thank you so much, sir. Thank you. The next question is from the line of Ashish Shah from Central Broking. Please go ahead. Yes, good evening. Just wanted to check, there has been news around Indigo participating in the long haul trades under these arrangements made by the government. So any clarity that you could provide on the same? As we said before, we continuously look at this whole widebody equation. And I think almost a year ago, there were plenty of news items about Indigo looking at white body and that was true. And we continue to look at it. The trouble is white body has always been a sort of touch and go issue for us. The numbers are sort of okay, but we know there's a risk to it. So we keep saying, okay, let's wait and see, wait and see. And frankly, to some extent, the white body equation might be working in our favor now. And again, I'm not making any kind of decision yet, but I'm just telling you what's changing. First of all, as we know, white body prices are down. That helps a lot. Secondly, fuel costs are down. And part of the problem with going long haul is that your fuel burn rate is so high as you go further away, you're getting more weight, etcetera, etcetera. So the fuel burn rate goes up. So lower fuel costs also help. And the third is this issue of 1 stop versus non stop. And between India and London, last time I counted in the height of the sort of expansive phase a year ago, There are almost 20 different ways you could book from Delhi to London through all Oman Air and Saudi Air and government wealth is there. So as this one stop become less competitive to non stop, I think that's an advantage. So these are all factors to be studied. We're in the same situation we were a year ago. We are still studying it. We don't have an answer. Sure. Just second one. So basically, I know it seems a little over the top right now to think about Air India. But hypothetically, the government, what is it going ahead? Are you still interested in the international operations of Air India or given where we are in terms of the whole pandemic, we'll just not give it. At this point, we're not interested in that, India. Sure. Thank you. Thank you. The next question is from the line of Alp Gahlov from Pravda Siggator. Please go ahead. Good evening, gentlemen, and thank you for this opportunity. Sir, if you could just help us better understand the supplementary rental and aircraft maintenance cost item. So if you look at the pre COVID levels, it has come off quite sharply. So do the maintenance cost also have a high degree of variable nature embedded into them? Right. Absolutely, they do. So supplementary rentals are a large part of the supplementary rentals overall in this last quarter, the numbers were INR 1600 crores, this quarter it was INR 739. More than half of this is variable in nature. Based on how much we fly, we put up those supplementary rentals. So obviously, as we are flying lesser, this amount is much lesser. The fixed element of that, we obviously continue to incur. Therefore, you've seen from last quarter this cost going down from INR 1680 crores to INR 739 crores in this quarter. Sir, any understanding on what the fixed number could be? Because even if I assume that your supplementary rentals are anywhere around 50%, the number that we've reported for this quarter is on the higher side of pre COVID levels. So pre COVID levels is number of 1680. Today, we are reporting 740, so less than 50% of pre COVID levels. So I don't understand why you say it is high. No, no. So if 50% is fixed in terms of cement contract, I mean, the cost that we're incurring, like for the CEOs also that you're doing, 3 is 2, 30 odd crores, If that number stays intact, then this number is a bit on the lower side. That is what I was pointing out. So is there a variability involved in your fixed maintenance cost also or there is a reduction there? Yes. I mean, so it really depends on how much are we flying and what capacity are we deploying. So a lot of that is dependent on that as well. So that's what drives it overall. All right. Okay. Thank you. Thank you. The next question is from the line of Ashutosh Samani from JM Financial. Please go ahead. Sir, this is regarding one of the notes of accounts. So if you look at one of the notes, it says that the OEM supply from new engines, there is an invoice raised to the tune of, I believe this is 1,000,000, 2,278,000,000, which is around INR 227 crores, which as per legal counsel, we have decided not to pay. So can you elaborate on the nature of this cost and whether it has been provided for in the accounts or not provided and not paid? So there are so it is not provided and it is not paid. I must also add that we also have a counterclaim for as if you read the entire note, we also have a counterclaim from the OEM, which is much larger than this. And that is something that we are in negotiations with them. And as those negotiations progress, we will let you know where they are at. So that's what we want to share at this stage on those negotiations. This unit is INR 1,000,000, I believe. So this is INR 227 crores. Is that correct? INR 227 crores. You're right. And this generally reflects in which line item in the P and L? It is not included in the P and L. It's not included in the provider? Yes. If it were provided, it would have been in which line item? It will be part of our supplementary rentals and those costs. Okay, perfect. Thank you. And it's a buildup, it's not a 1 quarter item by the way. Okay, okay. Thanks. Thank you. The next question is from the line of Chetan Sheth from Samiksha Capital. Please go ahead. Thanks for the opportunity. One question was on the airport charges. I believe it was fixed in nature, but we see sharp drop in effort fees charges as well. So I just wanted to clarify whether it's a variable in nature or fixed in nature? No, it is mostly fixed in nature, but largely fixed in nature. It's our parking and landing charges. It is a route navigation fees. It's totally dependent on how much we fly. So since the fact that we have flown a mess, therefore, it's a variable expense and therefore it's down about 82% for the quarter. Okay, okay. So as you flow far much more, this cost will continue to increase? Yes, yes, based on how much capacity we deploy. Sure. And if you can give some indication on the right to use asset value as of June and the forward sales looking sitting on our liability as of June? So our ROU assets as of 30th June are ROU142 1,000,000,000. That's the number. Okay. And on forward seats? Forward booking number. Forward booking number. As of you're saying end of June? Correct, yes. No, we don't give that number. Sure. Okay. Thank you. That's all for me. Thank you. And the next question is a follow-up question from the line of Deepika Munda from JPMorgan. Please go ahead. Hi, thanks for the follow-up. I just wanted to get a sense on the ancillary revenue. I would have thought it would have been slightly better given the push on cargo. As the capacity normalizes, how do you see that panning out through the year? And secondly, I just wanted to check on the maintenance expenses. So I understand that the supplementary rental and maintenance expense is down quite significantly. Could you just like of the regular maintenance, I'm not talking about the extra provisions for the CEO aircraft, but of the regular maintenance, how much of it is discretionary and how much of it would be fixed? Yes. So I can talk about the N3 revenue. Of course, N3 revenue is up primarily because of two reasons. 1 is, of course, cargo. Cargo has done pretty well for us. And the second part is that we have been able to push through the seat assignment bags and other kind of fees. Despite the lower number of passengers which you're flying right now, we have been able to kind of increase our ancillary revenue per passenger quite significantly compared to peak hour levels. And that's because of customers are more conscious about which seats they sit in. So that's been a factor. Okay. The second question on maintenance fee, how much is discretionary and how much is fixed? So it's I mean it's variable. So our supplementary rentals are variable that we put up just based on how much we fly. Our FHA agreements are variable is dependent on how much we fly. So those two elements are variable. Obviously, reassessment of future maintenance, costs that we have for general maintenance, I mean, those continue to be fixed in nature. Okay. Thank you. Thank you. Next question is a follow-up question from the line of Sonal Gupta from UBS. Please go ahead. Yes. Thanks for taking my question again. So just wanted to understand, I mean like I mean you've given the capacity guidance and just also you I believe previously you had sale and leaseback agreements already for 13 NEOs for the first half of the year. So I mean like so just wanted to understand like if what happens and if the capacity is not ramping up as the way you are hoping for it, Do we see a pushback, I mean, incrementally beyond this? I mean, how do you I mean, just if there is a much more negative scenario, so you're not really able to get beyond 40, 50 even in Q3. So how will your strategy change? I just want to understand what's the forecast option? So I think this is an internal debate that we are having of what should the planning horizon be. And many people say, why don't we plan for 2022 and see what it looks like and so forth. And the thought is, this is such a volatile environment that I think any kind of long term planning at this point, for a while at least, is almost futile because we don't really know. So we can put some numbers together and say we think this, we think that. We know our revenue is going to go down, but we also know there'll be capacity shift all across the globe, which may hurt us, which might help us. And we think given the uncertainty on both industry revenue, industry capacity, where it's coming from, where it's shrinking, we think let's just plan for now on a 3, 4 month basis. Let's get through till the end of the year and then pause, take a deep breath and we'll do this long term plan all over again. So unfortunately, right now, we are not doing long term planning. We're doing 3 month planning, and we're willing to wait a while and then get back into long term plan. Sure. No, what I'm trying to understand is that in that case, I mean, do we see a pause here? I mean, clearly, if you don't see that your capacity is going to be more than 70% utilized in FY 2022, I mean, do we stop taking new aircraft and the existing fleet sort of run down? I'm just trying to understand, I mean, like Bhutang is going to jump in at this point. Yes. Hello. So all of you see naturally the new deliveries, this is more prominent naturally. But many of you don't see the lease returns, the planned lease returns. And actually, the planned lease returns for this year are higher than the planned deliveries. So that in itself assures us that the capacity is balanced. And so that's one thing where we can, let's say, moderate the fleet growth or even keep it at balance. And another element, which you which is not so seen very much in the actual figures in fleet numbers is that we can use, for example, to a lesser degree, CEO aircraft, which enables us to optimize engine shop visits and bring the engine costs down. So there are many ways in, let's say, in adapting the fleet size and capacity price size, which we are actively using. And one of our top project is to get all this aircraft out, the lease returns in the phased manner and at the time line as we have planned for. Okay, okay. Sure. Thank you. Thank you. Ladies and gentlemen, that would be the last question for today. I now hand the conference over to Mr. Ankur Goel for closing comments. Thank you and over to you sir. Thank you all for joining the call. I hope you found the call useful. Thank you. Thank you very much. Ladies and gentlemen, on behalf of Indigo, that concludes this conference. Thank you for joining us and you may now disconnect your lines.