Earnings Call: Q4 2020

Jun 2, 2020

Evening, ladies and gentlemen, and welcome to IndiGo's conference call to discuss the 4th Quarter and Fiscal Year 2020 Financial Results. My name is Santhuri, and I will be your coordinator. At this time, the participants are in a 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 would now like to turn the call 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 Q4 fiscal year 2020 earnings call. We hope that you and your family are safe and in good health. 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. Wolfgang Prokshawa, 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 discussions may contain certain statements on our business or financials, which may be construed 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 Gatta. Thanks, Ankur. Good evening, everyone, and thank you for joining us on this call. This is a very difficult time for the world economy in general and for the travel sector in particular. The aviation sector has been through many ups and downs in its history, but I think we can all agree that this crisis is unprecedented in its impact. In India, the government had imposed a lockdown and as a result, there were no scheduled passenger flights operated during the period starting on 25th March and continuing through 24th May, 2020. This has, of course, materially impacted our financial results. For the quarter ended March 31, 2020, we reported a net loss of INR 8,700,000,000 with a negative profit after tax margin of 10.5%. This includes a foreign exchange loss of INR 10,100,000,000 due to weakening of the rupee, primarily comprising of mark to market losses on our capitalized operating leases. Our full fiscal year performance was nearly breakeven with a net loss of INR 2,300,000,000 and a negative profit after tax margin of 0.7%. At the end of February, we were still profitable with our unit revenue up by 2.6% for January February as compared to the same period last year. However, as we entered into March, our unit revenue started declining sharply and resulted into an operating loss of INR 3,800,000,000 for the month, excluding the foreign exchange loss. At this time, we are all focused on the health and safety of our customers and our employees. With this mindset, the company took early and aggressive action to mitigate the impact of COVID. And as a result, our international operations were gradually reduced starting January and were completely halted by 22nd March. We recognize we need to change our product on a go forward basis to ensure the safety of our customers and employees. For this purpose, we have laid out a new set of operating procedures that clearly defines the norms to be followed by employees to combat the virus. Some of these measures include: disinfecting aircraft before every departure, spray cleaning the aircraft at every arrival, deep clean of the aircraft, including wiping of all touch points, providing safety kits to our passengers, mandatory masks on board for both crew and passengers, placing hand sanitizers at various places, discontinuance of meal service, operating our airport coaches at Let's review what all this means for our passengers. The Airbus aircraft cabin is equipped with HEPA filters, which ensure that the virus is not able to be recirculated. The surfaces are cleaned thoroughly and passengers are wearing face masks. So the risk of transmission by air or through droplets is really being minimized. It is important to note that recently, the Ministry of Civil Aviation organized a meeting between the airline industry and a team of doctors who reviewed our procedures and agreed that the measures that the industry has been taking are really quite impressive. Therefore, I'd like to stress that airlines are clearly the safest mode of transportation. I'm deeply impressed with the commitment and dedication of our frontline employees during these unprecedented times. I would like to thank our airport ground staff, crew and engineering teams who made sure that our schedule was maintained right into the lockdown. With this level of dedication, we managed to operate about 900 flights on the final day before lockdown, serving around 120,000 passengers. I'm also very pleased with the customer relations team who have showed exceptional commitment and dedication during the periods of uncertainty and managed large volumes of passenger inquiries with empathy and professionalism. I would like to thank each and every one of them for the way they have stepped up to these challenging times. I'm also proud to say that Indigo has stood up to help the community and country at this time of crisis. During the lockdown, we operated over 30 relief flights, transporting medical equipment and other requisite resources across the country at our own cost. Let me now highlight some of the positives of our economic performance during the quarter. We reported ancillary revenue growth of 30% against the capacity growth of 4% compared to the same period last year. Our cargo liner business has performed extremely well until the lockdown. Even during the lockdown, we utilized our cargo capacity to carry essential supplies. We have learned valuable lessons about the demand and scope for cargo during this lockdown, and these lessons will serve us well for augmenting our cargo operation in the months ahead. Going forward, we want to emerge from this crisis stronger than ever. And in that context, we are paying particular attention to our product, our costs, our brand and our employee culture. Specifically, we will be paying a great deal of emphasis on the new norms of flying, reducing our unit costs even further, making our fleet more efficient, ensuring our capacity is right sized to the market and experimenting with new network and revenue models. In times like these, we must shift our focus from profitability and growth to managing cash and liquidity. We have always prided ourselves on our strong balance sheet and we've been very prudent in shoring up our cash reserves over the past few years. As a result, we ended the quarter with a healthy total cash balance of INR 204,000,000,000 of which INR 89,000,000,000 is free cash. Given the need to preserve cash, we are not looking to pay any dividends this year. Along with this, we have taken and will continue to take a number of actions to shore up our liquidity. Aditya will talk about these measures in detail. Moving on to our capacity and growth plan. Given the volatility and uncertainty, it is difficult for us to provide any specific revenue guidance at this moment. We resumed our operations on May 25. We have planned a phased ramp up operation to ensure we are able to enact on safety and social distancing norms and are at the same time able to cater to the available demand. We have sufficient aircraft crew and other operating staff available to resume and scale up operations rapidly. We are in the process of revising our full year capacity guidance and will share our projections subsequently. In conclusion, let me summarize where we are at this point. We clearly have to rise up to challenge to meet the new customer expectations in this changed environment. Against this, we have the following formidable strengths. We have a healthy balance sheet. We have a very energized workforce that is highly committed to Indigo and its future. We have a very efficient fleet, and this efficiency will only improve over time. We have a very strong cost position, and we are one of the lowest cost producers, not just in India, but around the world. We also have a strong market position in India and in neighboring countries. Therefore, I'm highly confident that we'll meet our objective of emerging stronger from this crisis than we were when we entered into it. And with that, let me hand over the call to Aditya to discuss the financial performance in further detail. Thank you, Ronu, and good evening, everyone. These are challenging times indeed for all of us, but we are laser focused on getting through them. As Zonno mentioned earlier, for the quarter ended March 2020, we reported a net loss of INR8.7 billion with a negative profit after tax margin of 10.5 percent compared to a profit after tax of INR6 billion with a profit after tax margin of 7.6% during the Q4 last year. We reported an EBITDA of INR 867,000,000 compared to an EBITDA of INR 22,000,000,000 during the same period last year. Our revenue performance was materially impacted with the shutdown of air traffic as a result of the outbreak of COVID-nineteen. Year on year, our ASK growth for the quarter was 4.1% compared to our earlier guidance of 20%. As a result, our total revenue growth was 4.5% compared to the same period last year. Our RASK for the quarter was 3.65%, which was higher by 0.5% compared to the same period last year. Bruno has already discussed the RASK split up into the pre COVID and COVID affected periods. Our ancillary performance performed well during the quarter and grew by 30.2% compared to the same period last year. Further, our costs were also impacted on a year over year basis and we reported an inflated CASK of INR 4.21 for the quarter compared to a CASK of INR 3.35 in Q4 last year, an increase of 25.8%. We saw significant cost headwinds and in particular because of the rupee depreciation. The rupee closed at 75.35 at March end compared to 71.30 at December end, a depreciation of 5.7% during the quarter. As a result, we had a INR10.1 billion of foreign exchange loss, primarily driven by mark to market loss on a capitalized operating basis. The mark to market loss is an accounting loss and has no cash flow impact to sources with it at this stage. Excluding the impact of such adverse currency movement, our cash would have been higher by 12.5% instead of 25.8% increase that we reported. Apart from this, just like the previous quarters, we saw elevated maintenance costs related to reassessment or accrual estimates for heavy maintenance and overall costs of our CEO engines, as well as our employee cost per ASK. Another point to be noted here is that we had lower ASKs, which has led to fixed costs being spread over a smaller capacity base. Furthermore, our fuel cash continue to perform better than the changes in the ATF price. While there was an average increase in ATF price 2% in the quarter, our fuel cash for the quarter decreased by 1.2% compared to the same period last year. Regarding cost reduction measures, we are working diligently to right size up airline with the expected level of flying to strenuously reduce costs and to improve our liquidity. Specifically, we have taken the following actions. We have announced a salary cut in the range of 5% to 25% across the organization, except for certain employees with lower pay grades. We've also deferred all merit based salary increments. We've also announced leave without pay for the months of May, June July. Going forward, we will be reviewing these numbers constantly and we will adjust them to the revenue environment. We have put on hold all discretionary expenses and have deferred certain capital expenditure projects. We are looking at every element of cost and working hard with our partners to negotiate better prices and terms. We value the efficiency and structurally low cost associated with our new NIO aircraft and thus we will continue to substitute them for the older CEO aircraft as fast as we can. We are therefore taking deliveries of all our new aircraft and balancing these fleet additions by returning all the CEO aircraft that we had committed to earlier. Furthermore, depending on our capacity requirement, we will prioritize flying our NEOs over the older CEOs. In addition to all these measures, we are taking a number of other actions to reduce our overall costs. In terms of liquidity measures, we are working on a number of initiatives. Returning of older CEOs digging deliveries of new aircraft. The CEOs that we are operating have higher ownership costs driven by higher maintenance costs and higher fuel bond. As part of our fleet plan, we are working on naturally retiring a number of these CEU aircraft. We will be taking the deliveries of new planes in quarter 1 and quarter 2 of the current fiscal year 2021, which are much more cost efficient and we are in discussions with manufacturers regarding deliveries beyond this period. Further, we have already financed majority of these deliveries through operating lessors, which will help in improving our liquidity. Now let me talk about freezing of supplementary rentals. We have been talking to our lessors to freeze our supplementary rentals and better align these with the utilization for a period of 9 months. Since a large number of aircraft are currently grounded and will be operating at much lower utilization levels going forward, thus there is no immediate need for us to provide for these. We have also reached out to our various suppliers to provide us more favorable credit terms. While we have paid dividend in the past, we will not pay dividends this year to conserve liquidity. We expect all these measures to help us generate additional liquidity of approximately INR 30,000,000,000 to INR 40,000,000,000. We are also looking to raise finance against the various unencumbered assets of Indigo, which could be a source of additional liquidity for us. While this is a tough time for the industry, we also place a lot of value to our long term relationships with our suppliers. We are confident that we are doing everything possible to ensure we emerge in a strong position out of the crisis. Before I end, let me give you some balance sheet numbers. The capitalized operating lease liability as on 31st March 2020 was INR203 billion. Our total debt including the capitalized operating lease liability was INR 227 1,000,000,000. We ended March with a total cash of INR204,000,000,000 of which INR89 1,000,000,000 was free. With this, let me hand it back to Ankur. Thank you, Ronan and Aditya. 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, sir. Ladies and gentlemen, we will now begin the question and answer session. The first question is from the line of Deepika Moosa from JPMorgan. Please go ahead. Hi, good evening. Thank you for taking the questions. So firstly, given the disruption in the industry, are you seeing any opportunities of domestic consolidation amongst your peers? Or do you in general, do you think that the capacities will or growth will come off quite sharply? Secondly, even in international markets, are you seeing any thoughts open to expand capacity post the COVID crisis subside? My second question is just on the yield outlook. In Q4, it seems that the yield has held up pretty nicely. Could you comment a little bit about that and your outlook once operations normalize? Thank you. Okay. I think that's 4 questions. To start with industry consolidation, We are very focused on Indigo and ourselves. We have no plans of buying or selling. We don't want to buy any other airline. We don't want to sell our airline to anyone else. So we're very focused on ourselves. What happens around us? I don't know. I don't want to speculate on that at all. But we clearly are a go alone strategy. To the issue of outlook and capacity and yield, in normal circumstances, airlines plan on an annual basis. So we have an annual plan, we have annual budget. Based on that, we do aircraft acquisitions. We do hiring, all of that, new stations opening. Clearly, this environment doesn't lend itself to that long term planning because there are so many unknowns. Therefore, our planning horizon now is 3 months. So I can tell you what we're planning to do for the next 3 months. And after that, we'll take another call. So every month, we'll say, okay, how are we looking? What does the next 3 months look like? So let's start with the important decisions we make, which are fleet and capacity. As Aditya said, we see an opportunity here to make the fleet more efficient, particularly with the old classic CEOs whose maintenance costs, as you know, have been a real problem for us all through the year. And we're going to return them as rapidly as possible and therefore reduce our maintenance costs. At the same time, we will be taking deliveries of new neos, which will help us on our fuel cost efficiency. As to the capacity, the government said you can fly 33% capacity. That's for the near term. We wanted to fly 33%. Unfortunately, many of the states still haven't removed their restrictions. Therefore, right now, we're at 20% capacity roughly. We'd like to ramp up to 30% quickly. And as we ramp up, we want to see, hey, should we go to 50%, should we go to 60%. So these will be now sort of quarterly decisions we'll make for a very shorter time horizon. How does it look since the lockdown has been lifted? And you'd asked what is the yield outlook and so forth. It is somewhat expected that there'd be a lot of pent up demand. And therefore, when we when the lockdown is lifted, the revenue will be reasonably strong. And I think that has panned out as expected. There is a lot of pent up demand. We do see strong loads. And we're not at 90% or anything, but reasonably strong loads given the environment, with reasonably strong yields. So if you said how are you feeling about the last 10 days and the next 5 days, I'm like, oh, things are looking reasonably good. But I also know that this is a pent up demand issue. And therefore, you asked me, Raul, what will it be like at the beginning of July? I don't know yet. So I don't want to sort of jump ahead too far, but so far so good. Since the lockdown has been lifted, the revenue picture has been reasonably strong. Wolfgang wanted to say something on operation. He's jumping in right now. Yes. This is Wolfgang here. Hello. So I just wanted to say that when we stopped flying 25th March, we were number 1 in on time performance. We had a variant, as Ron has mentioned, we brought so many passengers home on that day. And then we restarted. I can also mention that actually we restarted in a nearly perfect way despite the reason that despite the fact that it was not very 100% clear how the operating procedures, especially in these states are, we managed to start very well. And with exception of day 12, we are in the high in the mid-90s in on time performance. We can see our load factor is rising. First day now, we see now more than 70% load factor. So actually, we can see we start very stable and we also can feel from the airports the feedback. Visitors have confidence in these new rules. They get used to it. So we are very positive on that metric here. We see it increasing. And Deepika, you had asked another question, which I omitted to answer, which was to do about the international, I think. Let me say that all through last year, international was one of our strongest performers. So international was doing better than domestic. Or right through December, January international is performing very well. So we are very anxious to start international again. When that will happen, I don't know. But international, I don't see any reason that once the travel restrictions are removed, that international will not again be one of our strong performers. Got it. Thank you so much for the clarity. Thank you. The next question is from the line of Sonal Gupta from UBS. Please go ahead. Sure. Thanks for taking my question and good evening everyone. So just my question was on the sale and leaseback arrangements, etcetera. So could you give us a sense of what sort of liquidity, I mean, have we got because of that this year in terms of cash flow on the cash flow side? And also, I mean, like, our arrangements are still for I think our time, we can't hear you. Participants, the line for Sonam Gupta has dropped. We take the next question from the line of Vinay Singh from Morgan Stanley. Please go ahead. Hi, team. Thanks for the opportunity. Two questions actually, first a continuation of Sonal's question. If you look at the gains that you used to make from sale and leaseback of Neos versus any penalties that you will pay on return of CEOs. Could you comment on that? Because we gather that the Neos pricing is holding well, whereas the CEO pricing has come off quite sharply. So that is first question. Secondly, could you also share what will be your cash burn per quarter given where the environment is? And within that clarify what this €30,000,000,000 to €40,000,000,000 sort of liquidity saving that you talked about? Is this over a period of 9 months, some maintenance costs not being paid? Or is it quarterly or an annual thing? So these two questions. Thank you. So let me take the first half of the question on the Neo versus CEO and then I'll hand over to Aditya to comment on cash position and so forth. So when we return the CEO, there's no penalty for us because one of the good things about the fleet is that all this sufficient churn, as you know, we keep aircraft only for 5 to 6 years. So these things were due to be delivered back to the lessors anyway. So now if the market has been very strong, we might have extended the leases. But of course, in this sort of market, we don't want to, engine costs are high, etcetera. So we're happy to return the CEO of Classics with no penalties and also simultaneously reducing our maintenance costs. To the neos, you're absolutely right. They've held up quite well. So the sale leaseback market also has held up quite well. So we're happy with the neos deliveries that we're anticipating, and we're happy with the way the residual value of those aircraft are holding up, if you will. And Aditya, do you want to comment on cash? Right. So on a fixed cost perspective, roughly 40% of our costs are fixed. And as I mentioned on the call, we're doing everything in terms of reducing those fixed costs. In terms of employee costs, in terms of all other costs that we can control are the ones that we're trying to fix and we're trying to control. So that's on the fixed cost one. The other question you asked in terms of in what period do we expect this INR 3,000 to INR 4,000 crore of liquidity to come through. So yes, supplementary rentals, I did mention, will be over the next 9 months. And similarly, in terms of the deliveries that we're taking, the dividends that we won't pay this year and also the various supplier arrangements that we are fixing right now will be roughly in the same period. So I would say prior to the 9 month period, we should have INR 3,000 to INR 4,000 of additional And any number you would like to put on? What is your actually sort of cash burn per quarter? So 40% of our costs are fixed. I mean, so we want to we've had this discussion. We've mentioned this number before. 40% of FOC costs remain fixed. We talked about the various salary actions we've taken. We are not deferring any of our lease rentals. We are current and everything that we're seeing on our lessors. But every other cost element which has got to do with payouts related to all of the discretionary expenses, we're taking a hard look at and trying to control. So really on this cash burn issue, there are 2 ways to come at it, right? One is to try and reduce the cash burn. And as Aditya said, we're taking all these measures, including reducing our fixed costs, etcetera. And on the other side, of course, is to try and get the revenue in. So even during the lockdown, we were very active on the cargo side of the business, and we were very pleased with the results there. And now since the lockdown has come up, we are also contributing from the revenue side. And so we're anxious to ramp up our capacity and add more and more revenue and to deal with this cash burn problem. Yes. This is very helpful. I'll come back in the queue. Thank you. Next question is from the line of Pulkit Patni from Goldman Sachs. Please go ahead. Thank you, gentlemen. Thanks for taking my question. Excuse me, this is the operator. Mr. Pangi, we requested to use your handset, please. Thank you, gentlemen, for taking my question. My first question is in continuation of the previous one. Since you mentioned there's going to be some natural leases are going to be or planes are going to be returned, the CEOs. Could you highlight what that number is? Because we have more than 100 of these planes. What over the next 12 months could we assume number of planes that you could actually return back to the vessels? We're having a little discussion here as to whether we're going to go public with that number or not. Yes. Okay. So I've been advised to say this make the following statement by my boss. So we have 120 CEOs in our fleet, which will be going out over the next 2 years. The rate at which we go at which they got is up to us. So it's a throttle that we use to send them out faster or slower depending on how the revenue revives. Understood. And could you talk about what is the total addition of NIO that what we would expect in the next 12 Again, we are in active discussions with Airbus. We will take a large number. But we are again, it's a fungible number. It will all depend on the revenue picture and the pricing we get and so forth, but we will take a large number. Clearly, our fleet is not going down by 120 airplanes over the 2 years. You can imagine that, right? I mean, that's not something that's going to happen. So we'll replace, I would like to say, almost all or close to all or something depending on the revenue picture. Understood. And my last question is on international, right, you did allude to the fact that you're quite excited as soon as it starts, you expect traffic to come through. But given the amount of restrictions that globally different countries have put on international, do you think there is a structural growth problem in the international traffic or the fact that it could take significantly longer than domestic to come back? If you could throw some light on that particular issue. Yes. So you're absolutely right. When we look at what's going to recover quickly and what's going to recover slowly. Clearly, domestic will recover fast. International will recover slowly. Part of it, of course, is the travel restrictions. Both countries have to agree, they're quarantined, people will be nervous of getting stuck in some distant land, etcetera. So I would say international will probably pick up, let's say, 6 months beyond. I'm making up this number or the time frame. So but there will be a lag for international to pick up. But at the same time, I think we'll see structural changes in international, which will work to the benefit of Indian carriers in general. I mean, we've had too many hubs around us that I won't say don't belong that overbuilt would be the right word to use. So there have been too many foreign hubs all around India overbuilt in terms of capacity with a lot of connecting traffic and therefore somewhat fragile in the future. So longer, longer term, and I'm not talking 3 months, 4 months, I'm thinking a year ahead, etcetera. We think there'll be more opportunities for us to expand internationally. Got it, sir. Thank you. That's it for my side. Thank you. The next question is from the line of Sonal Gupta from UBS. Please go ahead. Yes. Hi, good afternoon. Good evening. Thanks for taking the question again. So could you just on the domestic side, again, help us think through the demand as to what percentage of your demand currently comes from the business side? And I would guess that the business will probably take a little longer to recover on the domestic side. So just in that sense, could you give us a sense of how things could pan out? So let's talk about the elements of demand for the domestic market. So first, let me state clearly that there are a lot of dampening effect on the revenue, right? There's a customer fear effect, of course. I mean, we all know how strong that is. On top of that, the economy is weak. So even if the customers are willing to travel, the economy would have depressed the demand. Then there is restrictions and uncertainty about restrictions. What will Karnataka allow? What will Canada allow? All those three things are hugely dampening for the traffic, right? So clearly, we have to work our way through that. Now what is the longer term sustainability of the airline traffic? Remember, India is sort of, I won't say unique, but an outlier in the terms of sort of the VFR traffic. I mean, Indians have family everywhere and they're like, hey, I don't care if I die. I'm going to meet my sister or whatever. There's a very strong VFR component. Have a few weddings and people will travel. They'll go to their Kaboom's wedding. So I think that VFR traffic sort of distinguishes India from the other thing. Then there is a huge amount of rail traffic. And we've always said Southwest took people out of cars and that's how Southwest became successful. And Indivior has always felt, hey, we can take people out of railways and be successful. With all this COVID, all of these issues, longer term, yes, we think that as the economy recovers, as this fear factor goes down, this VFR traffic, this train traffic substitution, all those will be longer term sort of potential for growth for Indigo. Right. And just on I mean, like any number for business? And then sorry, just to get the facts right, I mean like the government is currently lying 50% load factor? Or I mean is there any restriction there on that? Okay. So corporate versus leisure, clearly the demand right now is leisure. There's low corporate demand. Now as far as this 50% and so forth, as I said, we've been working very closely with this government on this on the safety issues, middle seat issues, etcetera. And we've taken steps as an industry, There's not just Indigo. The government ministry, Indigo, we worked very closely together. And when you look at the sort of sources of potential contamination, air contamination is sort of reduced to very small. I don't say nil for anything, but small because of the HEPA filters. And I'm sure you've read about the airflow is not front to back, but up and down. So air transmission is reduced. Then the surface contact issue, all this deep cleaning, surface wiping, all that will help. Then there's issue of, well, what if people cough or sneeze? Everyone is wearing a face mask. So we reviewed this with a team of doctors, which is not first, we reviewed it with our own doctors, then we reviewed it as an industry with ministry, put together a panel of doctors, and we told them everything we're doing. And they came up with saying, yes, that's pretty good. And the only thing that not the only thing, the thing that they suggested was this middle seat issue that if you do have people sitting next to each other, what if they rubbed shoulders and the clothes transmit or something. And therefore, they suggested this additional PPE for the middle seat passenger. So beyond that, no, we allowed to carry traffic. If the middle seat is used, then we have this additional down. And like I said, we've talked this through internally. We've talked it through as an industry. We've talked it with the health experts. And I think we have a very good product to offer for the customers. Thank you. The next question is from the line of Lokesh Garg from Credit Suisse. Please go ahead. Hi, sir. Just want to ask you in terms of balance sheet at this point of time. There is a fairly large balance sheet number, which is advanced ticket sales, which in a running business is always fine. But given that we haven't sold for 2 years, those advance ticket sales would have gone out. So could you update us what was that number at March end and what is that number now which would mean that corresponding cash flow has got reduced? So you're right. I mean our forward sales obviously have got impacted because there hasn't been any business for about 2 months. So clearly, the forward sales have gone down substantially. But as we've seen in the past 10 days or 8 days that we've been booking tickets, it's also gradually ticking up. So while we did see this number coming down through this period of 2 months shutdown, we also see it getting up back again. So that's all I'd be able to say in terms of what we look at forward sales right now. Yes, sure. I have another question in relation to CEO's return. You seem to suggest you have almost complete flexibility, but we were sort of given to believe that they are to be retired in some kind of schedule by end of FY 2022 or maybe December 2022. Now obviously, so underlying that assumption must have been contracts. So are both the contracts sensible, flexible? That is one thing. And if CEOs retire early, because CEOs were contributing to a lot of maintenance events, given we are not flying some of those maintenance events may not need to be incurred And does that lead to change in maintenance cost view also? That is absolutely right. Your point about we are keeping a very sharp eye on the maintenance costs of the CEOs. We will fly them only if we have to and to try and avoid these engine shop visits and so forth. So yes, in terms of how quickly do we return them, we'll try and follow the schedule because look, our relationship with our lessors is very, very critical to us. It's one of our core success factors, if you will. Since its very inception, Indigo has been very close to the lessors, has worked very closely with them. So we respect our relationship and we want to nurture it. So we're not going to do anything to upset that. But we will return them in a scheduled time. And if we have a mutually agreed upon, we might do it a little faster, a little slower. We'll see about that. But it was already built in. So it's a great sort of relief valve we have of, hey, you want to bring down capacity efficiently, just keep returning these airplanes. So my last question relates to basically NIO induction. There are 2 factors related to this. First of all, we haven't inducted NIOs at a pace that we were Adhrawa doing during the last few months, April and May have been nothing. And also new induction is also contingent on DGC order, which says that until and unless you have changed your engines completely, you can't conduct a new aircraft, which for which you have got time till August 31 now, which means that till August 31, let's say, you can't induct new, which means 4 or 5 months of this year gone, which is something like 20 new induction, which is 1 per week gone. So would you plan to make it up? Would you stay on 1 week for addition? How do you sort of put these things together? Yes. Okay. Wolfgang here. So I think we have it has been already mentioned that the next 30 deliveries we are taking, so we continue on that path, and we'll be inducting this aircraft. And with respect to the order of DCC, yes, we have got more time. However, we also undertake that we will not use this about 40 aircraft, which have where the engines are not they still have one engine is not modified. So we would be using them in a very careful way because we want to push first to get all aircraft completely modified. Right now, this is the best situation because we have now enough aircraft available to do it. So basically, we want to come out when production resumes, which is completely clean, everything modified, and then we are fully ready to fly all aircraft. So we have a certain restraint, which we ourselves undertake to do that. But yes, we have got this extension, which is very helpful and we push that we get it completed even earlier than that. Sure. If I can just ask you the last one. Basically, what is the absolute fixed cost reduction? If you look at 4 ks, if you leave the fuel cost, then you have roughly INR 60,000,000,000 of cost, all inclusive from revenue to PDP line, which is a few costs out, which is clearly relevant. What is the fixed cost reduction that we have achieved related to that benchmark as of now? So as I said, about 40% of our cost is fixed. Within that, on an employee cost basis, we expect on a full year basis, we'll be able to save 25% on our total employee costs. That's the goal that we're working towards. And all other costs in terms of our fixed cost bond outside of lease rentals are things that we are still working with various suppliers and various partners of ours. So that's the guidance we can give right now on our fixed cost plan. So we've reached out to all our suppliers and basically asked for a fairly substantial percentage cost reduction. And I'm pleased to say many of them have already sort of, as a result of negotiation, agreed to that. But they're continuing negotiations to try and reduce all of our purchase service costs by a substantial amount. Sure. Thanks a lot, sir. Thank you. The next question is from the line of Abhinav Bindari from Nippon Indian Mutual Fund. Please go ahead. Thanks for taking my question and commendable job by the team in the current situation. Couple of things. One is you had a very strong cargo growth in last year. Any outlook which you can give for this year because cargo operations have still been continuing in the lockdown period as well? And second one was on the fuel tailwinds, which would be available for at least a good part of this year. Any comment on that? Yes. So on the cargo, I have to say, I'm also pleasantly surprised by the strength. I didn't expect it. And I think a lot of it was driven by our international expansion. As international expanded, cargo expanded faster than we had Along with that, I think we've said before, our management team there in cargo has turned out to be a really high performance team. They're working very well together. They're putting some systems in places, very aggressive in the marketplace. So cargo has been a very good story. And I expect and not only expect, it has been during the shutdown, one of our few bright spots. So we are doing flights into China and Middle East, etcetera, even with the lockdown, carrying very good cargo. And as you know, before we were limited to carrying cargo in the belly only, which is about 6 to 9 tonne capacity. And now we've taken about 10 of our airplanes and converted them into all cargo operations and carry 17 to 20 tonnes of capacity. So we're looking at all that and saying, hey, even when we come back to a full operation, shouldn't we do some all the cargo operations to these international destinations? Because there's some sort of little channels which we've discovered, which are like, wow, these are really strong niche markets. So I expect cargo to continue to do very well in the future. What's the second question? On fuel costs. What was the I get to yes, go ahead. So on fuel costs, you're absolutely right. I mean fuel is a tailwind for us. And whatever flying we are seeing right now, it is cash contributory, primarily because fuel is down quite sharply as you noticed. So whatever flying we're doing in the past 7, 8 days and what we're flying for the next few days is cash contributory. So it contributes towards our fixed costs as we look forward. Yes. And just to expand on Aditya's point of view. So we've obviously done sort of stress tested at different levels of fuel. And it's quite encouraging to us that in a wide band of fuel costs, we will cover all our variable costs if you do a lot of flying. So again, that says, hey, get the capacity up there, it will contribute only to the cash situation. Sure. On the cargo side, just one related question. Have you been able to take some realization hike as well during this period? And unlike some other airlines, we have not utilized entire aircrafts for cargo. So any thoughts on that? No. As I mentioned, we've taken 10 of our airplanes and made them all cargo operations. So basically, you put lashing the nets inside the cabin and carry cargo inside the cabin. So just to give you the number, if we use just the belly of the aircraft, we can carry between 6 to 9 tonnes because of the volumetric sort of restrictions. But these 10 aircraft that we've sort of converted to all cargo, they're carrying up to 20 tons. So yes, we are you said, some airlines are doing it. We are one of them. We are doing it. Sure, sure. And just one clarification on the supplementary rental. So when you said there freezing on those rentals, is this a deferment? Or how should one think about it? And what could be the quantum if you can help us understand? Right. So supplementary rentals are purely driven by the amount of flying that you do. So till the time if we are flying, we need to put the supplementary rentals up. If you are not flying, then obviously the supplementary rentals don't accrue. But the way the agreements are written, I mean, you actually at the beginning agree that you will put a certain amount of cash towards supplementary rentals. What we have gone and spoken to our lessors is that since we are not going to do the flying, can we therefore be supplementary rentals because they won't really accrue to them because the flying is not happening. So on those supplementary rentals, we've got relief to the extent about 50% of our total supplementary rentals that are there right now. Sure. Got it. Thanks for a detailed explanation and best wishes. Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in this conference call, Please limit your questions to 1 per participant. For any further questions, you may come back for a follow-up. The next question is from the line of Ashish Shah from So my first question is about maintenance cost and the extra provisions that we're doing with respect to the CU aircraft. So assuming, let's say, we have some sort of a preponement of the retirement schedule, does this mean that the provisions, the extra provisions of let's say INR 300 crores per quarter that we are making, now those have to be accelerated or some amount of those will not be acquired at all because maybe the aircrafts are not getting used as much. So if you could help clarify that aspect it would be helpful. So I'll start with maintenance overall. So maintenance contains 2 elements. 1 is the supplementary rentals, which are variable. If we don't fly, we don't need to put out those supplementary rentals. But the provision that we're making on aircraft for future maintenance, the cost that we bear for FHAs and all of the maintenance costs of the aircraft, they are fixed in nature. So they will not vary based on we fly or we not fly, because we have certain lease return conditions under which we need to make good those expenses. So think about the supplementary rentals to be variable and think about everything else to be fixed. And I think you're also raising the point of will we be able to defer some of this engine maintenance. So if we were running at full speed, I mean, cost would be higher on the engine maintenance. Now we have been very choosy that listen, let's fly the neos more, let's fly the CEOs less and avoid those maintenance cost. Now if you say what is that number, we don't know yet. But engineering has a target to try and avoid those costs. I want to come back, if I may, to this whole safety issue. And there's another point I'd like to make. I'm sure you've read in the paper that Oya, on these eight flights, so many people had virus and so forth. I think it's important to keep in mind that those people had the virus before they got on the airplane. They didn't contact it on the airplane. And what is sort of node working there that they have done this tracing after that. And to date, there's no evidence of transmission on board there, I believe. So the fact that these people came with the virus, sat with maybe 80 people on the plane for 2 hours, then they got out. And to the extent the states and cities have done tracing, no one else has contacted it. I think that's a very encouraging sign about the safety of aircraft airline travel. Sure. Just to wind up on the maintenance part. So while we may see the baseline level of maintenance provisions continue as you are saying, but what I'm probably coming to the point is that there is no chance of an accelerated provision that might be needed because we are going to retire only. I mean that's not a scenario that might pan out, right? No, that will not. That will not. Sure. Second thing, we have this note number 15 results where we have said that we sometimes have raised an invoice and extend about INR 216 crores for I think those engine replacements which are being carried out. So it will help if you can elaborate a little on that because I think my understanding was that we need to incur these parts of the engine replacements. Yes. So we are in dialogue with Airbus on a particular clause in the contract in terms of what benefits are we allowed to in terms of some of the groundings of the aircrafts that we see. So that's a matter that we are discussing with Airbus right now. So we don't want to comment on that. But we don't expect an adverse financial any adverse financial impact on that for us. That would be surprised to say right now. I'll also jump in to say that please be respectful for all the other people who are in queue, because I think some people are ending up asking 5 questions and the other people waiting in queue to ask their one single question. Sure. I'm done. Thank you. Thank you. The next question is from the line of Vinit Malu from Aditya Birla Sun Life Asset Management. Please go ahead. Hi, good evening. I have two quick questions. One is, as you said, fuel is currently a tailwind. So are you considering hedging your fuel cost to cover it up for the time period? And if you could just share your thought process around it? And secondly, just a bookkeeping question, the restricted cash that you have in your balance sheet, this is against the already provided I mean already made provisions in the balance sheet or it is also against some of the provisions that you expect in the future based on contract? Okay. Let me take the fuel hedging issue first. And I can't tell you I can't overemphasize what a dumb idea it is for an airline to do fuel hedging. I mean I've looked at it from different angles. It's not a good idea. Airline after airline has got burnt terribly. And look, we are naive operating people. What the hell do we know about the commodity market? And if we did a hedging, we'd be doing it on the forward curve against some very smart people from Goldman Sachs and whatever, and they'll just eat a lunch. So no, that's not something we want to do. And remember that airlines adjust to fuel up and down. I mean, capacity goes up, capacity goes down, prices goes up, prices go down. So that's our way of still responding to it. And hedging just makes you more inflexible. So absolutely not we've looked at hedging. Again, we talked about it today at the Board level, and we said no, we're not going to hedge. Yes. On subleveland rentals, I want to clarify this is for all flying that we've done so far. This is not future looking in terms of the flying that we'll do in the next month or the next quarter or the next year. So it's not something I know the restricted cash that you have on balance sheet. Yes. So, thanks. And this again, what we have already done? No. So this is for what we've already done. That's what we put up a restricted cash for, for flying that we've already done. Okay. Yes. Thank you very much. Thank you. The next question is from the line of Chintan Seth from Samitsha Kapitan. Please go ahead. Hello. Yes, go ahead. Yes, yes. Thanks for the opportunity, sir. In terms of the number of aircrafts in the new front, can you please provide what can be the you already mentioned that 120 won't be replaced immediately over the next 2 years. But incrementally, what number we should start looking at as a percentage will also do? No, no, wait, wait, wait. Just to be clear, I didn't say they won't be replaced. I said, of course, they'll be replaced, maybe not 1 to 1, but a very large proportion of those will be replaced. Sure. And on the cost front, given the number of SOPs we have included like cleaning and deep cleaning and other stuff, what will result in higher cost because of that? And what will happen to the blockovers because we have to deep clean after departure or sanitize the entire fleet after every departure? What will happen to the blockovers? Yes. Okay. So in terms of material we invest or we provide for PPE for crew and passengers, This is an amount if you are in the LM business, you have talked big money. This is amount which is actually something which is really, let's say, a PPE cost something like INR 200. You can imagine this is an amount. If it's just for temporary in nature, it is absolutely not an amount where you are, which changes our cost structure substantially. This is one element. So this the other element is naturally we need some more staff at the airport to handle all these things. So our estimate is something like 10% to 15% more people are needed to accommodate and to go through all these procedures because naturally procedures are more complex now and we want to take really care of our passengers and our crew that everything goes fine. So this is a temporary cost, which we will have to handle. In terms of turn times and all that, Actually, we left our turn times unchanged. So our aircraft rotation, which is a high cost item, rotates in the same way, but we take the cleaning takes 10 minutes longer approximately, but we make good for that because there's less ATC congestion, these kind of things. So we can keep our on time performance. I mentioned we have 95% on time performance and we get it from shorter flying, quicker taxi times. And nevertheless, we can fulfill all the requirements which are there in this SOP. So I do not expect a major, let's say, negative effect on our cost because of these SOPs. That's my summary on that. Yes. The reduction in ATC times, guys, is something that's quite significant for the airline industry. As you know, we circle around Mumbai for quite a few minutes before we land burning fuel, burning crew time, burning maintenance time. All that reduction is quite significant. Right. From there, you are saving and making up of lost time. Yes. But lost time on the ground doesn't result in higher maintenance cost or fuel cost. Right, right. Sure. That's it. Thank you. And if I may add, every crisis has also benefit. So we could achieve something through these new SOPs, which will also include savings for us. For example, who are all of your frequent flyers in India, you are all used that your boarding pass gets stamped, you have to go to the counter, you get this. Again, it is checked. Now we actually went to a ticketless travel now. We jumped in one go, 1 or 2 steps ahead in the development of how we deal at an airport with passengers and how much more optimized they are getting. So actually, this was a big achievement, all of us. And I say the ministry, all the stakeholders, the airports, the airlines came to hear really good conclusion, which makes our whole system more efficient going forward. The next question is from the line of Joseph George from IIFL. Please go ahead. IISL. Just a couple of small questions. One is on the lease rentals, is there any moratorium or discounts, anything that you're getting from the lessors? Or are you paying all the rentals at the same rate as you were paying pre COVID? So that was one. And the second question was the flights that you're operating now, what neutralizations are they running at? Maybe an approximate number. So this whole thing about leaving the middle seat empty, is that actually being implemented? Or is it not mandatory yet? So these two clarifications. Thank you. Okay. With the lessors, again, I'm restating and reemphasizing what I said before. Indigo's relationship with its lessors is one of its key success factors. So we cherish it. We nurture it. We are working very closely with them. And we hope to make this relationship even stronger as we go ahead. So if we do anything, it will be 2 mutually agreed upon terms. So we are not in any way sort of reneging on any commitments we've made. The second question was on? No, load factor. No, load factor, sorry. Okay. And should we have the middle seat empty? Remember, the airline business is cyclical, seasonal, time sensitive, direction sensitive. So yes, you could be doing Delhi, Rachi at 90% load factor and Rachi, Delhi at 20% load factor. So there's no point looking at rachi delhi and saying, Oh, it's 20% load factor. Why don't you guys just keep the middle seat empty? Of course, we will. But don't impose it on Delhi, Rachi, which where we are the only place we're making money by forcing this middle seat empty. So we will keep the middle state empty wherever we can. But to the extent that we need to fill the middle state, we'll have this extra productive down. And again, I have to stress guys, there is no evidence yet of contamination on an aircraft. You can come in contaminated, but so far, there's no evidence of you passing it on to your fellow passengers. Thank you. That's very clear. Thank you. Thank you. Ladies and gentlemen, that was the last question. I now hand the questions over to Mr. Ankur Goyal for closing comments. Thank you. Thank you all for joining us. Due to positive of time, we could not take all the questions, I hope you found the call useful. Thank you, Adi Mata. Ladies and gentlemen, on behalf of Indigo, that concludes this conference. Thank you for joining us and you may have disconnect your lines.