Good evening, ladies and gentlemen, and welcome to InterGlobe's conference call to discuss the third quarter fiscal year 2020 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 would now like to turn the conference over to your moderator, Mr. Ankur Goel, Head of Investor Relations for InterGlobe. Thank you, and over to you, sir.
Good evening, everyone, thank you for joining us for the third quarter fiscal year 2020 earnings call. We have with us our Chief Executive Officer, Ronojoy Dutta, and our Chief Financial Officer, Aditya Pande, to take you through our performance for the quarter. Wolfgang Prock-Schauer, our Chief Operating Officer, and William Boulter, our Chief Commercial Officer, are also with us and are available for the Q&A session. Before we begin, please note that today's discussion 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&A session will be uploaded subsequently. With this, let me hand over the call to Ronojoy Dutta.
Good evening, everyone, and thank you for joining us on this call. We released our third quarter fiscal year 2020 financial results today, and I'm pleased to announce a profit after tax of INR 5 billion compared to profit after tax of INR 1.9 billion last year. Our after-tax profit margin was 5%. Overall, we continue to do well on the revenue front while being challenged by some temporary headwinds on the cost front. We are happy with the improvement in revenue performance during the quarter, and we've reported a year-over-year RASK growth of 5.6%, with December in particular being a strong month. We have now had a string of 5% improvement in unit revenues over the last four quarters.
As we move to the seasonally weak fourth quarter, year-over-year improvement in unit revenue will get more challenging because we will be comparing ourselves against the base period when Jet Airways capacity was beginning to decline. In terms of strength and weakness in our system, the overall trend in metro-to-metro markets is weak because of the new competition we are facing in these markets. Fortunately, international is a bright spot in our system as both capacity and margins continue to expand simultaneously. Non-metro markets also continue to do well. As part of our international expansion, we signed a codeshare agreement with Qatar Airways. This is our second codeshare, we will continue to evaluate such options to improve our global footprint and generate incremental revenues. I'm pleased with the growth in ancillary revenues. We have reported ancillary revenue growth of 29% against a capacity growth of 19%.
Our cargo uplift grew by 46% on a year-over-year basis. InterGlobe's domestic cargo market share is above 40%, a sharp increase from the same period last year when we had only 27% market share. Other ancillary revenue excluding cargo has also grown faster than capacity. We are continuously evaluating different ancillary products, which can be offered to our customers to improve their flying experience. Cost headwinds are a continuing challenge we are working through. The drivers here are the maintenance cost of the old ceo engines and the bubble of pilots in training we are experiencing. Aditya will go into more detail on the engine maintenance cost and the pilot training cost. The most effective lever we have to reduce unit cost is to increase aircraft utilization. Aircraft utilization has been held back recently because of pilots in training as well as the numerous engine changes.
Come June of 2020, we will be in a position to increase aircraft utilization. Despite the current challenges, we were able to increase aircraft utilization by around 7% sequentially quarter-over-quarter. On capacity guidance, we expect a year-over-year capacity increase in terms of ASKs of 20% for the fourth quarter and 23% for the full fiscal year. For fiscal year 2021, we anticipate the capacity increase to be around 20%. Now let me hand over the call to Aditya to discuss the financial performance in further detail.
Thank you, Ronojoy. Good evening, everyone. For the quarter ended December 2019, we reported a profit after tax of INR 5 billion with a profit after tax margin of 5%, compared to a profit after tax of INR 1.9 billion with a profit after tax margin of 2.3% on a year-over-year basis. We reported an EBITDAR of INR 19.6 billion compared to an EBITDAR of INR 16.7 billion during the same period last year. We reported higher profits in the quarter compared to what we had indicated in December because of both better revenue performance in December and lower mark-to-market loss on capitalized operating leases as compared to our previous estimates. Let me take you through key highlights of our performance during the quarter. Our year-over-year revenue grew faster than our capacity.
While our capacity grew by 19.3%, our revenue from operations in the quarter was INR 99.3 billion, an increase of 25.5% on a year-over-year basis. We saw an increase in both our yields and load factors. For the quarter, our yields increased by 1.2% to INR 3.88, while the load factors were up by 2.3 points at 87.6%. Our RASK increased from INR 3.7 in the same period last year to INR 3.91 for the quarter, an increase of 5.6%. We continue to actively work on loading the fuel CASK post adjusting for fuel price changes. Our fuel CASK decreased by 17.9% compared to 11.9% decrease in ATF prices on a year-over-year basis. The cost headwinds persist. CASK for the quarter was INR 3.69 compared to INR 3.62 during the same period last year, an increase of 2.1%.
CASK ex-fuel was INR 2.4, an increase of 17.5% from the same period last year. Sequentially, we did better with unit cost decreasing from INR 3.85- INR 3.69. Similar to the last quarter, the increase in CASK ex-fuel was driven by mark-to-market foreign exchange loss on capitalized operating leases, higher maintenance costs, and higher employee costs. During the quarter, INR depreciated from INR 70.71 per U.S. dollar to INR 71.3 per U.S. dollar, and as a result, we had INR 1.3 billion of mark-to-market loss on our capitalized operating leases. Excluding MTM impact on capitalized operating leases, our CASK ex-fuel increased by 15%. As explained during the last earnings call, we continue to see elevated maintenance costs related to reassessment of accrual estimates for heavy maintenance and overall cost of our ceo engine. This impacted our CASK ex-fuel.
We have booked total supplementary rental and maintenance costs of INR 16.3 billion in the same quarter. Sequentially, on a per ASK basis, the cost has remained the same despite rupee depreciating by around 2% during the quarter. Going forward, on a per ASK basis at constant currency, we expect that the supplementary rentals and maintenance costs line item to improve from the current level starting fiscal 2021, despite contractual escalations and capacity additions. Our employee costs per ASK have increased from INR 0.4- INR 0.48 compared to the same period last year, driven by pilots in training, impact of Agile, and salary hikes. Further, we still have 400 additional pilots undergoing training, and once these pilots are available to fly, we expect an improvement in unit employee costs. We are seeing an improvement in this number. Since last quarter, we had 600 pilots in training.
Fuel CASK is still a good story. We continue to witness improvement in our fuel CASK performance at a faster rate than reduction in ATF prices. This was primarily driven by increase in fuel-efficient neo-aircraft as a proportion of our total fleet. Increase in international operations have also resulted in a better fuel CASK on account of lower taxes and higher stage lengths. Our balance sheet continues to remain strong. Our cash balance at the end of the period was INR 201 billion, comprised of INR 94 billion of free cash and INR 107 billion of restricted cash. Our total cash has increased by INR 13 billion during the quarter. The capitalized operating lease liability as on 31st December 2019 was INR 192 billion. Our total debt, including the capitalized operating liability, was INR 215 billion. With this, let me hand it back to Ankur.
Thank you, Ronojoy and Aditya. To answer as many questions as possible, I would like participants to limit themselves to per question and one brief follow-up. With that, we're ready for the Q&A.
Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Suraj Khera from IIFL. Please go ahead.
Hi, this is Joseph from IIFL. Can you hear me?
Sure. We can.
Sure. I had three questions. One was, would it be possible to give the value of right to use on the balance sheet at the end of the third quarter? I think you had given the number at the end of the second quarter. If you can give the number for the third quarter, it'll be great. That's one. Second was, if you can give some indication on what the growth in international ASKM for next year would be. Overall, you've guided to a 20% kind of a growth. Just wanted to understand what percent of that incremental 20% would go into international broad sense versus domestic. Third was, you also mentioned that the yield situation is looking challenging because of the Jet bankruptcy in the YOY base.
Are you guiding to a flattish or a decline in year-on-year yield going into the March quarter, or if you can give some indication there? Three questions, value of right to use, international versus domestic growth for next year, and third, some guidance on yield.
International versus domestic. We are moderating ourselves to be sort of 50% of the additional capacity goes domestic, 50% goes international. We have lots of opportunities in both areas, and we don't want to grow one at the expense of the other. Again, it's a 50-50 split in terms of additional capacity. Yield year-over-year, what are we projecting for the next quarter? It's a challenging question to which we don't have a precise answer, and I'll tell you why. Just to look at the recent experience, October was quite a disappointing month. December bounced back faster than we expected. January, it's continuing to see the December strength.
We know that February and March are typically seasonally very weak. One of the things that I've learned in Indian aviation is that September and March you can't predict, and usually they're lower than you would expect. With exams coming and everything, people just refuse to travel in March. How bad will the effect be this year, we really don't know. On top of that is the Jet effect. The Jet, if you recall, started reducing capacity in February. February, March, April, these were very strong months in terms of Jet comparison, and trying to match those numbers is going to be a challenge. With that, I can tell you, I'm hedging my bets. We don't really know. At this point, we don't want to give you an answer because all we can say is January, which was good.
February and March are going to be real challenges. The right to use.
Yeah. On the net ROU, question on net ROU, 30th September, you recall this number was INR 102 billion. This number is now INR 115 billion with the capacity addition that we've had to our fleet.
Sorry, just a clarification needed on the right to use number. The number that I have for the September quarter is INR 133 billion. This is on the balance sheet. How does this number compare to the 3 Q number?
We have INR 165 billion of gross ROUs, and this is now going up to INR 185 billion of gross ROUs.
INR 185 billion versus INR 165 billion.
Right. Our net ROU basis is INR 102 billion going up to INR 115 billion.
Okay, got it. Thank you. That's all from my side. Thank you.
Thank you. The next question is from the line of Ashish Shah from Centrum Broking. Please go ahead.
Yeah, good evening. Just wanted to touch upon the subject of supplementary rentals and maintenance. We did allude in the opening remarks that we would expect the per unit cost to go down next year. Any quantum that you could give, how do you expect, either in the per unit basis or an absolute basis, if you would like to guide anything on that?
We're not giving out a guidance as to what it is going to be, but today, as you can see, it is about INR 0.63 per ASK. We expect this to be continued to be elevated in our fourth quarter, but as we get into 2021, this number should start reducing. We don't have an exact number as to what it's going to be because we are still working through our planning cycle for the year. It should be lower than the INR 0.62, INR 0.63 that you've seen.
Sure. Secondly, on the entire program that we are currently in terms of changing the Pratt & Whitney engines, and that we expect probably will be done by June. Where are we exactly in that process, and do we expect that we'll be meeting this timeline that we've been now given by the DGCA?
Yeah. Wolfgang Prock-Schauer here. We have our-
Sorry, sir. I lost you, sir, in between. Could you just please repeat?
Can you hear me? Yeah. Right now we have 106 neos having 212 engines, and we have replaced close to 60% of all the engines to become fully compliant with an FAA rule, which is applicable at end of 2020. We are very confident, and as you know, there was a guidance given by, not guidance, a ruling by DGCA that we have to replace all these non-modified engines by end of May, and we are confident that we meet the target and have all engines modified on our aircraft by end of May. In addition, I can give you information that in between, there's also EASA ruling, which does not require all engines to be exchanged, but there should be no aircraft having two unmodified engines on its wings, and we have already complied with that one. Currently there's no aircraft flying with two unmodified engines.
We are well on track on both applicable rules, both EASA and FAA, and we are confident we'll meet these targets.
Sure. That's helpful. Thank you very much. I'm done.
Thank you. The next question is from the line of Anshuman Deb from ICICI Securities. Please go ahead.
Thanks for the opportunity. I had a question regarding the supplementary rentals. The additional accrual in this last three quarters has been to the tune of around INR 6 billion, as per our disclosures, nine-month FY 2019. This additional accrual, how much will it be for FY 2020 or FY 2021? If you could give any idea on that would be really helpful. That is one. Secondly is that, in concern with our AGM meet that we have on 29th, if you can share any color on that would be helpful.
I'll take the AGM meeting. As you know, the Gangwal Group has asked to remove the right of first refusal from the articles of association. The company really does not have any stand on this matter. We are totally neutral. It's really up to the shareholders to decide which way to go. Aditya, on the supplementary?
Anshuman, on the question of supplementary rental, as I just mentioned, I request you to please focus on the overall line. We are at ₹1,630 crores for the quarter. We expect to be in a similar range for 4Q. On a per ASK basis, as we start getting into 2021 fiscal year, you will see that per ASK cost going down. That's the guidance we are offering right now.
Okay. Thanks a lot. Thank you.
Thank you. The next question is from the line of Bhavin Shah from Sameeksha Capital. Please go ahead. Bhavin Shah, your line is unmuted for a question. Please go ahead. Since there's no response from the line, we'll move to the next question that is from the line of Deepika Mundra from JP Morgan. Please go ahead.
Hi, good evening. A couple of questions. Last quarter you had mentioned that the Neo deliveries have been slightly slower, particularly A321s. Could you provide a status update on that? Because it seems towards the end of the quarter, the pace of the deliveries has picked up. In relation to that, we've also seen some decline in the ceo fleet, in the particular quarter. Again, what bearing will that have in terms of the cost structure in the coming quarters as that continues to wind down, given the maintenance provision has been largely taken for the same?
On the neo deliveries, basically you can predict to a certain degree the delivery slow down because you see where the aircraft are in the assembly line, and all that is factored into our capacity forecast. Whatever we gave you in terms of our capacity guidance for FY 2020 and FY 2021 is already factored in. There is a certain slowdown, but deliveries continue in the pace of four to five a month, and that's all factored in. In terms of ceos, there's a natural, obvious cycle of ceos to be removed, because our lease terms are relatively short, and they will be, let's say, given back to lessors. There's a continuous cycle going on. There's not a specific strategy behind it. It's just a continuous pace of returning older aircraft and getting new aircraft instead.
In terms of the costs, the classic engines have a higher maintenance cost and a higher fuel cost, but a lower ownership cost. Those are three pieces that we juggle, and clearly we think the neo is better overall, with a slightly higher ownership cost, but a lower maintenance cost and a lower fuel cost.
Got it. Thank you. I'll step back in the queue for questions.
Thank you. The next question is from the line of Bhavin Shah from Sameeksha Capital. Please go ahead.
Yeah, I was just asking, you mentioned that the cargo volume is up strongly year-over-year, and the revenues are not showing a similar trend. Could you comment on that? Is there a lot of pricing pressure in that space? Second, I think you mentioned some of the positive factors with respect to the international business. Would you care to comment on the spread between international and domestic, or at least the last comparison? Thanks.
On the spread between domestic and international. Clearly domestic has its strengths, domestic has its weaknesses. Domestic strengths, as you said, are in the non-metro markets. We find those doing very well. Metro to metro markets historically used to be one of our strongest markets. Now with the low-cost carriers coming in and being very aggressive on pricing, that has become relatively weaker. Similarly, international, clearly the markets that have matured are doing exceptionally well. The markets that we've just introduced are sort of building up.
Sorry, just to mention on the cargo side, as Ronojoy covered, I think in the opening remarks, we have seen a bounce back in terms of our market share, which is now above 41% compared to 27% last year. This is driven really by a better concentration on the sales cycle for cargo, and better throughput, and also one or two of our competitors have had challenges on the cargo side. We do anticipate that this will be maintained for some time.
Yeah, what I was asking is, the cargo revenue seems to be growing at a lower pace than volume. That seems kind of counterintuitive given what you just explained.
The cargo volumes are up about 40%, which is a pretty good result, I think.
I think the answer is there's lower yield, but this should be
Yes. Slightly lower yields. As I say, we continue to be optimistic about cargo.
Okay. Thank you.
Thank you. The next question is from the line of Aditya Makharia from HDFC Securities. Please go ahead.
Yeah. Firstly, just wanted to know what is international as a percentage of our revenue today. Secondly, with this issue around the virus, the whole China virus issue, how do you see air travel growth, particularly on the international side? Thanks.
Again, international, both capacity and revenue are sort of marching towards 25% of our total capacity. The virus situation, we are obviously monitoring very closely. We have seen some cancellations. We've offered for a month, we'll take cancellations, and we have seen some. We're monitoring the situation very closely, but we have not taken any decision on capacity adjustment as of now. As you can see, this is an ever-evolving story. Every day we have a conference call talking to all our sales people around, especially in China, but in other areas as well, and looking at how our bookings are doing, and based on that, we'll take a decision.
Would it be fair to assume at least that the traffic which is westbound, at least that is not impacted? The eastbound traffic I can understand, but the westbound should be holding up, right?
Westbound has actually seen a pickup because I'm sure a lot of people are coming out of China. We've seen a pickup in that. Equally, we've seen a cancellation going into China. These are still early days, and we are monitoring it closely.
Sure. Last question, China relatively for you is a new market, right? In that sense, the impact would be lower.
China, but we were off to a very strong start, frankly. I mean, that has been one. I think we mentioned the last call also. China has surprised us with its strength. It is a new market which took off very fast. It is an impact. You had a question of what does it do to air travel?
Yeah.
It's really bad for air travel overall. I mean, we're talking of China, but people will just say, "Hey, stay home." You don't know what's happening in other parts of the world either. Compared to SARS and all that, this is not a positive for air travel.
Sure. Got it. Thanks so much.
Thank you. The next question is from the line of Varun Ginodia from Ambit Capital. Please go ahead.
Good evening, everyone. Thanks for taking my question. I have three quick questions, if you can throw some light on them. Number one is on this entire engine issue by Pratt & Whitney, are you eligible for any compensation from the OEM? If you can quantify that, if that is the case. Number two, government released invited EOIs for the Air India sale today. Wanted to know your thoughts, whether because the news flow are suggesting the name of InterGlobe as well as one of the potential bidders. How are you looking at that particular transaction? Number three, on the FY 2021 capacity guidance, you gave 20%. If I remember correctly, in your 2Q call, you were expecting in the range of 25%.
Is this lower guidance largely driven by delay in new deliveries, or is there anything else as well to this guidance number?
Let me take each one of these. Air India, we really will not comment. Yeah, Air India, no comment. FY 2021 guidance. Our fourth quarter is off to a weak start because of all the engine changes and so forth. As you said, after that, by June, we really ramp up the aircraft utilization. Aircraft utilization is weak in the fourth quarter, weak-ish in March, April, and then ramps up towards the end. It's the aircraft utilization that's really driving this. We've had some delivery delays as well from Airbus. It's a combination of those two factors. Excuse me, can you ask the question again on the engine issue?
Are you eligible for any compensation?
Oh, yes.
from Pratt & Whitney for all the delays that are happening here?
Both with Airbus and Pratt & Whitney, we have very good contracts in terms of compensation and eligibility thereof, and we will pursue them vigorously with the manufacturers.
Okay. Just on that, the FY 2021 capacity guidance. You are expecting utilization to ramp up from the May, June onwards, right? Around that time. To remain muted until May. It's only about a month or so of FY 2021 where the utilization will hit your ASK guidance per se. This markdown from 25 to 20% is only driven by those two months, or is there anything else as well in here?
The number of aircraft deliveries also is lower than we had anticipated.
Okay. That is also another reason.
Yes.
Okay. Yep, that's it from my end. Thank you.
Thank you. The next question is from the line of Abhishek Joshi from CGS-CIMB. Please go ahead.
Sir, are we looking to buy any wide-bodied aircraft carriers? There was just a news that Singapore Airlines, or should I say Vistara, is planning to buy some wide-body carriers, and so that they can directly fly long distances. If we are not planning for any wide-bodied carriers, then how does it affect our route towards the Middle East?
Wide-body is a project that is ongoing. We keep studying it with different perspectives. No decision has been made. As to our route plan, we have the A320s, and the A321, as you know, is over 220 seats. We have the A321XLR, which takes us almost nine hours. We can go to a lot of markets around India, from Seoul to Bali to Barcelona, all with the fleet that either we have already or that we have on order. The seat count is also with the A321 quite attractive. The Middle East is really not affected by this. You don't need a wide-body to go to the Middle East. We have enough A321s to serve the Middle East quite properly. Remember also, traffic tends to fragment by frequency, not by seats. Would I rather have two frequencies or one large wide-body?
I think I'll get more market share by going with frequency. We're quite happy with the fleet plan, frankly.
No, I was asking about the Middle East because many passengers go for the Middle East. There is a halt time, like we have a codeshare agreement. For example, it takes 16 hours to fly to U.S. We can't fly directly to a market like U.S. Because of that, if passengers choose to fly directly, then how are we affected?
Okay. First, let me tell you about the non-stop India to U.S. market. It's a very challenging market. Many carriers try and many carriers have failed. The problem is the fuel burn. You burn so much fuel going non-stop to the U.S. that you have to load more fuel. The more fuel you load, the heavier you become, and your fuel burn goes higher. Unless you get a very good yield premium, the economics don't work, and the fact is, you don't get a good yield premium. Therefore, the market is very challenging. We have no plans of flying non-stop to the U.S. Even if we had a wide body, that would not be one of our first markets, believe me. Our fleet plan is very much in line with what we want to do, of the markets we want to fly.
We've got a schedule built for the next four, five years, and we've ordered a fleet plan according to that.
Sir, can you give me the average revenue per passenger for international flights and for domestic flights during the current-?
I can tell you that the yield of revenue per seat mile goes down with length of haul. You would expect that as we grow longer distances, our yield will gradually come down. Along with that, your cost curve also comes down. It's all dependent on the length of haul. Yield goes down and cost per SKM also goes down.
Thank you. Mr. Joshi, request you to join the question queue for any follow-ups as we have several participants waiting for their turns. The next question is from the line of Sonal Gupta from UBS Securities. Please go ahead.
Thanks. My question has been answered. Yeah.
Thank you. The next question is from the line of Binay Singh from Morgan Stanley. Please go ahead.
Hi, team. Thanks for the opportunity. The first question is, at the start of the year, the aviation minister made a comment that the government is looking into predatory pricing in airlines in India. Do you foresee any change in competitive landscape or regulatory landscape as the government is also now worried about fares being very low in India?
Fares were quite low in India.
Yes
in the metro-to-metro market. I think that's where all the attention has been in the month of October. As we said, they've recovered in December, and January looks reasonably strong. I don't know how anyone would prove predatory pricing in all of this. I think people are just reacting to the marketplace. If load factors are strong, we raise fares. If load factors are weak, we reduce fares. There's no predatory pricing in any of this.
Okay. Second, what percentage of your traffic is now from China? Will be a very small percentage, I assume.
Very tiny. One.
Just one.
People are saying less than one. We've just got two flights right now, Delhi-Chengdu and Kolkata-Guangzhou. It's a very small part of our system.
Right. Thirdly, in your comments earlier, you said that the aircraft utilization will rise from June. Could you give us any number as to what is it today, and how do you see that changing going ahead? That'll have implications on CASK and all.
Sure. We are trying to get to above 13 quickly. Right now, we are closer to 12.2, 12.3, in that range. We want to take it above 13 very quickly after June. Again, the reason we are being held back is because of we're doing so many engine changes and because of the pilots in training. That's what's holding us back. I feel like the airline is not able to fly at full throttle right now. After June, we will be flying at full throttle, and I'm excited about what will happen after that.
What is the upper end of this number? Till what number with your current mix of domestic and international, if you become one-third international in a year or so.
You need to look at.
What is the upper end of this number?
We need to look at global carriers and what they do, including low-cost carriers. 13 is a very healthy and respectable number. We'd like to go above that. Even some low-cost airlines like Ryanair and all are like at 11 hours. Of course, everyone's schedule is different. We can easily get to 13 and above, and that's what we're shooting for.
Thank you, Mr. Singh. Request you to join back the question queue. The next question is from the line of Ashwani Kumar from Nippon India Mutual Fund. Please go ahead.
Good afternoon, sir. My question was, what is your market share in metro to metro and non-metro to non-metro? Wherever it is falling, what is the way to correct it or improve it?
Wait. I don't know that our market share is falling anywhere.
Oh.
We've looked at everything by every metro, everywhere. Our market share, it hits maybe 49%, it hits at 47%, it's somewhere in that range. We're not losing market share anywhere. I mean, each of our metros, each of our non-metros. As I said, as we add more capacity, I don't want to direct it all internationally. We've got lots of domestic opportunities, which are very attractive. Yeah, there's no question of losing market share.
I wanted to know, in terms of non-metro to non-metro, what is the opportunity basically, non-metro to non-metro, if you look at it? Where is this growth coming from? What's the reason for growth in these specific markets over-
Where is the growth coming from? The fact is, the Bangalore and the Hyderabad are great markets, but to an extent they've been played out, right?
Yeah.
The Patnas, the Lucknows, the Bhubaneswar, the Coimbatores, there's lots of room for growth in all those areas. That's where now our first phase was metro to metro. We've maxed out on that sort of. We went metro to non-metro. Still lots of opportunities. Finally is non-metro to non-metro, which today is a very small part of our system. We are coming up with a plan to serve those better.
Yeah. Sir, the international customer who is coming to you predominantly, which kind of airlines are you able to attract the customer? Is it a typical Air India customer, or is it Jet Airways customer? Can you specify, and would you aim to compete with the bigger premium airlines also at some point in time?
We are a low-cost airline. They are a full service airline. We are not going for the business class customer, obviously. We are also not going for the premium economy customers. We're just going for the economy customers. Emirates and British Airways, they have a segment that we don't compete in, which is just business class and the premium economy. After that, in economy to economy, we are fully competitive.
Sure. Thank you very much, sir.
Thank you. The next question is on the line of Manish Ostwal from Nirmal Bang. Please go ahead.
Yes, sir. Thank you for the opportunity. I have a question on the maintenance cost. In the December presentation, we have indicated that the maintenance cost will remain elevated level till FY 2022. In initial remarks, you said that in FY 2021, the maintenance cost will decline from the current level. What is the reason for the diversion of comment from the December update to the current quarterly update?
I think what you're referring to is a line item of cost. What we meant, and also if you look at our December presentation that we made, the line item of cost itself would remain in this region. INR 1,600 crore, INR 1,700 crore as the volume goes up. What we want you to focus on is the per ASK cost of that. While the per ASK cost is obviously elevated because these are higher than what we've been typically been experiencing in 2016 and 2017. As you go into the 2021 fiscal, and we're only talking about 2021 right now, you will see that the per ASK level cost will start coming down.
The line item itself, which is the line item of supplementary rental and maintenance, would remain in that INR 1,650 range or in that range, but unit cost will come down because we'll be flying higher ASKs.
When you say unit cost will come down, that means unit cost again back to INR 0.44, INR 0.45 per ASK kind of levels?
No. It can't go down to that level. Definitely not to that level, and we are not guiding any number over there. We still have these aircraft in our fleet for the next 12 to 18 months. They will still incur the expenses. We are booking those costs on an accrual basis. They're not going to go back to 0. 44. As we go into 2021, they're not going to remain 62, 63 as well.
Sure. Thank you.
Thank you. The next question is on the line of Deepak Krishnan from Goldman Sachs. Please go ahead.
Thanks a lot for taking my question. This is Pulkit from Goldman. My first question is, if you look at your A320ceo fleet, could you highlight what is the average age of that fleet as of now?
Average age.
Around six.
Yeah. Six. Because we all think around six, because they're hitting their second shop visit, which means they must be around six. We haven't actually studied this number to give it to you. Maybe you can call Ankur, but we're all guessing it must be around six years.
Okay. Which effectively means that we have to do the D checks, which is why the maintenance cost has been higher. What is the balance lease life left for the same ceos? If you could also highlight that number.
By 2022, they go away, right?
Right. By December 2022, we expect all of them to go away. We will start returning these aircraft starting 2021. You'll see the proportion of the ceos that are leased and used in our proportion going down. As we get to December 2022, we have all these aircraft returned by that time.
When you say all, you mean the ones which are over six years, or you mean the entire fleet basically gets replaced?
No, these are only the used aircraft that we've taken and the extensions that we've made.
understood. Yeah, that's helpful. My second question is, since you've spoken about the metro and the non-metro routes, and the yield has actually been pretty decent with 1.2% growth, would you give a rough idea of how the metro yields would have been? What would have been the trend in the non-metro yields if we were to look at percentagely?
We don't want to get that specific. We really don't want to get that specific. We can only say there is weakness in metro to metro. It used to be our biggest, strongest market. They are not now, but fortunately, that weakness is compensated for both by international and by the non-metro experience.
Understood. Thanks a lot for those answers. Thank you.
Thank you. The next question is from the line of Vijay Gupta from Vijay Gupta Advisory. Please go ahead.
Yeah. Thanks for the opportunity. I had a couple of questions. Firstly, we have seen a very welcome increase in PLF this quarter. Along with that, other operational metrics like on-time performance, for example, or the cancellation rate, that has actually worsened if I look at it on a YOY basis. How do we balance all these factors? What is your outlook on PLFs going forward?
Wolfgang here. I take the question on cancellation rate and On-Time Performance. If you look at the official DGCA data, you will see that we operate as number one amongst the Indian carriers, official data for the last quarter. Overall, the OTP On-Time Performance was a challenge for every airline, but we were number one. I'm not talking YOY now, I'm talking compared to last quarter. The same applies to cancellation rates, where we have been the airline with the least cancellation rates in the industry compared to last quarter again.
As Wolfgang said, we were number one, the whole industry is performing much worse. If you do a year-over-year comparison, the industry is not doing any better. There are a number of reasons for that. One, of course, is the weather patterns. People talk of climate change and all that. We seem to have more cyclones, more strong winds. We saw the dense fog that enveloped the whole of Northern India for the last few weeks. On top of that, you have the infrastructure challenges. One thing you need to know is that Bombay, the primary runway, has been closed for a few months. People say, "Oh, I took five flights from Bangalore to Bombay, and two of them were late." I'm like, "Yeah, the runway is closed." True for everyone.
Bombay, in particular, has taken a big hit in terms of on-time performance. You have to look at the environment we are operating in right now, and we are not doing as well as we'd like to, but competitively at least, we are still doing well. I think you were saying, how does it affect load factors? I don't think it does. Our load factor is strong, our demand remains strong. Customer complaints would be lower for sure if we had a better operation going. You can't fight fog and you can't fight the runway closures.
Right. Just to confirm, PLF is not at all related to the cancellation rate. It is not like we are bunching flights with lower PLF with flights with higher PLF, and that is why the overall number is higher.
Believe me, one of the metrics that we look at most carefully every morning is customer complaints. That is something that's very close to us, and we say, yeah, we can be growing, we can be profitable. Yeah, everything's great. If the customer is not happy, we are not happy. No, we wouldn't dare do something like that, which would disenfranchise so many customers.
All right. Secondly, the EBITDA number, which you actually gave in the presentation, how do we reconcile that with the reported P&L?
Do you mean the EBITDA number that we reported at a rate is lower than what you see from last year?
No. The EBITDA number, which you have quoted in the presentation, is INR 19.6 billion.
Yeah.
How do I get that from the reported numbers? What costs are included in this?
You can do profit before tax, add your lease rents, lease rents and depreciation, add your interest costs, and take out interest income.
What about supplementary rentals? Is that included in this, or?
No, it's not. If you work with the IR team, Ankur, we can give you a small table for that.
All right. Would it be possible to disclose the quantum of supplementary rentals?
Supplementary rentals move quarter-on-quarter for a variety of reasons. Roughly, it's about 50% of the total cost line item.
All right. Okay, thanks a lot.
Thank you. Next question is from the line of Achal Kumar from HSBC. Please go ahead.
Hi. Good evening, gentlemen. I had a few questions. One, obviously, I want to understand about the capacity growth. I'm so sorry to go back to that question, but a bit confusing. Your utilization is going up by 6%-7%, and then you are getting a bigger aircraft, which are A321neo. Yet you are guiding a capacity growth of about 20%, and despite the fact that a couple of quarters back, you've been guiding a capacity growth of about 25% for the next three years while you had a plan to return your ceos, and now you're carrying on with your ceos because you had a problem with Pratt & Whitney engine. Overall equation looks a bit confusing. If you could please help to understand that.
If that is the case, and if the capacity growth is only 20%, which means the revenue momentum looks to be slowing and your cost is growing. Of course, you have cost pressure, which will decline in the next year. Yet overall equation looks a bit unfavorable for the profitability. If you can please help on that. That is one question. Secondly, I also wanted to understand about your international operations. Which are doing good, of course, you said. With the virus, China has been impacted. If I look at the SARS, the traffic was impacted for about two to three quarters. How do you see that situation? I know you are committed to that, but when would you decide on the China thing? If you need to remove capacity out of China, would you deploy it somewhere else?
How would you manage your international operation in that case? Finally, the third thing I wanted to understand about Qatar, because I remember this deal was a one-way deal where Qatar was able to put his code on your ticket. What sort of benefit are you getting, and how do you see your relationship with Qatar? Thank you so much.
Okay. I'll take it in reverse order of your questions. Qatar. Qatar, as you know, we do three destinations, while we fly to five. We are in discussions with Qatar. They're very happy with what's going on. We are very happy with what's going on. We want to expand the relationship and quickly. One way to do that is to go to more destinations. The second is to go to two-way rather than one-way. The two-way is currently still held up because of IT issues, but we are working hard on that. Qatar, I think, holds a lot of promise. What we're doing now is better than what we expected, and we are both very enthusiastic about broadening the relationship. International operations. China, as we mentioned, is just two flights.
If we decide to discontinue them, there's enough room for two more airplanes, if you will. We're going to take a decision soon. You asked when will you decide. This is a very quickly evolving situation. We looked at the numbers this morning, and we said till day before yesterday, there were no cancels. This morning when we looked at it, there were quite a few cancels, and we're like, "Okay, this is getting serious here." We'll look at the numbers again for the next two, three days and decide. If we pull out of those two markets for whatever reason, then we won't do it very quickly, and we'll have to pace it out because we still have a lot of bookings on it. We can easily redeploy the aircraft. Your other question was about ceos, you're deciding to extend it. That's not true.
It's quite the reverse. We decided to extend it back in 2017 when we had the neo issues and so forth. That's when they got extended. As we look at it, we are like, "Okay, let's get these airplanes out as quickly as we can because we have enough neos coming in." As I told you before in the economics, the ceos have a higher maintenance cost, higher fuel, slightly lower ownership cost, the neos are a much better engine. We're not extending more ceos; we're returning them at a faster rate, if you will. A321, yes, it got a lot of seats, that helps the capacity. Overall, what has been happening is, as I said, there's the low utilization, which will ramp up. More ceos being returned at a fast pace. Some delivery delays in the A320, A321s.
All of that is, okay, the numbers are where they are. We are not moving it in one direction or the other. If Airbus would give us airplanes faster, we'd take them faster. The ceos, we are returning them as fast as we can. We're not holding on to them. I don't know if that answers your question. Have a shout back if you want to clarify anything.
Yeah, sure. On Qatar, sorry, what sort of benefit are you getting? Of course, you said that you are moving into the two-way direction. At the moment, what sort of benefit you are getting as InterGlobe?
The number is big. It's in millions of dollars. It's a very healthy number. We're very happy with it.
Thank you, Mr. Kumar. Request to join the questions before any follow-ups. The next question is from the line of Ruchit Mehta from SBI Mutual Fund. Please go ahead.
Yeah, evening. Thanks for the call. Just a quick query on the international side, considering, as you said, that you're focusing more on the economy side of it. In a hypothetical like to let's say Bombay, Dubai, or if you were to fly in full economy LCC style thing, would you be able to deliver a similar level of profitability per aircraft or per route than let's say a full service guy would be? Because he offers.
I can assure you much higher than what a full service guy could ever dream of offering.
Okay.
The numbers are very, very attractive.
From a customer standpoint, sometimes these full service guys, they do all these economy light fares or discounted fares at marginal costing, and they get a full service experience. You have in-flight entertainment, meals, et cetera. How do you tackle that challenge? That there'll be a part of the customer base that forever will kind of keep flip-flopping between something or the other? Is the market wide enough and large enough that with a good LCC offering, you can sort of expand the market?
I think I have to say that we really don't focus on the competition all that much. We look at the marketplace, we look at our cost structure, and we see what we can do. The reason we are adding all these flights is not because someone else is doing something else and we're studying them or certain things. It's like, Wow, look at this market. Look at our cost structure. Let's do it. That's why there's sort of appetite for a furious rate of growth. What the full service guy is doing, hey, really, you do your thing, we'll do our thing. We don't focus on them at all.
Okay, fair. Thanks.
Thank you. Next question is from the line of Lokesh Garg from Credit Suisse. Please go ahead.
Hi, sir. I had a few questions. One thing is related to DGCA directive that came up in November timeframe. Especially with
Sorry, Mr. Garg, request you to come in network area, please.
Yes, I'll try to be louder.
We are still not audible, Mr. Garg.
I'm afraid you're breaking up.
Okay. Can you share the progress that you made since.
I'm sorry, Mr. Garg. We are unable to hear you.
Sorry.
Can I request you to come in network area or reconnect, please?
Sure.
Thank you. We'll take the next question that is from the line of Santosh Hiredesai from SBICAP Securities. Please go ahead.
Many thanks for the opportunity. My first question is around the modified engines that you're considering. Have you witnessed any different sort of problems that have been noticed of it? We keep hearing that there have been some issues, like shutdowns and so on and so forth. Is the problem identified, and do we have a complete fix, or it's still in process?
The problem has been identified.
Your call?
Yeah. A fix has also been identified. As I mentioned at the beginning of the call, around 60% of our engines are already of modified nature. It means a stronger material, we had no issues so far with the modified engine. The problem has been identified. Whatever you read in papers, not everything is necessarily an engine problem or a neo problem. Sometimes it's a ceo. There's a lot of reporting going on things which are not necessarily something related to our neo aircraft. I'll give you one example. There was an aircraft had to land because there was a smoke warning. When the aircraft landed, we checked it was a false. The sensor was defect. Not everything you read in the paper is necessarily a neo engine problem.
We have identified the issues, and our aircraft, all of them, will be modified as per the directive of DGCA by end of May. We are on good progress on this. We monitor it on a daily basis. Engines are coming in on a continuous basis, and we update our fleet accordingly. That's the main issue right now, and then other things are of minor nature, but we have, let's say, learned to live with this engine. We know together with the manufacturer, we have very stringent intervals of checking certain other ways of how to, let's say, do the daily maintenance of this engine. I think we're very confident right now that we'll make it work, and by end of May, everything should be modified.
Just trying to understand this percent guidance that has been given for 2021. Is there a risk to that number? Should there be some delay in terms of, let's say, uncertain , or that contingency already has been included?
No. Look, we give you our best guess estimate. If things change, things change. We can't say, oh, we've built in a contingency of some kind for aircraft deliveries. We haven't. Whatever data we have, based on that, we're giving a capacity guidance.
Sure. My second question is in terms of the international expansion. I understand that you've tried some virtual routes that came up with. Do you have a change in terms of pilot-
Mr. Hiredesai, your audio is breaking. Can I request you to be a little bit loud?
I was just trying to understand.
Okay. I think I get the question. You're saying, you've tried some routes. Do you have a pipeline of new opportunities? The answer is yes. We have a great pipeline. My frustration is we don't have enough aircraft to fly them all right now.
Thank you. Ladies and gentlemen, it's time constraints. We'll take the last question that is from the line of Arvind Sharma from Citi. Please go ahead.
Good evening, sir. Thanks for taking my question. On the guidance front, sir, we know the capacity guidance that you've given. What is the kind of fleet expansion that you are building in when you give this capacity guidance? Any indication on that part?
You mean net what is the aircraft count? Is that what you're looking for?
Right. The net addition to the fleet. Yeah.
I don't think I want to share that quite yet. We have deliveries coming in, we have retirements going out. Based on all that, we're saying 20% growth rate. I can't give you specific numbers of in and outs.
Sure, sir. Sir, secondly, on the engines for the A320neos, I believe that you shifted from the Pratt & Whitney to CFM. The premise for the A320neo was better fuel economy. With the changed engines, is the fuel economy still as good as it was with the previous engine?
It's the same. We haven't shifted. We had run through our Pratt & Whitney order, and we needed more engines, and we did a sort of comparison, and they both bid, and CFM came out ahead. The economics are obviously very favorable to us, otherwise we wouldn't have gone with CFM.
Great. That actually augurs, well, I mean, the maintenance cost would be lower, I believe.
On the CFM?
If the fuel economy is the same, and there are no troubles which are there in the current engine, the maintenance cost, et cetera, would go down. Is that right way to see it?
Okay. As we said before, our contracts protect us very well against technical disruptions. That's not an added cost in either direction. If there's a technical problem, we are compensated for it. We're looking for the CFM engines. I think they'll be very good for us, and we don't look at it, what is the fuel rate, how much you buy it for? We look at the life cycle of the engine. We say, what is the initial cost, what is the maintenance cost, what is the fuel cost? We take everything into account in making a final decision.
Thank you.
Thank you.
Ladies and gentlemen, that was 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 for joining us. Sorry, we could not take all the questions in the queue, but I hope you found the call useful. Thank you.
Thank you very much. Ladies and gentlemen, on behalf of InterGlobe, that concludes today's call. Thank you all for joining us, and you may now disconnect your lines.