Earnings Call: Q2 2020

Oct 24, 2019

Good evening, everyone, and thank you for joining us for the Q2 fiscal year 2020 earnings call. 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 Prokschauer, our Chief Operating Officer and Willie Bolter, our Chief Commercial Officer, are also with us and are available for the Q and A session. Before we begin, please note that today's discussion may contain certain statements on our business or 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 site. 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 Ronen. Good evening, everyone, and thank you for joining us on this call. We reported a net loss of INR 10,600,000,000 in a seasonally weak quarter for the industry. While we had a much better revenue performance during the quarter, the loss was driven by certain cost headwinds. These costs fall into 3 major categories. Number 1, mark to market loss due to capitalization of operating lease liabilities. 2, reassessment of accrual estimates for future maintenance cost and 3, one time adjustment owing to adoption of lower tax rates. Let me stress that each of these cost items is non cash in nature and does not reflect on the cash flows we generate. Excluding the impact of these cost items, our loss before tax would have been INR 2,800,000,000, a significant improvement over the INR 9,900,000,000 we posted in the same period last year. Over the half year ended September 2019, post servicing our debt and lease obligations, we have generated a very healthy cash flow of INR33,000,000,000 through our operating activities, which clearly demonstrate the strength of our business and our company. Our CFO, Aditya Pandey will go into detail on each of these items. Now let me speak to the fundamental operating metrics of the quarter. We continue to see a year over year improvement in unit revenues and this quarter we reported a 5.7% increase. Our rapid expansion into both domestic and international markets has been very impressive. We opened 7 new domestic stations and 6 new international markets. Frankly, I'm personally staggered by what Indigo employees have been able to achieve in this regard. When I set a target for the opening of 2 China stations, 2 Vietnam stations, 1 Myanmar station, 1 Saudi Arabia station, plus 35 additional frequencies into international markets, I was hesitant as to whether I was demanding too much from the organization. Think of all that it takes to operate into a new country or even to add a new frequency. There are the regulatory hurdles, slots at airports, crew familiarization flights, ground handling contracts, sales agreements, PR initiatives and much more. The fact that Indigo employees were able to achieve over 100% in so compressed national market, in so compressed a time period, I think is a real testimony to the quality of this organization. Cargo has maintained its rapid growth during the quarter in both domestic and international sectors. As per the DGC reports, we now have a 39% market share in the domestic cargo business, a significant increase from the 28% we had in the same period last year. Our international cargo capacity has grown by more than 80% on a year over year basis. We are now also focusing on inbound cargo business from Southeast Asia and Middle East and I'm very pleased with the response we're getting on these sectors. During the quarter, IndiGo was awarded the Best Domestic Airline at FICCI's 1st Edition of Travel and Tourism Excellence Awards. These awards motivate all of us at Indigo to keep pushing the bar and set higher standards. We are putting a lot of emphasis on improving our service standards. There are 2 avenues that we use to identify and track areas of improvement. The first avenue is customer feedback, on which we spend a lot of management time and attention in analyzing and identifying root causes. The second revenue is the Net Promoter Score, which organizations around the world are using. I'm pleased to say that our NPS scores compare favorably with most of the low cost carriers around the world. Now looking forward to the next quarter. The revenues during the festive season have been somewhat subdued. At this time, we're expecting a flattish year over year unit revenue performance. Please note that it's still early in the quarter and things will of course change and we take no responsibility to further update our revenue forecast before the next earnings release. We are seeing declines in yield in metro to metro markets, where low cost capacity has replaced former Jet Airways capacity. We are seeing stronger performance in markets where Jet was not previously present. On international markets, despite a significant increase in capacity, our unit revenues are holding up rather well, with China in particular performing well ahead of plan. On our capacity guidance, we expect a year over year capacity increase in terms of ASKs of 22% for the Q3 of this fiscal year. For the full year, we expect capacity increase of 25%. As you are well aware, Aditya Pandey joined us as our new Chief Financial Officer. Aditya has vast experience spanning across more than 2 decades in several blue chip organizations, and we're excited to have Aditya as part of a team. Now let me hand over the call to Aditya to discuss the financial performance in detail. Thank you, Rono, and good evening, everyone. For the quarter ended September 2019, we reported a net loss of INR 10,600,000,000 a negative after tax profit margin of 13.1 percent compared to a net loss of INR6.5 billion with a negative tax after tax margin of 10.5% during the same period last year. We reported an EBITDA of INR 2,600,000,000 with an EBITDA margin of 3.2% compared to an EBITDA of INR 2,200,000,000 and an EBITDA margin of 3.6% during the same period last year. As Dono mentioned, the lower profitability was mainly contributed by mark to market loss due to capitalization of operating lease liabilities, reassessment of accrual estimates of future maintenance costs and one time adjustment owing to adoption of lower tax rates. Let me discuss each one of these three factors in detail. As you would know that we have capitalized operating lease liabilities as per the new accounting standard in the AS 116. These liabilities are dollar denominated, and hence, they are subject to mark to market every quarter. Since during the quarter, rupee depreciated from INR68.90 per U. S. Dollar to INR70.71 per U. S. Dollar, we had a negative impact of INR4,300,000,000 on mark to market of our capitalized operating leases. If you recall, we have mentioned previously that we are experiencing a maintenance bubble because of CEO engines. We extended the lease of most of our existing CEO beginning 2016 and also got around 50 used aircraft from the secondary market. As a result of this, the engines of these older aircraft are undergoing 2nd shop visits, which are significantly more expensive than the 1st shop visits. The second shop visits resulted in maintenance spikes in our cost. During the quarter, we have carried out the reassessment of accrual estimates for heavy maintenance and overall cost of engines. Accordingly, we provided INR 3,200,000,000 under supplementary rentals and aircraft maintenance costs. This reassessment is confined to our older CEO aircraft. This cost should continue to be in the similar range for the next couple of quarters. This maintenance cost should eventually go away around 2022 as the neos become a larger portion of our fleet and these older CEO planes are redelivered. The government has announced an option for corporates wherein tax rate is reduced from 35% to 25.2%, a tax reduction of 9.8%. In addition, the companies adopting the same will not be required to pay minimum alternate tax on MAT going forward. We have decided to adopt the new lower tax rates. This lower tax this will lower our effective tax rate and we will no longer be required to pay MAT, which will result in lower cash tax outgo. The key highlights of our performance during the quarter can be best summarized with the following points. Our capacity grew by 24.2% on a year over year basis. Our revenue from operations in September quarter was INR 81,100,000,000, an increase of 31% on a year over year basis. Our RASK for the quarter was INR 3.42 compared to INR 3.23 during the same period last year, an increase of 5.7%. For the quarter, our yields increased by 9.4 percent to INR 3.52, while the load factors were down by 0.9 points to 83.5 percent. Our fuel cash decreased by 17.3% compared to 8.7% decrease in ATM prices on a year over year basis. Fuel was a very good story for us. We are seeing a much faster decrease in fuel cash compared to decrease in fuel prices, primarily driven by fuel savings from the new aircraft. Further, our international operations has also helped us to reduce our fuel costs, both because of lower taxes and higher stage length. They have also taken a number of operational initiatives, which has contributed to a lower fuel CASK number. Our CASK for the quarter was INR 3.85 compared to INR 3.74 during the same period last year, an increase of 2.8%. Our cash ex fuel was INR 2.56, an increase of 17.2% from the same period last year. Excluding the impact of mark to market loss on capitalized operating lease and reassessment of accrual estimates of future maintenance costs, our cash ex fuel would have increased 3.1%. This cash increase was primarily driven by higher employee costs and lower aircraft utilization. While we have little control over the depreciation of the Indian rupee, we definitely see some areas of improvement in our CASK ex fuel in the coming quarters. For the quarter, our employee costs were higher by 56% compared to the same period last year. As stated during the previous conference call as well, the higher employee costs is because of around 600 pilots being under training, insourcing of ground handling at most of our domestic airports through our wholly owned subsidiary, Agile Airport Services Private Limited, salary hikes. We expect the impact of these pilots under training to be negative 2.3% on our CAS ex fuel. We expect the employee costs per ASH to start going down from the second half of the year second half of the year onwards as these pilots complete their training and start flying. Secondly, similar to previous quarter, we continue to hold certain aircraft in reserve awaiting clarity on allocation of jet AV slots. As a result, our aircraft utilization was lower by around 9% compared to the same period last year. We estimate that lowered aircraft utilization contributed to 2.7% in the increase of gas. Let me take over while he clears his throat for a minute. So let me start again on the last sentence. We estimate that lower aircraft utilization contributed to 2.7% in the increase of CASK ex fuel. We expect the aircraft utilization to increase and translate into better CASK ex fuel performance. Our balance sheet continues to remain strong. Our cash balance at the end of the period was INR 187,000,000,000, comprised of INR 87,000,000,000 of free cash and INR 100,000,000,000 of restricted cash. The capitalized lease liability as of 30th September 2019 was INR 175,000,000,000. Our total debt, including the capitalized lease liability, was INR 198,000,000,000. And with that, let me hand it back to Ankur. Thank you, Ronun and Alastair. To answer as many questions as possible, I would like to request that each participant limit themselves to one question and one brief follow-up question if needed. And with that, we are ready for the Q and A. Thank you very much. Ladies and gentlemen, we will now begin the question and answer The first question is from the line of Deepika Munro from JPMorgan. Please go ahead. Good evening, sir. Thanks for taking my question. The first question is regarding the ASK growth guidance. It's considerably lower as to what you had guided to earlier. Is this because of aircraft delivery issues? Or is it just that because of a weak environment you're postponing deliveries? No, but it's not because of the weak environment. So looking backwards, the reason why we were softer in terms of ASK growth, as I said, is because of the jet slot issues. So this is affecting sort of September, August September. When we knew that we would get various landing rights and slots and bilaterals, but they all kept getting delayed. So the aircraft were waiting for, okay, okay, next week we'll get it and it didn't happen. So that was looking backwards why we were soft. Looking forward though, the softness is because of aircraft delivery issues. Could you just elaborate as to what is the delivery issue? So I'll let Wolfgang Proksha will take that. Yes, hello. So basically our delivery stream and this was planned for the next year is that the growth rate is coming down anyhow, because we used to get some, in fact, 6 aircraft per month. Now this growth rate is expected to come down. This is one element. And also we have certain delays in our aircraft deliveries coming, which may be in the range of 3 to 4 months. So this also reflects the press is a bit our growth going forward for the next year. So these are the main elements of it. But it doesn't change our fundamental growth strategy going forward. The next question is from the line of Vina Singh from Morgan Stanley. Please go ahead. Hi, team. Just actually continuing on the earlier question. So what sort of a growth are you looking next year in ASKM? By next year, you mean the okay, the following year. I don't have the number. It will be around 25% roughly. Okay. And just one question like on supplementary rentals, repairs and maintenance. We've seen that number move up quite sizably from $10,000,000,000 to $15,000,000,000 And in your remarks, you mentioned that around $3,200,000,000 is basically sort of a charge for the older engines. So, a, this $3,200,000,000 number, so in a way, are you saying that this $3,200,000,000 number will continue in the coming quarters? So the supplementary rentals and repairs and maintenance as a percentage of ASK will remain at these levels? Yes. So we expect this is Adith here. We expect the supplementary rentals remain at similar levels for the next quarter and the quarter after. And as I said earlier, that's primarily because of the second shop visits that we're seeing on these older CEO aircrafts that we have. And I think we also mentioned, we return a bunch of these CEO aircraft by 2022. So after that, this engine maintenance cost will show a decline. And the $33,000,000,000 number that you shared on cash flow, is that your operating cash flow for like this quarter? Like what was that $33,000,000,000 number earlier in the opening remark? It's on a 6 monthly basis. This is for the half year. So that, That is your cash profit on 6 monthly basis. Okay, great. Thanks. I'll come back in the queue. Thank you. The next question is from the line of Anshooman Dev from ICICI Securities. Please go ahead. Yes. Hi. Thanks for the opportunity. I just wanted a little bit more clarification on this maintenance cost. So FY 'twenty, remaining two quarters, we'll have this elevated supplementary cost. And FY 'twenty one, we will have a run rate, which is lower than this. And then in FY 2022, we would have a more new fleet, which should kind of not give the supplementary entry. Is that the right understanding? Yes. That's directionally the correct understanding. It is in for the current year, we continue to be will remain in a similar range. 'twenty one, that number should start reducing. And starting 'twenty two, as the CEOs CEOs actually start retiring starting next year. But as they start going out in higher volume in 'twenty two, these numbers will start coming down. So when we are providing for this number, are we paying the supplemental rental on a shop visit basis or we are providing it upfront? Yes. So we provide it in our books and we pay it once the engine visits the shop and we get the bill from the MRO in terms of what that particular cost is for that. But these maintenance costs, we're talking about heavy maintenance. Okay, okay, okay. Thank you. Thank you. The next question is from the line of Arjun Kumar from HSBC. Please go ahead. Yes, hi. So I want to understand a few things. One is about your stand on Air India International Operations. Previously, you said that you're still interested in international operations if it comes. So what is your stand on that? And when we talk about Air India separately, you also said that you are interested in wide body. So where are you on that? If you could please clarify on this. Those are all great questions to which we do not have definitive answer. They are all subject matter of great interest. So we talk about it in various management forums and we do not have something to declare or announce either yes or no. We recognize that we are at a point of evolution where we have to think of longer range aircraft. But beyond that, really, I don't have much to share at this point. Okay. Fine. Then other thing I wanted to understand very quickly on this maintenance cost, which you said $3,200,000,000 Is that would that be impacted by the ForEx? I mean, so the ForEx will definitely so is it paid in USD and then definitely it will be impacted by ForEx. Is that correct? So we have provided for those in our books. And obviously, these bills are raised in foreign exchange. But it's no different than it's been done in the past. I mean, in the past, we have always operated on the principle that we pay the bill as we get it from the MRO. So it's always a dollar denominated bill, will continue to be a dollar denominated bill. So that will have an impact from the ForEx, right? Yes, yes, yes, it would. Okay. Sorry, last two questions. One is on the engine side. So recently, I think the GCN has now he has said disclosed something that you cannot fly a few particular engines after a specific time period. So how that will impact Indivo? And secondly, on the international operations, you said that your international operations are doing great, especially China. So I just want to understand overall as a unit, as an international operations, how you're doing? And why I'm asking is because I was traveling in one of your flight in Kolkata, Hong Kong, and I saw just 30 passengers on board, 2030. So and then you discontinued the slide probably because of pensions in Hong Kong. So overall, I wanted to understand, is that particular case with Hong Kong or how you're experiencing your overall international operations? Thank you. So I'll address the international issue and then Wolfgang will pick up on the engine issue. So international, you're right. Hong Kong was doing badly. I guess it was doing badly for everyone with all the unrest there. So we have discontinued it. International, we're very pleased with the results. And international is on a different somewhat different cycle seasonally to domestic. So it has its own swings up and down. But the Middle East is very strong. As I said, China is strong. Hong Kong is an area of weakness. And we started some flights unfortunately, not by choice but by necessity, with a very short time window. And I'm thinking of places like Vietnam and so forth. We had to it took us a long time to get all the approvals, which I talked about before, the regulatory hurdles, etcetera, etcetera. And we had a certain date. We had to start by October given the fact that after that there's a whole new slot season, as you know. So some of those international markets with very short time windows for booking, international typically has a 90 day booking window and we were starting flights with like a 30 to 45 days booking window. Some of the flights didn't get the full benefit of the booking. But overall, we're very pleased with the international profitability. And with that, I'll give it to Wolfgang. Yes, thank you. On the engine, we can see overall improvement, significant improvement in trends. For example, the key event is natural inflight shutdown. This rate has come down to 0.01 per 1,000 engine flight hours, so very low. And just to put it in perspective, the regulatory requirements in FAA, for example, or in EASA is 0.05, so 5 times as high. So we are well within the regulatory limits of the required, let's say, efficiency and reliability of the engines. And basically, most of the many of the issues had been fixed. There are 3 main issues remaining, which we are very still on very on good track. 1 is the 3rd stage low pressure turbine where all Indigos all our aircrafts are delivered from May 2019 onwards within new material. So and there is no time limit for us. So all aircrafts will be delivered and we have time to change all this plates and new material. Main gearbox, it is fixed. There was a required software change, which is done already. And the last element of the number 3 is the transient vibration, which is in the nature of this engine which happens and all regulatory authorities outside India have there is a requirement if it's below a certain threshold, there's no maintenance activity required. We, however, have taken a more cautious approach and we're fulfilling that. So there's no what I hear from your question is that there might be some limits we're having. We continue with all our deliveries. We have no limitations. However, there's one limitation I want to mention, extended range operations where you have an airport outside. Right now we operate every airport must be reachable on our flight track within 60 minutes. For Neo aircraft, we can't use that. We can't use extended range, which goes up to 120 minutes. So our international operation will be we have to provide, let's say, a more restricted route, which we are doing. And as soon as EDTO, extended range operation is allowed, gets approval, we can then have all the flexibility. And it is for aircraft, new aircraft abroad, it is allowed. So we think that we will get extension, ETO extension in the next year or so. Perfect. Thank you so much. Thank you. The next question is from the line of Maitin Lathia from HDFC Mutual Fund. Please go ahead. Yes, hi. Just wanted to understand the disconnect between the cash profits and the operating cash flow. So while your free cash has gone up by about INR 4300 crores on a 1 year basis and even you suggested that there was an operating cash flow of INR 3,400 crores in the 1st 6 months of this financial year itself. When we look at the P and L, there is hardly half of that is cash profit. So I just wanted to sort of identify that one big item which is causing this disconnect between the payment and the cash flow? And the cash flow statement has been given, but somehow it's not very apparent. Yes, I mean, let me try and walk you through that. I mean, our cash balances increased during the half year, primarily driven by cash from operations, which you're correct is one big driver. Our increase in deferred incentives that we get from our vendors increase in our working capital. Our forward sales have been we were strong in the as we looked at the end of September. So those give us the large cash flow impact. Now that was partially offset by repayment of our lease liabilities, purchasing ground support equipment and paying dividend for the quarter, but those are the key drivers. Understood. And if I can sort of understand the accounting impact of the FX situation on lease liability. So right now, there is an INR depreciation and you have passed it through the P and L. And that because that amount is payable to nobody, it just goes and increases your lease liability on the balance sheet. Is that how it works? So basically, what happens is that as per the new accounting rules, we're required to take a charge on a mark to market basis. Now this is neither a payout to anybody nor is it impacting any of our metrics in any way. Because what happens eventually is that when you end up paying the bill, which is in foreign exchange, either our lease liabilities or anything that we're paying, at that time, we have a realized FX loss at that point. So in some ways, it's just showing you a notional number that had the currency been at this level, what would your liabilities be. And therefore and the rules require us to run it through the P and L and therefore it ends up as a charge to the P and L. So you're right, it is a noncash item. And sort of because it's noncash, would does it also increase the asset side commensurately? Or how does that work? No, it doesn't increase the It doesn't change the asset side at all. It will basically hit on the P and L and increase in liability. How would it reverse itself? I mean, because it's not let's say, the liability is not crystallized. How would it reverse itself? So this is a period item, right? I mean you'll state your liability at the level at which the rupee is at that point in time. As you get to the next period, there will be a change upwards downwards and will again reflect it through the P and L. So it will keep on adjusting itself based on where the rupee ends at the end of that quarter. I mean, you will settle it when you will settle it, I mean, when you are really due to make that payment. That's when you will truly settle it. Okay. So if I could sort of put it other way, and I'm just extending the questions and not a fresh question. Effectively, where revenue and costs would have been matched under the earlier accounting because any FX depreciation would have been in some form or the other passed on to the customer. Here, effectively, that link is broken. The revenue and expense is no longer matched because even your future liability, you have sort of taken into your current expense. Right. You take it to your current expense, you route it through your liabilities and then every quarter you adjust it. If you want a slightly detailed walk through on that, we can have that provided through Amcor. It's not a problem at all. Sure. Great. Thanks a lot. I'll come back into the queue. Thanks. Thank you. The next question is from the line of Bhavan Phee from Samiksha Capital. Please go ahead. Yes. So you mentioned that you have had difficulty obtaining some approvals. And I think it's common knowledge that SpiceJet has gotten a lot of important slots for Mumbai, Delhi and some other important routes. So there seems to be some sort of irregular approach by the government in this whole matter. Do you I mean, how do you plan to address that with the government? So let me just clarify. I think I mentioned that we were in a sort of holding pattern for a while, while the government was sorting through how do we deal with this issue. So Jet had many foreign bilaterals, for example, Who gets what? So the ministry spent some time deciding that. And while they were deciding that, we were on hold with 1 aircraft. So that's one issue. The other issue that you're referring to is how was the final outcome? What were the sort of winners and losers in this? And we can share with you a number. Overall, I'd say we did pretty well in Delhi, while SpiceJet did better in Mumbai. And I'll ask Wolfgang to give you the exact slot counts, if you would. So if I refer to the domestic slots, we got additional 22 slots in dials and we got additional slots for domestic in Mumbai, which was less. Sorry, this is correct, $157,000,000 $179,000,000 is $22,000,000 So yes, dollars 22,000,000 in Delhi and slightly less in Mumbai. And if you look at the absolute figures, basically what has happened, SpiceJet and Indigo got the same amount in absolute figures, whereas our position was that we as a bigger carrier should have gotten higher share, but it was done as it was done. It was a special SOP which was implemented, which gave Spice and Indigo the same amount of additional slots in this build to big cities. And a similar thing has happened on the bilateral rights where SpiceJet and Indigo got the same amount approximately of freed up traffic rights because of the stop of operation of Jet Airways. So we took it as it is, but we believe that with our capacity coming in and our operational capabilities, we eventually will get our fair share of these additional resources, which are available going forward. Okay. And in the second quarter, you generated additional free cash for about, I guess, INR 1,000 crores. Now could you tell us in Q3, knowing where the fares whatever you have seen till this date in October and knowing what you know about your cost and assuming that those factors don't change and fuel prices don't change much, what can we expect in terms of free cash flow for Q3? And I'm asking this question because there are very large number of moving parts in the second quarter results. It's impossible to put ahead and tails together and kind of figure out because your spread is very negative, yet you have good reasonable free cash flow generation. So how does one think about free cash in next quarter? So let me tell you what we can forecast with some degree of confidence and what we can't. And so we roughly that the market is softening. There's no question about that. We were on a pretty good growth path in terms of revenue, 5.7% this quarter. I think the quarter before that, we did even better. As we've said in our remarks, we now think it will be flat. So there's some softening in the marketplace. We've told you that our maintenance costs will be roughly the same next quarter. We think aircraft utilization will improve a little. That will help our CASK. Fuel, we don't really know. But beyond that, we also can't put all the numbers together and tell you, this is what the net cash flow will be. That is going too far into the future, which none of us have the capability of forecasting that accurately. But is it fair to say that some of this onetime adjustment items that you had in Q2 such as, for example, additional supplement rental and the whole change in accounting, that won't be there in Q3 vis a vis Q2. So then we are sort of back to more of the normal, the line items and change in those with respect to As we've said before, we do expect our maintenance cost to remain elevated for the next two quarters. So we don't see a decline in maintenance costs. That continues, as we said, till 2022 when it goes down. Yes. But the but you took onetime charge in your that led to an increase in supplemental that's related to your future costs similar to the FX. It's a future cash cost, but you have to obviously, you booked it in accounting in the P and L for a one time basis. So that results in a significant deviation in the accounting number and the cash flow number. What I'm saying is from Q1 to Q2, such big deviation won't be there. Is that fair to say? So we will continue to accrue these costs based on when do we need to send these engines for shop visits. So that accrual will continue, but these engines will also then start visiting the shop as well. So the accrual will then get knocked off against the actual expense. So we will see the accrual build up and then we will see the engines going in to the shop visit where this will effectively get knocked off from the accrual that we've created. It's a non cash charge, you're right. But as and when these machines as and when these engines go for the shop visit, we will end up paying the MRO for the services provided. Thank you. Thank you. The next question is from the line of Charles Cartlidge from Sloane Robinson. Please go ahead. Thank you very much. My first question is in the last quarter, maybe the last two quarters, you talked about self help improving your yields by about 5%. Could you update us on that? And secondly, in the broader environment, you say the market is softening. I'd just like to understand that a bit better because the overall ASKs for India are in the low single digit. And one would have thought that underlying demand might be such that we saw overall yields increase, but I'm sort of getting a different message. And if I may, the third point on your aircraft deliveries. I think earlier in the call, you said that there were some delays. Is that are these delays outside of your control then? Are they Airbus type delays? And can you elaborate on that? Thank you. Yes. So first on the self help issue, we said earlier in the year that we are doing certain things in network optimization, in our revenue management, sales initiatives, etcetera, which should give us a 5% boost in unit revenue over and above the industry trend. So basically, we're saying we're stealing revenue share, if you will, over and above our capacity share. We see that continuing. And as you can see, this quarter again, we saw that 5% boost in unit revenue. Have to see how the industry does as the rest of the quarter unfolds. We are absolutely convinced that that will continue into the Q3. So the question is how is the industry going to do? No matter what the industry does, we'll do 5% better, we think. But the industry itself, we see the softening. And let me tell you that there was a little bit of sort of tipping point, if you will, come this festive season and starting in September. So July, August were good strong months. We were quite confident of what was going on. September, we started seeing some weakening and we thought, but wait, September is always weak. So it was difficult to sort of separate the seasonal weakness from any economic weakness. And now October typically is a very strong month. And you may not be familiar, the 2 big Indian holidays in October, first is called Dussehra, the second is called Diwali. And generally, you don't see anyone coming out with sales during those periods because demand is so strong. This October was unusual. In the middle of the Sahara, the first festival, we had one of our competitors do a sale. And then again, now in the middle of Diwali and the second competitor has done a sale. That says there is weakness, otherwise why would all these sales be coming up. And of course, we are seeing it in our numbers as well. But I'm not trying to be like, oh my god, things are really bad. Things are softening is all I'm saying. So if looking at our actuals and our forecast, last quarter, we had a 5.7% unit revenue improvement. Right now, we are forecasting a flat unit revenue year over year. So those are the first two points. Your third point, I think, was about aircraft deliveries. The aircraft deliveries delays are beyond our control. We are in no way pushing back deliveries. If anything, we are hungry for more airplanes. There are a lot of routes we'd like to fly. And we are after Airbus and pounding the table, come on, come on, give us these planes. Unfortunately, I think you'll see this all across the aviation industry worldwide. There seems to be a problem within the supply chain and people talk of castings and forgings and those things are not available. So all engine manufacturers, all aircraft manufacturers seem to be struggling with keeping up with the demand. And so the aircraft deliveries are totally not of our own making. Thank you. Thank you. The next question is from the line of Sonal Gupta from UBS. Please go ahead. Hi, good evening. Thanks for taking my questions. So, just wanted to understand, 1, in terms of the FX side, like previously we've indicated that the restricted cash would be now you're moving more and more towards dollar denominated. So I just want to understand where would be that percentage? So we are now 100% hedged for all our supplementary rent payments. So we don't carry any mark to market exposure as it relates to supplementary rentals going forward. So all the restricted cash is now I mean, which relates to the rentals or lease payments is now dollar denominated? Yes. That's true, 100% of that. Okay. That's great. So and just on the like international operation versus domestic, I mean like clearly the stage length would be much, much higher. I think domestic maybe 1,000 kilometers, I would on an average, the international would be maybe the X of that. So could you just give us some sense in terms of the how does the yield versus cost metrics work? And I mean, what would be some sort of a rule of thumb or equivalent number that we should think about? Because obviously, the higher international will sort of depress yields a bit, but it may be actually more profitable. So I just want to understand that. So look, there is again this seasonal idiosyncrasies, if you will, that you have to deal with. So certain seasons, international is very strong and domestic is not as strong and then it reverses itself again. So net net when we look at it, we're very happy with our international growth. Really we have put in that 100% growth in the ASK and then you would have thought, oh my God, this would really impact yield and profitability and that has not happened. And some of the sectors are actually very, very strong. And I can point to Saudi Arabia, China, they surprised us with their strength. Obviously, at the same time, Hong Kong was weak. And as I've said before, we started Vietnam with very little booking availability and we're waiting for that to play itself out. Overall, I'm guessing that over the long haul, domestic and international will both continue to do equally well. And to the extent that some domestic flights are weak, we'll cancel them and move to international. And to the extent that some international flights are weak, we'll cancel them and move them to domestic. So we really don't see a big demarcation between one versus the other. And the same thing sort of applies to all our 6 metros. Sometimes, Chennai does better and sometimes, Delhi does better, and we move capacity around. So there's no hard and fast like, oh yes, we know this is good, and we know that it's bad. This all seem to have economic dynamics, seasonal dynamics and we move the capacity around constantly. It's Willie Bolte here. Maybe I'll just add, you're asking about the stage length effect. Yes. And basically what you have to bear in mind is that, yes, the yield per kilometer on a longer stage length will be lower. But equally, the costs are too, because for a number of reasons. But one, operationally the aircraft is spending a longer time at cruising altitude as a proportion of the flight. And so again the fuel cost per ASK is less. And there are a number the crew productivity is obviously better. And there's a number of reasons. But longer stage lengths, yes, they mean usually lower yield, but equally, they mean lower cost for ASK. Sure. So just on that, that's what I was trying to understand. Is there a like if your stage length is, I mean like domestic is roughly 900,000 and international is 3000, will that mean that even with a 10% yield, you would be equally profitable, lesser lower yield, would you be equally profitable? Is there a rule of thumb there? We have very well established charts of revenue and cost by range, and we can share that with you. I'll ask Ankur to reach out to you. And these are internationally available amongst all airlines. So what happens at a short straight length? What happens at long straight length? How does the yield curve and the I'm sorry, the revenue curve and the cost curve behave. And they tend to go down in parallel as Willy suggests. Net net, the profitability wise, it doesn't make that much of a difference. Sure. So that will be very helpful. And just lastly, how much of the capacity is on metro routes on the domestic side? I mean The total metro to metro capacity is 24% to 25% of our total capacity for the quarter, for the quarter under review. The total including international or domestic? Yes. Okay, great. Thank you so much. Thank you. The next question is from the line of Lokesh Garg from Credit Suisse. Please go ahead. This is continuing an earlier discussion which we heard from your side that your plane deliveries are sort of coming down. We have also been observing that plane deliveries have come down to probably 2 to 3 planes per month. The question is, going at this rate of 3 planes per month, which seems to be a comment from your side, could we get to 25% also or would we undershoot that as well? So really it depends on whether we catch up on the deliveries or slow down further. So that's a bit of a moving target. As I said also that we will also be increasing utilization a little bit, not a lot, but slowly. So between all that, I think it's around 25%. So it could be 22%, 25%. We're not as precise at this point, depending on how the deliveries shape up. So we are in constant touch with the manufacturers, of course, trying to urge them to send us more airplanes. I think also there's another effect, which is the 321s are coming in. And so that's adding more capacity, even though the number of airframes is not as fast as we'd like. But 321 obviously has about 40 more seats on it. Yes. And just sort of continuing that, we have particularly observed that 321 additions have specifically slowed down even more. And I think your commentary seems to suggest about 9 321 aircraft only so far. Do you face even stronger constraint in 321 deliveries versus the 320neos? Yes, that's correct. A321 might slow down because they're primarily are produced in Hamburg and Hamburg is the place where the industrial issues are, where the most of the slow delays happen. But it's only a temporary thing. What we have the forecast we have from Airbus is it shows a catch up within 3 to 6 months. Okay. My last question probably there is lot of discussion particularly in the press related to your Europe offering starting someday and the news report seems to suggest that you sometime take slots which you have not utilized on London sector. Any outlook on that that you can share? Not at this point, no. As we said, I think earlier to a question, we are studying it. No definitive projections on date yet. Okay, sure. Thanks a lot. Thank you. The next question is from the line of Deepakrishnan from Goldman Sachs. Please go ahead. Good evening. This is Pulkit from Goldman. Sir, regarding international operations, clearly for the last 6 odd months, we've been adding capacity quite meaningfully there. But are we pretty much done with a large part of the short haul routes that we can address with our current fleet? And at what stage should we expect our international extension relatively slowing down assuming we don't really go the long haul? So basically, what we wanted to really understand is, is there more opportunity for us to really grow on the short haul international route after what we've done in the last 6 months? Yes. There's lots of opportunity. I mean, look, we fly to just 2 Chinese cities and we fly to Vietnam from only one city. As you know, we have 6 metros we can fly from and China, Vietnam, Middle East, Russia, all these are available to us, Africa. So we're not short of opportunities at all. If anything, timing in terms of aircraft deliveries and of course bilateral. Bilaterals are a big factor in all this. The government China, we have 7 more frequencies we can fly and then we need to add to the bilateral, same thing in Vietnam and so forth. So bilaterals are a constraint and aircraft deliveries are constrained. Opportunities are not an issue. If I may add here, within the 6 hour range of our aircraft, on both sides, we initially put on one side and Hong Kong or Guangzhou on the other side, 2 third of the world population is living. And they all for 6 hours our aircraft and our business model works very well. And if you take this, it shows you how much opportunity we have with our aircraft and with our business model here. The next question is from the line of Abhishek Joshi from CGS CIMB. Please go ahead. Yes. I wanted to ask what percentage of tickets were sold in the 15 day bucket during the quarter and what has been the trend right now? Yes, I can answer that. I mean for the quarter under review, there was an improvement certainly in the domestic market from 47% sold within 15 days to 51% out of our load factor, whereas beyond 15 days went from 40% down to 36%. So domestically and that helped obviously produce the yield improvement that we saw of almost 10%. And what was the price behavior in this 15 day window if we compare it with Q2 and Q1 quarter? Sorry, what was the price? Yes. So it depends on the pricing in a particular segment that you have in mind or just system wide? Just in total, domestic. So our yields are up by 9%, right? Yes. So I mean, isn't that the answer? Okay. And can you comment on like is the you are saying that the market in terms of price is softening. So is it just a domestic market? Or we are facing the same issue in the international? No, it's mostly the domestic that we're seeing the impact. And again, it is like I said in my opening remarks, it's a big a lot of it is focused on the metro to metro. As you know, there's a lot of new capacity came in those markets that's yet vacated and that's where we're seeing the biggest pressure because there's new capacity coming in, which is not yet found as footing, if you will. And that's where we're seeing the major softening. And what kind of shares we are having right now in the 15 days bucket window in the current quarter? I don't think we can't share that, I think. I mean, it's tough to get that number, frankly. I mean, we'd have to know every competitor's 15 day bucket sales, and we don't. Okay. And lastly, we as you said that from next year onwards, there would be slower growth in the number of leads that we would be adding. So can we also is there any possibility that you may be start replacing your CEO fleet with NEO fleet? No. If we got planes faster, we would. The issue is in the supply side, right? So the reason we are not growing fast enough is because we're not getting the airplanes fast enough from Airbus. So yes, if we got them faster, we would be replacing the CEOs faster. And what to what rate would you target to replace it? Any goal on that? Really, we don't have those numbers. If and when we get more aircraft deliveries, we'll have to see whether we can we should be adding capacity or replacing. Okay. Thank you. That's all from me. Thank you. The next question is from the line of Deepika Munra from JPMorgan. Please go ahead. Hi. So just following up on the maintenance expenses again. The onetime charge that you have taken, is it also because you are expecting the CEOs to stay longer in the fleet now versus earlier? And just to re clarify, so it's 0.6 per ASK for the quarter and you're expecting this 0.6 to continue for the next couple of quarters as well? So to your first question, no, we are not planning to extend the leases on the CEOs. The CEOs, as we said, start going out on 2021 and by 2022 they're pretty much gone. We have sort of upgraded or re estimated if you will, our actual experience with the CEOs and we said we need to take our accruals up based on what we're seeing. That's all we've done. And by 'twenty one end of 'twenty one, we should be out of this. And the 0.6 question, I didn't get to. Can you come again on that? Sorry. So just some confusion because on whether that INR 3,000,000,000 is a onetime charge or not. So if you look at it on a per ASK basis, it's INR 0.63 for the quarter. So what I want to understand is that the same level continues, right, of 0.6 per ASK for the next 2 or 3 quarters depending on how you taper down the maintenance expenses? I think you should look at this as an overall bucket of our supplementary rental and lease costs. We expect that bucket to remain in that range for the next two quarters. This is defined by the engines going on shop visits. It's defined that the cycle that's running in a particular month, in a particular quarter. It's very difficult to estimate engine by engine for the overall fleet, what it means. The guidance that you should use is that on a supplementary rent bucket overall, the number should remain in that range. So most importantly, I don't think you should use a ratio because this is not engine cost spread over all airplanes. The neos don't have this problem. So if we add more neos, it doesn't mean engine maintenance costs go up. Engine maintenance costs on the CO is a fixed pool and that's the number that we are using and that's what you should use. If we add more neos in our growth plan, it doesn't mean the engine maintenance cost goes up proportionally to the 0.6 3 that you're mentioning. Got it. And also, I think sometime next year, this may or may not happen, but the MAX planes are expected to come back into the system. Given that the kind of softness that you're seeing, do you expect that it could continue well into next year if the ban on the 7 37 MAX is lifted? So the softness is an economic issue. And your crystal ball is as good as mine. Are we in a softening economic environment? Looks like it, looking at the Diwali experience. When will this stop? Next year will the economy get stronger? I think you have a better economic forecast than I am on that ratio. Okay. Thank you. Thank you. That was the last question. I now hand the conference over to Mr. Ankur Goyal for closing comments. Thank you all for joining us. I hope you found it useful and hope to speak to video again. Thank you.