Good evening, ladies and gentlemen, welcome to IndiGo's conference call to discuss the first quarter fiscal year 2020 financial results. My name is Aman, I'll be your coordinator. At this time, the participants are in listen only mode. A question and answer session will follow today's management discussion. As a reminder, today's conference call is being recorded. I now hand the conference to your moderator, Mr. Ankur Goel, Head of Investor Relations for IndiGo. Thank you, over to you, sir.
Good evening, everyone, thank you for joining us for the first quarter fiscal year 2020 earnings call. We have with us our Chief Executive Officer, Rono Dutta, and our Chief Financial Officer, Rohit Philip, to take you through our performance for the quarter. Wolfgang Prock-Schauer, our Chief Operating Officer, and Willy Boulter, our Chief Commercial Officer, are also with us and are available for the Q&A session. Before we begin, please know 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, 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 Rono Dutta.
Good evening, everyone, thank you for joining us on this call. We announced our first quarter fiscal year 2020 financial results today, I'm pleased to inform you that we reported our highest ever quarterly profit, with a profit after tax of INR 12 billion. Our after-tax profit margin was 12.8%. This improvement in profitability was primarily driven by strong revenue performance. In our previous earnings call, we gave you some indication on how the revenue performance was shaping up for the quarter. We continue to see a base increase of 5% in our unit revenues due to our various initiatives. Cessation of services of Jet Airways positively impacted our profit this quarter, helping our unit revenues to grow by 2%-3% to the best of our estimates.
This quarter also saw high percentage of bookings in the 0- 15 day window, with close-in fares also holding up and helping our revenue performance. In addition, we continue to optimize our network to drive our overall revenues. As you know, we are growing rapidly into new markets, including international, and we find that our growth has been accretive to the bottom line. Cargo played an important role in our revenue performance. We have worked on improving our systems and processes and have increased the range of products that we now carry in our aircraft belly. As a result, our cargo revenue increased by 35% for the quarter, helped of course, partially by cessation of services of Jet Airways. I would like to acknowledge the efforts of our cargo team in implementing a significant improvement in performance.
Our capacity for the quarter increased by 30% compared to the same period last year. As we add more capacity, we see significant opportunities for profitable growth by increasing our connections to tourist destinations in India. We are developing the Buddhist Circuit, providing interconnecting service between Varanasi, Gaya, and Gorakhpur. The traffic flow into the Buddhist Circuit will be enhanced as we add Vietnam and Myanmar to our network next quarter. Adding capacity in these markets not only makes a strong business case but also provides an economic boost to regions such as Eastern Uttar Pradesh and Bihar. During the quarter, we placed an order with CFM International for the LEAP-1A engines to power 280 Airbus A320neo and A321neo aircraft. With this order, we expect to maintain our strong focus on lowering operating costs and delivering fuel efficiency. This order also includes spare engines and an overall support agreement.
We expect delivery of our first LEAP-1A powered A320neo in the coming year. Now looking ahead at this quarter, we expect a continuation of the base increase of 5% in our unit revenue due to our previously discussed initiatives. However, we do not expect any meaningful impact of Jet Airways to continue as all airlines have now replaced the capacity vacated by Jet. Unfortunately, we are witnessing some lower fares in the 0- 15 day booking window and expect this to add some pressure to our unit revenues in the second quarter. I want to remind our shareholders that in the second quarter last year, we registered a - 16% PBT margin. We will of course do better than that this year, but how much better is still an open question.
On our capacity guidance, we expect a year-over-year capacity increase in terms of ASKs of 28% for the second quarter of this fiscal year. For the full year, we expect capacity increase of 30%. I feel proud to tell you that we received an award for the best low-cost airline in Central Asia and India by Skytrax for the 10th year in a row. I wish to thank all our employees for the high levels of performance that we're witnessing across the company. With that, I'd like to hand over the call to Rohit.
Thank you, Rono, and good evening, everyone. For the quarter ended June 2019, we reported a profit after tax of INR 12 billion with an after-tax profit margin of 12.8%. Compared to a profit after tax of INR 0.3 billion, with an after-tax profit margin of 0.4% during the same period last year. We reported an EBITDAR of INR 27.8 billion with an EBITDAR margin of 29.5%, compared to an EBITDAR of INR 11.3 billion with an EBITDAR margin of 17.4% during the same period last year. As Rono mentioned, our profitability was better during the quarter compared to the same period last year, mainly on account of strong revenue performance. Our revenue from operations in the June quarter was INR 94.2 billion, an increase of 44.7% against a capacity increase of 30.3% compared to the same period last year. Our other income was INR 3.7 billion for the quarter.
Our RASK for the quarter was INR 4.10 compared to INR 3.70 during the same quarter last year, an increase of 10.7%. Our yield increased by 12.8% to INR 4.08, and our load factor was nearly flat at 88.9%. Our CASK for the quarter was INR 3.45 compared to INR 3.69 during the same period last year, a decrease of 6.3%. Our CASK excluding fuel was INR 2.11 for the quarter, a decrease of 2.8% from the same period last year. Excluding the impact of foreign exchange, our CASK excluding fuel increased by 2.6%. This was primarily driven by an increase in employee costs and lower aircraft utilization, which was partly offset by a reduction in maintenance cost. Let me talk about each of these factors. Our employee cost this quarter was higher, primarily due to three reasons. Firstly, we have given salary increments to all employees.
Secondly, we've hired a large number of pilots who are currently undergoing training, and as a result, while we are incurring salary expenses, we do not have the associated ASKs. Finally, we have insourced ground handling at most of the domestic airports through our wholly-owned subsidiary, AGILE AIRPORT SERVICES PRIVATE LIMITED. These services were previously outsourced and were recorded under the other expenses line item. While this resulted in an increase in the employee cost line item, we have a corresponding reduction in other expenses. We had an aircraft utilization of 11.7 hours during the quarter, compared to 12.6 hours during the same period last year. This was partly due to the fact that with the uncertainty of how the Jet Airways domestic slots and international traffic rights would be allocated, we held a certain number of aircraft in reserve till we had more clarity on the allocation.
In addition to this, unavailability of pilots under training also impacted our utilization. We expect aircraft utilization to remain at similar levels in the second quarter, but expect it to increase in the latter half of the year as we receive more clarity on slot allocation and the pilots that we have hired complete their training and start flying. Now talking about the decrease in maintenance costs, we had a lower number of shop visits for our older A320ceo engines in the quarter compared to the same period last year. Our balance sheet continues to remain strong. Our cash balance at the end of the period was INR 173 billion, comprising of INR 77 billion of free cash and INR 96 billion of restricted cash. As I mentioned on our previous call, we have now capitalized our operating leases in accordance with Ind AS 116.
The capitalized lease liability as of 30th June 2019 was INR 161 billion. Our total debt, including the capitalized lease liability, was INR 184 billion. During the previous quarter, our Board of directors recommended a dividend of INR 5 per share for fiscal 2019. This will be placed for approval at our upcoming annual general meeting. Subject to us receiving this approval, the dividend will be paid shortly after the AGM. Let me hand it back to Rono.
I just want to confirm that we had a Board meeting today. This Board meeting will continue on tomorrow as well. The Board in its meeting today had a discussion on the appointment of an independent woman director to the Board of the company. Of course, we have to take this step to comply with the law. In order to induct an independent woman director, we need to change the article of association of the company, which now needs to be amended. We are working on this. A final decision on this subject will be made tomorrow. Now I'll hand it over to Ankur.
Thank you, Rono and Rohit. 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. With that, we are 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 for 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 Kunal Lakhan from Axis Capital. Please go ahead.
Hi, good evening. Just on the last point that you mentioned. The Board is going to have discussion only on this one aspect of appointing an independent director, or there are other certain aspects which get quoted in the media are also being discussed, like increasing the number of directors, overall directors in the Board?
The Board is having a full sum discussion on all issues. We obviously had a number of committee meetings today, including Audit Committee. The Board covered a whole range of issues and will continue to do so tomorrow. I mentioned the independent woman director issue because it is a compliance issue with the law, it is very urgent for us to resolve this. We hope to have a solution tomorrow. That's the only reason I'm mentioning this.
That's interesting. Okay. Secondly, on the unit revenue, you mentioned that this quarter also you'll see a 5% increase. However, just considering the sales have again started to moderate in July. Like you mentioned, that most of the capacity of Jet is now absorbed by the airlines. This 5% unit revenue growth is primarily on account of the internal measures that you're taking. Would that assumption be right?
That is correct. As we said before, the industry will cycle up and down based on seasonality and so on. As you know, this quarter that we're in is traditionally a very, very weak quarter. That's why we mentioned that we expect to see some downward pressure in revenues. That is the cyclical effect. On top of that, we have to add on the fact that we have a base level effect of our internal initiatives.
Okay, sure. Thank you.
Thank you. The next question is from the line of Aimee Truesdale from Jupiter Asset Management. Please go ahead.
Hi there. Thanks for taking my question. I've seen that there was a positive outcome from this Ernst & Young review that had been done. I'm just wondering when you'll be releasing the terms of reference and the report itself, the Ernst & Young report itself.
As you know, we are responding to SEBI on an inquiry, and we have given the report to SEBI. We don't plan to make it public at this time.
Okay. Thanks. Yeah. I just think it would be quite helpful to have that in the public domain, but appreciate you answering my question. Thanks.
Thank you.
Thank you. The next question is from the line of Achal Kumar from HSBC. Please go ahead.
Yeah, hi. Thanks for taking my question and congratulations for such a solid result. Wanted to understand a couple of things. First of all, on the engines, so you have ordered CFM engines recently. Now, are you planning to move completely to CFM, or are you still going to have a mix of the CFM and Pratt? If you're going to have both, how would that impact your maintenance cost or inventory cost? Secondly, I wanted to understand about the international expansion. You said that you only have 50% of capacity coming on the international expansion, and now it looks like everybody is running to grab the international pie. You're growing at about 90%, SpiceJet is about 80%, and then Go, Vistara, and AirAsia all are struggling to win the silver medal.
How do you see in that scenario, the yield and the profit outlook on the international side? And then what is your strategy on the international? Are you still going to deploy 50% of the new capacity on the international side? And then lastly, I wanted to understand about your aircraft financing strategy. In such a wonderful, favorable environment, do you plan to buy more aircraft, or are you still planning to continue with the sale and leaseback model? When we say the favorable environment, do you expect this environment will also promote the competition and then bring more people, and then yield and profitability come back to the normalized level? Just want to have your views on that. Thank you so much.
Let me try and take these one at a time. First on the engines. Clearly we have a large number of Pratt engines and they are still coming. CFM engines do not come until next year. No, we are not going back and replacing the Pratt with the CFM. These are going to be two different pools of engines. To the issue of compatibility, or commonality, if you will, it is always better to have one than two, of course. But beyond a certain mass, the differences become very minor. You do have diminishing returns. Both pools are large enough, so we do not think that commonality is an issue. Then on the international. You said everyone is scrambling for international, true. I think we started a little earlier than some of the carriers you mentioned. The scramble now really is to replace most of Jet.
This is not added capacity. It is Jet capacity that went down is being replaced partially by us, partially by Spice, Vistara, and so forth. You do not see a net increase in capacity. To our profitability on international. We are very, very pleased with what is happening with international. The unit revenue is strong, the profitability is strong, so we are very pleased with the international. You might have had a few more. I will ask Rohit to talk about the financing issue.
On aircraft financing, I think our plan remains the same, that we would like to use our excess cash to start buying aircraft outright in addition to supplement the sale and leaseback model that we have historically relied on. We consider the optimal cash balance or minimum cash balance that we need to maintain roughly 15% of revenues, which roughly becomes about INR 4,500 crore. Based on that, we do have some excess cash.
We are looking at all the options based on the aircraft deliveries that we have as to what is the optimal way to utilize them to buy some of the aircraft with cash. Obviously, we will not have enough cash to buy most of the aircraft that we would be taking delivery of, so we will primarily continue to rely on the sale and leaseback model, but we would like to buy some aircraft with the excess cash that we have.
How about my question on the competition? I mean, the favorable environment can actually promote the competition and people can come in and join, and that could lead to yield and profitability back to the normalized level. Any views on that, please?
You're suggesting that the revenue environment being strong, there could be some new entrant. Is that your question?
I mean, you can say that. We can see the race between the existing players to increase the capacity. Oh, my God, what a solid revenue environment. How do you see that as such?
Well, as you know, we have an aggressive growth plan. We are growing at 30% a year. We are not going to change that based on, this quarter was good or next quarter is weak, therefore, we're going to slow it down or accelerate. Our growth plan is set. We're going to grow at 30% a year. We have traffic coming, and we're very comfortable and happy with our growth. If other people tend to grow faster, I guess we'll just have to deal with it. As of now, we are quite happy with our growth rate and the revenue environment.
Okay. Thank you so much.
I do want to caution everyone, though, that when we talk about the revenue environment, we're talking of a sort of steady state for the whole year. As you know, this second quarter is a notoriously difficult quarter for the airline industry.
Thank you. The next question is from the line of Binay Singh from Morgan Stanley. Please go ahead.
Hi, sir. First question is on the financials. When we look at the lease rentals for the company, I think in notes to accounts you are stating that, in case we were to look at the earlier accounting standard, then the lease rental will go up by around INR 9.7 billion. Even if I add that, then the lease rental adjusted for the quarter comes to around INR 11 billion versus around INR 14.6 billion that you did in the previous quarter. Why would lease rentals be down so sharply on a quarter-on-quarter basis?
You're looking at it, Binay, sequentially or on a year-on-year basis?
Sequentially.
On a sequential basis? I think foreign exchange was one factor. On a year-on-year basis, you'll see sort of the reverse effect actually happen with foreign exchange actually contributing to an increase in the lease rentals.
The sequential drop, even adjusting for foreign exchange, or maybe there's a very sizable sale and lease-back gains that you would have made that could explain that, because it's quite a sharp drop from INR 14.6 billion to around INR 11 billion.
Yes. In terms of that reconciliation, there is an early termination of four leased aircraft in the fourth quarter last year. There was a charge associated with that in the fourth quarter that on the quarter-over-quarter comparison will show up in this calculation that you're doing.
That makes sense. Secondly, when does the company now reply to SEBI and to Ministry of Corporate Affairs? What is the timeline for these things?
SEBI submission went today or is going as we speak. For the Ministry of Corporate Affairs, we're planning end of next week.
Rono, Just one last question on this issue. Media has talked a lot about promoter disagreement with regard to international strategy. That I don't know whether you go for long haul or short haul. Any comments on that?
There's absolutely no disagreement on international strategy. I think we've said many times that when it comes to overall strategy of growth, of international expansion, et cetera, the two promoters are totally in sync. They have confirmed that again today at the Board meeting, and that the only issue is this disagreement of the agreement between the two promoters. Nothing to do with the company and its strategies.
Great. Very clear. Thanks a lot.
Thank you. The next question is from the line of Vijayant Gupta from Edelweiss Securities. Please go ahead.
I had a question around.
Mr. Gupta, we are unable to hear you, sir. Can you be a bit loud, sir?
Yeah. Am I audible now?
Not very clear, sir. May I request you to use a handset?
Hello?
Yes. Please go ahead.
Yeah. I had a question around the redistribution of Jet's 12 slots. Would it be possible to get a breakup of, say, the domestic and international slots allotted to IndiGo? Potentially, what are the remaining slots which you mean to be distributed?
Yeah. Wolfgang Prock-Schauer is going to take that question.
Yeah. On the domestic slots, there were about 150 slots, means departure slots, available both in Mumbai and in Delhi. This is actually less than Jet Airways had. Jet Airways had around 200 slots. One airport of the two just could not give as many slots as previously Jet Airways had. Out of these slots, we have got about 30% of these slots. We would have expected more because our market share is 50%. That's where we stand at this point of time, and we'll see how it goes further then when we move into September, October. We definitely expect more out of these slots to be available, both in terms of more slots becoming available, specifically Delhi, who has not given all the slots for certain reasons, and also Mumbai.
We expect some significant impact on that going forward. On international, we have out of the Jet Airways pool of traffic rights, we have been awarded 12 departures in a day, 12 departures. Again, this is much less than what Jet Airways has been flying. Out of these 12, we have made operationally and already gone for sale on seven of that, and remaining six are still open because of slot issues we are having also, again, in major airports here in India. We work on it and we are very hopeful that these slots can be used, will be made available to us in the next, let's say, one week or so we can use all the slots allocated to us.
Going further, after there's more clarity about what is happening to Jet Airways, we also expect here a major boost to our portfolio in international slots and the traffic rights, actually.
Okay. If I'm correct in my calculations, Jet currently, or at least at its peak, had a total international slot portfolio of 150. Would that be fair? 150 per day?
Is that both departures and arrivals? Is that how you're counting it?
I'm [crosstalk] .
If you are on 150, it's departures per day, but actually Jet Airways had more. 150 departure slots were made available in Delhi and in Bombay. In Bombay it was 108, in Delhi it was 52. As I said at the beginning, Jet Airways had got much more departure slots at its peak as this 150. As certain constraints will be removed, we expect that there will be additional slots, departure and arrival slots be made available, going forward, let's say, starting probably October. October, November. Jet Airways had more than the 150, which were given to other airlines to take.
Okay. On the international front, as you said, we have just got 12 slots. How is the slot allocation being done, and who has been the primary beneficiary on the international front?
This was a very complicated process, if I may say. The ministry kept calling us week after week about how do we do this. They were also not sure how best to do it. They asked every airline to give your top priority one, priority two, priority three. We ranked, and then they called each of us and said, okay, lottery. Let's say Spice, you go first. What do you pick? Let's say they said, I pick Bombay, Hong Kong. Okay, Go, you're next. What do you pick? They might have picked Bombay, Kuwait. Okay, IndiGo, you're next. That's how it went round after round till all the slots were exhausted.
Okay. Right now, how many international slots are still in the pool, in the distribution pool, yet to be allocated?
I don't have a good feel for that. The ministry told us, okay, these are the bilaterals that are available. I don't think they gave out everything, but they gave us a limited number, and we all drew from that. They're still holding on to a few, I think, but I can't be sure.
Okay. Thanks a lot. That's it from my end.
Thank you. The next question is from the line of Avinash Vazirani from Jupiter Asset Management. Please go ahead.
Gentlemen, thank you very much for taking my question. Am I correct in assuming that there are no directors on this call?
That is correct, yes.
That is correct. Are there any members of the Audit Committee on the call? I assume they can't be because there's no directors on the call.
Right. Right. Sorry. I mean, just to clarify, our General Counsel, our CFO, they participate in the Audit Committee. They're not officially members of it.
They're not members of it. Right. When I look at the Business Standard report today, which says that they have looked at this Audit Committee report. Right? I think as shareholders, I think we would quite like to see that report together with the full terms of reference of it. Clearly it is being leaked, and I think it is unfair on us as shareholders not to be aware of what is in the report, and much more importantly, what are the exact terms of reference of that report. I think in order for the company to put this noise, as some of your directors have said, behind it'll be best done in a transparent manner.
If the report and the terms of reference of the report are put out in public domain, I think that'll be the best way of dealing with this issue such that it doesn't come up again. Would you please mind taking this recommendation to your Board and putting it out in the open? Thank you.
No, we very much respect what you just said. We're taking it under advisement. Yes, even as you're speaking, we are like, hey, we need to get together and decide how to deal with this. Yes, thank you for that input. It's very valuable, and we will take action.
Thank you, [audio distortion].
Thank you. The next question is from the line of Ashish Shah from Centrum Broking. Please go ahead.
Yeah. Hello. My first question is on the accounting change that has happened. We have said that the capitalized value of the lease is about INR 16,000 crore. Would this represent the liability over the life of a lease for the aircraft? Or this is an estimate in terms of the lifespan of the aircraft? What I mean to say is that, typically the way the aircraft rentals were earlier valued is that one would give it a factor of, let's say, eight or seven, and which would represent the liability over the corresponding life of the aircraft, in that sense. Does this represent in terms of the life of the aircraft or is simply the liability over the residual period of our leases? How has this been taken?
Yeah, sure. It has done based on the standard, which is basically a present value of the future lease payments. It's based on the lease commitment, and that's what gets capitalized on the books.
Right. Would I be fair in saying that as compared to the earlier practice where one would use a factor, whatever, seven or eight, this understates the liability to that extent?
I don't believe it does. I believe when, because the fact that we have a practice of. Hello. Sorry.
Yeah. Ladies and gentlemen, it seems we have lost the line for the managers. Kindly stay connected while we reconnect them. Thank you. Ladies and gentlemen, apologies for the inconvenience. We have the line for the management connected. Over to you, sir. You may please go ahead.
Thank you. Sorry about the technical problem. Just to answer the question, I think by capitalizing it at the remaining lease period, that's, I think, the right way to look at the debt, because that's the commitment. In most cases, people have a much higher, longer lease term, and that's why typically the lease capitalization factors are, when people make an estimate, are more like 6x- 7x . This standard is basically to say what is the actual commitment and what's the debt associated with the commitments that you've made. That's what the standard says.
Sure. What would be the underlying period of the lease that we have taken here?
I think as we've always discussed, our lease terms are typically six years. When you talk about the average remaining term of the lease, it's in the 3.5 to four-year period. On average, that'll be the lease term.
Sure. Sir, on the other parts of the balance sheet, on the asset side, this would have loaded up our fixed asset as well. What would be the impact on the asset side of the balance sheet? Liabilities part, this is clear, INR 16,000 crores, what happens on the other side?
Yeah. On the asset side, there's sort of two factors. There's what's called a right of use asset, an ROU asset that gets put on your balance sheet, and we have a depreciation expense associated with that. That asset also has an offsetting feature, which is, as you know, we had deferred incentives that were sitting on our balance sheet, that from a P&L perspective, we previously would deduct from lease rentals and we'd have a net lease rental, and we'd report a net lease rental line net of deferred incentives. Now that deferred incentives balance sheet account is reduced from your right of use asset, and we have a net asset, and at the end of the quarter, it was about INR 8,900 crores. The depreciation number is based on that net asset number. That'll hit the P&L.
Sir, if I understood correctly, you are saying that the deferred incentives that were earlier been amortized have been reduced from the cost of the right of use assets, and you stated INR 8,900 crores is a net asset, net of the deferred incentives. Is that correct?
That is correct.
How does the residual adjustment happen? Your liability side, simply speaking, your liability side is inflated by INR 16,000 crore. You added INR 8,900 crore to the asset side. What else increases to get the balance sheet balanced?
There's a right of use. There was already a liability on the books, which was the deferred incentive liability. That liability is just netted on the asset. It all syncs up from the accounts. We can walk you through a reconciliation offline with Ankur, but the deferred incentive liability was already on our books. It's just in this presentation now, it's netted from the right of use asset.
Okay. Sir, last question. We have spoken about an assessment for the year 2015, 2016.
A liability of about INR 635-odd crore in this exposure could increase to INR 1,200 crore. Could you just explain a little bit on this and how this is likely to crystallize or not according to the management's view?
You're talking about the contingent liability footnote that we had. Yeah.
It's the same footnote we had in the last quarter, and we've had that footnote in many quarters previously. I think we added some language into the footnote at the last quarter, and this quarter is the same as last quarter. It's just based on a tax dispute matter that's in litigation where we have favorable judgments for three prior years, and ongoing years are still under litigation. We have disclosed that while we have favorable judgments and we don't expect to have any negative outcome based on the litigation. In a continued liability, we are disclosing what that amount could be.
The reason why there's two numbers is because there could be two ways to interpret whether, in the unlikely event it taxable, It was determined to be taxable, there could be two methodologies to say do you tax it on a receipt basis or an amortization basis, and that's why we've disclosed both numbers.
Sure. Yeah. That's all from my side. Thank you so much.
Okay. Thank you.
Thank you. The next question is from the line of Ansuman Deb from ICICI Securities. Please go ahead.
Yeah, hi. Thanks for the opportunity. My question was regarding the capacity outlook as far as FY 2020 is concerned. We understand that 30 of the Jet aircrafts have come back through Spice, and possibly 6-10 might come back through Vistara. Still, we will have a significant amount of capacity tailwinds in FY 2020, so to say, because the overall aircraft size of Jet would have been much bigger. What is the overall fare outlook in FY 2020? I understand that Q2 can be a very bad quarter, but overall FY 2020 fare outlook, if you could give some color, that would be great.
It's hard to go that far out. I can tell you what we experienced last quarter and what we're experiencing this quarter. To take some of the drivers, there's a lot of talk about is the economy softening. If you read in the papers, auto sales are down, fast-moving goods are not moving fast enough, all of that. In the last quarter that we're reporting here, we did not see economic softness. Other industries might be getting hurt, we are not. We were very comfortable in the quarter we've just reported. Now, what's going to happen in this quarter? As we said, we are seeing some softness in the 0-15, and it's hard to say whether that's just seasonal or that's an annual cyclical effect. We're not sure yet.
Again, we can only comment on the quarter we are in, and we do see some softness. Whether the third quarter is typically strong, whether it'll be strong again, we don't know. We can't look that far ahead, frankly.
Right. My point was the point that you alluded that no benefits of Jet. That was my question regarding, because you still have some significant capacity which is not going to come back. To that extent, the benefit of Jet can come back in Q3 also.
We really don't see it. Who really benefited from Jet? We had a very small benefit, and I'll tell you why. First of all, Air India must have seen a huge benefit because Jet had 65% international, 35% domestic.
Right.
Air India should have seen a big benefit. I'm sure British Airways and the international carriers are seeing a big benefit. Domestically, we just don't see a big change. Like we said, March was strong, April was strong, but by June, the effect is almost zero. Here's why. Most of the capacity came back, as you know. We got 30, 35 slot departures in Mumbai, which is nice, which is very good. But it's 35 departures out of our base of 1,400 departures. It doesn't really impact us that much. It's hard to move the needle on the basis of 35 new departures in Mumbai. Finally, also, the telltale sign is when we look at what happened in this quarter that we're reporting, where did the unit revenue improvement come from?
If it was Jet driven, you would say, oh, Mumbai must have got a big unit revenue improvement followed by Delhi. Because that's where the Jet capacity was in and out. Well, the answer is no. Of our six hubs, or not hubs, that's the wrong word. Of our six metros, Mumbai actually performed number two, and Delhi performed a weak number five. Most of the revenue impact that we're seeing is from our own internal reallocation of capacity, sales initiative, et cetera. We find very little evidence of a strong Jet tailwind.
Great. Thank you so much. Yeah. Thanks.
Thank you. The next question is from the line of Mayur Milak from IndiaNivesh Securities. Please go ahead.
Hello. Yeah, hi. We just wanted to get your attention back for the lease rental that you've mentioned. I checked that there's a difference of about INR 375 crore. You mentioned that there is some benefit of favorable forex. I thought you mentioned four aircraft were given back. Is it?
Just to repeat what I said earlier, on a sequential basis, there's a small benefit on forex, and there was an extra hit in rental expense last quarter due to early return of some older ceo aircraft. When you do early return, you take a charge against that, and that's what impacted. When you compare it sequentially, that's what will explain the reconciliation. On a year-on-year basis, you see that foreign exchange will actually work on a year-on-year basis, and that's why you see it up. That's why you'll get two opposite effects if you compare sequentially or year-on-year.
I was just doing a lease rent per ASK kind of calculation, and if I look at your five quarters gone in the past, it was in the range of about INR 0.58 per ASK between Q4 and Q2, and then it drastically went up to INR 0.64 in Q3 and Q4. Now all of a sudden, it comes down to INR 0.47. That is where I'm lacking the understanding. What will be the normal per ASK kind of rentals that we should actually look at?
I think one of the things that you need to adjust for is foreign exchange. That actually affects it fairly significantly. This is just a detailed reconciliation that we can walk you through offline. One of the other factors that you should note is when you are looking at comparing lease rentals from prior periods to the current period, the prior periods had supplementary rent as part of lease rentals. In the current period, the supplementary rent is a separate line item, and it's only the base lease rentals that have been capitalized. There's a line item called supplementary rent and aircraft maintenance. That's the reason why the number has dropped, because there's just a portion of it that's in another line item.
I think this is sort of just detailed reconciliation that Ankur can help you with offline.
Sure. Just one more question on the RASK part. Yes, we do understand that Q2 is apparently the weakest quarter. When you say that you're already witnessing some pressure, it could, of course, be the seasonal pressure as well. What I'm trying to understand is, can we just have a kind of flavor that at least a YoY, the yields and the RASK looks better, or we are still not in a position to determine that as well?
No. Like I said, we lost 16% PBT. We're not expecting anything near that loss. What we are pointing out is we have a steep hill ahead of us to climb. Yeah, things will be better than last year for sure. We still have a deep hole we're trying to climb out of.
All right. Very nice. Thank you.
Thank you. The next question is from the line of Deepika Mundra from JP Morgan. Please go ahead.
Hi. Good evening. Thank you for taking my question. Just firstly wanted to clarify on the RASK bit. You mentioned that about 5% came from your internal efforts, another 2%-3% from Jet Airways. Given that the increase was about 11%, what would be the balance be attributed to?
I'll answer, and then Willy can also step in here. Look, when we did our 5% and we said, okay, in the first quarter Sorry, last quarter, we did that, and we said it's an ongoing effort, and we think on a full quarter basis, it should be 5%. That doesn't mean we stop there. We continue to reallocate, we continue to take sales initiatives. Yeah, we are seeing more than what we had expected. With that, I'll ask Willy to comment as well.
Thank you. I think there's another factor which has come into play, which we've mentioned before on these calls, which is the proportion of revenue that is sold in the 0- 14 day window as against that revenue that is sold at a much cheaper price further out. What we saw in this quarter was that increased to about 42% compared to 38% in the previous quarter in the past year. That in itself had a positive effect on that yield number, and accounts for a certain percentage of it.
Look, we are doing several initiatives across the company to improve revenue. We talked about cargo and how processes are changing. In revenue management, as Willy was alluding to, we used to have this notion that, okay, let's go into the 0- 15 at 50%. Now revenue management is saying, look, we can be more laser sharp than that. In certain months, it should be 47%. Why should it be 50%? Similarly, in digital marketing, they're doing things that are bringing in online apps, which is helping us. We do have initiatives across the company. It's tough to now keep saying, okay, 1% was this and 2% was that. We just have a favorable revenue environment and lots of initiatives across the company.
Understood. Just to follow up to that, you mentioned that the competition has been picking up. Given that the number of initiatives you have underway, is it safe to say that irrespective of competition, your base 5%-6%, 7%, whatever growth in RASK should be [audio distortion]?
Again, I want to make a distinction between seasonal cyclicality and our base effect.
Our base, yes. Our base is definitely up 5%, maybe a little more. Within that, we have the seasonal cyclicality, and we don't know the annual cyclicality of, is the economy weakening or not? You have all three dynamics playing out. The only one we're confident of is a 5%-6% improvement.
Got it. Just one last one, if I can squeeze it in. On the CASK fuel side, any significant tailwind that you're seeing over there?
Going forward, obviously, this quarter, I mentioned a few factors. One of it was aircraft utilization, which was a little lower because of what we think are some temporary issues. As we get the aircraft utilization back to the levels that we had last year, you will see a lot of leverage on fixed costs, especially in your aircraft ownership line items, your finance cost, and depreciation. That's an area that we would expect to see some tailwinds. The other thing is just overall on CASK, as the neos continue to come in, they help us. As the old planes go away, fuel costs get a lot better. If you just look at fuel CASK this quarter versus a year ago, fuel CASK was 11% better for us, even though fuel prices were actually only 1.2% better compared to the same quarter a year ago.
That's already showing up in the aircraft and the fleet plan that we have. Those are absolute tailwinds that we'll have. As A321s also become a bigger percentage of our fleet, those more seats on the plane actually create some unit cost advantages. I think the fleet plan will give us those natural advantages.
Got it. Thank you so much.
Thank you. The next question is from the line of Arvind Sharma from Citi. Please go ahead.
Hello. Thank you, sir. Thanks for taking my question. My question again on the accounting standards. I'm sorry.
Sharma, can you be a bit louder, sir? We're not able to hear you clearly.
Can you hear me now?
Yes.
Yeah. Thank you for taking my question, sir. Again, it's on the accounting standards. As we see that when the expense hits of the previous quarters have been reclassified, there's been actually a slight decline in EBITDAR, I'm saying before reclassification of the rentals and after on the EBITDAR per se. Purely because some of the supplementary rentals have moved above the EBITDAR line. Would it be correct to assume that the current reported EBITDAR is actually lower than what would have been had you persisted with the previous categorization, irrespective of the accounting changes, only the supplementary rentals moving away from the rental line. Will that be a correct assumption to make?
Yes, Arvind, that's absolutely right. It would've been about 33% instead of 27%. It would've been about 33%, the EBITDAR margin would've been about 33% if we added supplementary rent.
Okay. Again, on a quarter-on-quarter basis, it would have been a substantial increase versus what's reported right now.
That is correct. The way the accounting standards work, we are reporting under the new standard, and we are not restating the old. The comparison is not necessarily apples to apples. As we go forward in next quarter, we publish the balance sheet. We'll try to do more details that we can give to help all of you model this better. Having said that, I think when people look at EBITDAR to calculate firm value, typically you look at your EBITDAR margin, your EBITDAR, you take a multiple of that, you get an enterprise value, and then you deduct debt. One of the earlier questions said that earlier people would make a higher estimate of debt. Now with the actual debt is slightly lower. EBITDAR is also slightly lower.
Ultimately, on a like-to-like basis, if you use EBITDAR to calculate an equity value, you'll roughly get to the same answer. On a P&L basis also, if you exclude the foreign exchange mark-to-market, which was a benefit in this quarter, if you exclude that, it's roughly neutral. Yes, you're right. When you look at EBITDAR in isolation on a like-to-like basis, then the new standard would understate it compared to the old.
Okay. Sorry for, it's a bit elementary, but on the supplementary rentals and aircraft repairs expenses that you shared, which are up around INR 10 billion, how should one see these? How much of it is supplementary rentals, which is not directly related to the fleet part? Another part is maintenance and repairs, which could vary according to the age of the overall fleet. Will you provide some more further granularity, or do you think it is not really something that would change materially?
Actually, it's a good question, Arvind. It's about 50/50. It will change a little bit because the maintenance side of it, as you know, there is a little bit of volatility based on the number of shop visits we have on the A320ceo aircraft. There's a little bit of volatility on that side while the supplementary rent will be based on the hours we fly the aircraft. It's roughly 50/50.
All right. Sir, one more question again on the supplementary part, if I may just squeeze through. You gave an idea about the net assets increasing by around INR 8,900 crore. If I understood correctly, essentially the deferred incentives which were there in your balance sheet. On the liability side, and I believe in 2018, the last annual report was around INR 20.5 billion. A part of it would have moved to the asset side and net it against the ROUs. Is that understanding correct?
That's correct. I think we'll publish our annual report very shortly as we send out the notice for the AGM, you'll have the March 2019 detailed figures out available shortly. What you said is accurate.
Right. Thank you so much, sir. Thank you so much for taking the question.
Thank you. The next question is from the line of Santhosh Hiredesai from SBICAP Securities. Please go ahead.
Santhosh, many thanks for the opportunity. I just want to go back to the last point that was discussed in terms of deferred incentives netted off from your right to use asset. For the incremental aircraft induction that's going to happen, would it mean that there won't be any SLB cash flows into the company and the aircraft would be recognized at cost on the balance sheet, or it wouldn't actually be so?
No. The actual transactions will be exactly the same. Cash flow will be exactly the same. Instead of you having the cash that you get on deferred incentives will come on your balance sheet just like it used to be. Just the P&L impact is that ends up reducing your depreciation expense instead of reducing the rental expense that it would have done earlier. Really not much material change.
Okay. The cash flows will continue to come. Instead of reducing your gross lease rentals, you'll see a lower depreciation on account of this netting off gross block from the deferred incentives.
Exactly. There will be no change in the cash flow.
Sure. Second related one. I'm also trying to understand, in the past, for the finances assets you had talked about the depreciation being higher in the income tax books and because of which the effective tax rate is much on the lower side. Under the current arrangement of the new norms, would that still be the case so that your tax rate continues to be on the lower side as per the income tax books?
I think we've talked about our tax rate being low because of differences in sort of your book and tax things which have a number of factors. There's significant line items that are subject to tax and not to tax. There's a whole calculation and there's a reconciliation in our annual reports every year, and you'll see it this year as well, which will have the reconciliation of your effective tax rate on book purposes to the statutory tax rate. My suggestion is why don't you look at that disclosure that comes out in the annual report? If there's questions, please call Ankur.
Sure. Thanks much.
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.
Sorry we could not take all the questions because of lack of time, but I hope you found the call useful. Thank you.
Thank you very much. Ladies and gentlemen, on behalf of IndiGo, that concludes today's conference. Thank you all for joining us. You may now disconnect your lines.