Earnings Call: Q4 2019

May 27, 2019

Good evening, ladies and gentlemen, and welcome to Indigore's conference call to discuss the 4th quarter fiscal year 2019 financial results. My name is Ahmad, and I will be your coordinator. At this time, the participants are in a listen only mode. The question and answer session will serve today's management discussion. As a reminder, today's conference call is being recorded. I would now like to turn the call to your moderator, Mr. Amrit Goyal, Head of Investor Relations for Indigo. Thank you, and over to you, sir. Good evening, everyone, and thank you for joining us for the Q4 fiscal year 2019 earnings call. We have with us our Chief Executive Officer, Ronan Gupta and our Chief Financial Officer, Rohit Silek, to take its formal comments for the quarter. Before we begin, please note that this 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 observe the information subsequently. A transcript of this call will also be provided on our website. With this, let me hand over the call to Ronan Gautam. Thank you, Anshul. Good evening, everyone, and thank you for joining us on this call. We announced our Q4 and full year fiscal 2019 financial results today. Our results for the full year were, of course, not great, and that we essentially had a breakeven year. But it is important to note that we made a sharp U-turn during the year with losses in the 1st 2 quarters and then a recovery of profits in the last 2 quarters. We had earlier discussed the challenges the industry faced in the 1st and second quarters. So it is best now to focus on 4th quarter results and the trends that we see going forward. For the quarter ending March, we delivered a positive impact of INR 6,200,000,000 which equates to a fairly respectable 7.8% profit before tax margin. Our capacity for the quarter increased 29% year over year with domestic capacity growing at 24% and international capacity growing at 60%. International capacity now represents close to 20% of total capacity. We were particularly pleased that the international RASK or unit revenues improved at approximately 13.6% year over year and against the domestic RISK improvement of 6.2%. In explaining our revenue trends, it would be helpful to break it up into 3 factors. The first factor is what is happening to our unit revenues based on the actions we're taking internally to improve them. We have optimized the network and 10% of our capacity has been reallocated during this quarter. We have also taken some sales initiatives to improve performance on our distribution channel. And finally, we are ensuring higher connectivity on our international flights. All these factors created a 2% to 2% year over year improvement in our unit revenues for the quarter. And on a steady state basis, we expect a boost of 5% unit revenue improvement for the next financial year. The second factor is the jet air rate cessation of service that helped our revenue performance in the last week of February in the Q1 of March. Overall for the quarter, we think that the Jet Airways effectively increased our unit revenue by 3% to 4%. Looking forward to the Q1 of 2020, our April revenues have been strongly affected by the jet air ratio down. And in that regard, April revenues have actually been stronger than even March. By May, however, as the industry has added capacity in the jet markets, the jet areas effect is significantly dissipate. And by June, I think the effect was pretty much disappear, except in a few international markets where we overlapped with jet as in the Middle East markets. Turning now to a third factor, which is the market behavior and pricing discipline. The downside here is that capacity was added rather late in the game without the full benefit of the 90 day booking window. Therefore, the most painful impact is in June in the metro to metro markets where closing Paris has come on quite appreciably. Unfortunately, we are also heading into the traditionally weak July August period, and we are hoping that the new capacity establishes this between Thailand. Just to summarize, we have an underlying 5% unit revenue improvement trend because the actions we have taken internally. We have a jet airways bump, which is pronounced in March April and largely dissipates by June. And finally, we have a new capacity in high yield markets just trying to find its way around. So we are off to a good start to the Q1, but I have to emphasize that we have no visibility at this time for the seasonally weak second quarter. The shape of the Q2 will depend a lot on whether the new capacity finds traction in the marketplace and the pricing discipline is maintained. For the quarter ending June 2019 and for the full year of fiscal 2020, we expect that our total capacity will be up by 30%. Looking at our on time performance for the quarter, our OTP was 76.6%. Our OTP has improved from March onwards and we have reported an OTP of 90% for each of the months of March April. We are also very proud of the many awards that we have received during the year. Now I'd like to thank our 102,000 employees for enabling the airline to expand rapidly, ensure profitability and simultaneously enroll these customer service awards. I'm also pleased to announce that our Board of Directors has recommended a dividend of INR5 per share. I would like to share with investors our internal discussions as it relates to this announcement of dividend. Ever since IPO, we've been profitable every year, while this year has just been a breakeven year. We think this past year was an anomaly and aberration, and going forward, we are bullish on our financials. During the profile of our profitability, past, present and expected future, we decided that we want to establish ourselves with a company that gives us dividends every year. We realized that having set such expectations, we will, of course, have to deliver on them. But this 'nineteen team is indeed resolved to do exactly that. And with that, I'll turn it over to Roy. Thank you, Ronu, and good evening, everyone. For the quarter ended March 2019, we reported a profit after tax of INR5.9 billion with an after tax profit margin of 7.5% compared to a profit after tax of INR1.2 billion with an after tax profit margin of 2% during the same period last year. We reported an EBITDA of INR22 1,000,000,000 with an EBITDA margin of 27.8 percent compared to an EBITDA of INR11.3 billion with an EBITDA margin of 19.5 percent during the same period last year. We reported a profit after tax of INR1.6 billion for the full year. As Ronu mentioned, our profitability was better during the quarter compared to the same period last year, mainly on account of better revenue performance. Our total capacity for the year was ASK 81 1,000,000,000 an increase of 27.6% compared to the same period last year. Our total capacity for the Q4 was ASK 22.1 billion, an increase of 29.4% compared to the same period last year. Our revenue from operations in the March quarter was INR78.8 billion, an increase of 35.9% over the same period last year. Our other income was INR3.8 billion for the quarter. Our RASK for the quarter was INR3.63 compared to INR3.43 during the same quarter last year, up by 5.9%. This improvement in RASK was primarily driven by higher yields, partially offset by lower load factors. While our yields were up by 12% to INR3.7, Our load factors were down by 3 points to 86%. Our CASK for the quarter was INR3.35 compared to INR3.33 during the same period last year, up by 0.6%. CASK excluding fuel was INR2.09 in the current quarter, an increase of 6.7% from the same period last year. Excluding the impact of currency depreciation, the increase was 4%, which was primarily driven by an increase in our maintenance cost. Our balance sheet continues to remain strong. Our cash balance at the end of the period was INR153,000,000,000 comprising of INR61 1,000,000,000 of free cash and INR92 1,000,000,000 of restricted cash. Our debt at the end of the period was INR24 1,000,000,000. Before I close my remarks, I would like to mention that we have adopted the new lease accounting standard in AS-one hundred and sixteen with effect from 1st April 2019. This standard requires us to capitalize our operating leases and as a result, we will record a lease liability and a corresponding asset associated with these leases on our balance sheet. In our P and L, there will be a reduction in operating lease expense offset by an increase in depreciation and interest expense. I would like to emphasize while you will see some changes in the balance sheet and P and L as a result of this new accounting standard, nothing changes with respect to the fundamentals of our business or the cash flow that we generate. With this, let me hand it back to Ankur. Thank you, Tonu 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 if needed. And with that, we are ready for the Q and A. Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. The first question is from the line of Anshooman Dev from ICICI Securities. Please go ahead. Thanks for the opportunity and congratulations for the performance. My question was regarding the structural improvement measures that you were referring to, which in terms of capacity relocation and higher international share and sales and distribution mix. So the effect of this would be around 5% for the next year in terms of care growth. Was that you meant when you said that? It's not gross, it's unit revenue growth. Yes, to be fair or load factor, but yes, 5% year over year improvement is what we see going forward. Okay. And my question was regarding the white body order, which we kind of contemplated for international expansion. Do you have any color on that? Any color on that? So whiteboard is there nothing imminent. Are we starting it? Absolutely. But are we about to place an order? Or do we see something happening in the near future? No. Okay. Thank you. Thank you. Next question is from the line of Biniathan from Morgan Stanley. Please go ahead. Hi, Biniathan. Thanks for the opportunity. My question is basically we've guided for around a 30% expansion in ASKM. Could you share what percentage will go in international? And what is the impact of that positive or negative in the P and L? Because you're growing quite fast in the international business, so I assume that would see a little bit of a drag on earnings. And similarly, what percentage that is going to go towards NIO? So we've consistently said that of the capacity coming forward of 30%, half will be domestic, half international. So half of the 30% goes domestic and the other half goes international. All our new aircraft are coming in unused. So it's all 100% new, which is helping us reduce the cost. And in terms of international being a drag, we really have an S curve of profits by market, if you will. And it's got both domestic and international units. Some of the international traffic is very profitable, higher than some of the domestic traffic. So there's no blanket statement of one being more profitable than the other. And the reallocation tries to optimize all that to try and move this cash curve to the right, if you will. So whatever average profitability we have, We have a goal of moving the entire market of the markets to the right and some of those are domestic, some of those are international. Did that answer your question? No, yes, but that's quite helpful. So, you know, like in the previous presentations, you've talked about when the ASTM will slows down, unit profitability will start to improve. Is that sort of lever is still left with us, right, probably 2, 3 years down the line when you see FCM sitting down there, that will thicken? That is one of the you're right. That is the accepted wisdom in the industry that, hey, slower growth is good, higher growth is bad. Fortunately for us, that's not true. We have so many high profit markets that we're going into that we are very, very excited about that. And there's always a sort of soft issue or constraint of some kind. And so when you find them, they're actually more profitable than the average is. So I wouldn't assume that growth comes at a price of profitability. Okay. That's great. So I'll come back to you too. Thank you. The next question is from the line of Omar Zalat from Goldman Sachs. Please go ahead. Yes, hi. Umesh, I have two questions. So my first question is on the international strategy. How do you think that since you're going in international, how do you think that you'll be able to compete with the much stronger balance sheet and experienced players? So what is the strategy there? Because now so far we've been focusing on domestic, but now for the last year or so we are looking to move in international. My second question is on the domestic front. Being the largest player, how do you think fares will behave given passenger demand is coming down despite capacities are going up? And on the antitrust, if there is any kind of information, because now your market share is near 50%. Okay. So let me take you have 2, 3 questions there. I'll take one at a time. So the first question is, particularly internationally with the established sales and I assume we've talked about British Airways, Singapore, Emirates, all of this. We have a very different business models in regional as you know. Different service carriers, they have business class, the economy is a smaller part of the entire cabin and the cost structure is much higher than us. So we are a different animal in the market, if you will. And we don't go head to head with them. And we are very successful with the business model. So when we fly to Dubai, yes, Emirates is well entrenched and we are in India, but we are highly profitable. And so we expect that to continue. And if you look at our international expansion, when we talk about the 4th corner strategy, we really try and fly the shortest flight to get people into our network. So we really are a low cost operator. And frankly, our model has proved that we will be successful to us. There was a second question, I think, on On domestic. So I have to say part of our business model is affordable fare. So please don't assume that what's happening is a lot of fare increases. Of course, we just agreed that we March April there was a fare increase. But as I said, the June is back down again. So our profitability is not driven by increasing fares. Our profitability is driven by flying into the right markets with a lower cost. And then there was a third one about air transport market share or something. Look, we are dedicated to building air transportation in India that's second to NAND. And that's what we're trying to do, and we don't know where that model takes us in terms of market share. What we do know that we'll be connecting all these tier 2 to tier 2 cities in sort of high frequency flying so that people can move around more easily And that's what we're trying to do. Let me show you some examples of that. We know how important tourism is to India. So we're building this Buddhist circuit, now connecting the Iyaya, Bayanhasu and Gorakhpur, which has never been done before. And we are connecting it to both Calcutta and Delhi, and we expect to have a really good season into those markets. In the Northeast, we are not waiting for the government to tell us to increase line, but we're taking the cities there like Jimapu, Sajal, Aitel, and we're connecting all those cities to both Calcutta and to Guwahati. And then again, as I said, we're developing a plan to take Tier 2 to Tier 2 connections without going to the metro. So these are all things that we're doing to improve the transportation system in India. And I hope the authorities have, when we see what we're doing, we appreciate that. Sure. And one last thing. So actually, so besides focusing on the passenger revenue and ancillary revenue, What are your views or is there any thought over the medium to longer term to enter, say, Allied Businesses, let's say, just on, say, airport infrastructure or something where you'd maybe have some sort of tie ups with the tourism companies or, for example, some booking service companies? Look, we stick to 1, I think. We know what we're doing, we're good at what we do and we have no plans to sort of expand into other areas that we know very little about. Sure. Thank you. Thank you. Thank you. Next question is from the line of Achal Kumar from HSBC. Please go ahead. Hi. Thanks for that, the opportunity. I had 3 questions actually, if I may. So one is around the operational challenges. So where are you in terms of your operational challenges on the pattern between on the pilot problem? And the third one, which is not yet started, is like IFRS 16. So when are you planning to incorporate IFRS 16 into your books of account? And what sort of challenges do you see around that? Second, I wanted to understand about your aircraft financing strategy. Are you still looking at complete savings or is there any change in your aircraft financing strategy? And the last one, I wanted to understand about what's your view on the low cost business class on the long haul operations? I mean, I understand that it was in the news that you are planning to you are thinking about offering low cost business class fees. Is that true? And then what's our strategy you are looking around that? Yes. Wolfgang here. Hi. Saab is answering the questions on PW and the pilot questions you asked. 1st, on PW, we see a strong improvement trend for our performance. Technically, the special liability is 99.85, which is actually comparable 100% comparable to other engines. And a lot of improvements have been achieved in the last 1 year. If you look at, for example, there are always rolling trends of certain parameters of the engine performance, which had, let's say, in terms of inside the town rate has been achieved by half and is now very, very much below the international standards, required standards. So we are absolutely confident that all the measures which have been initiated by CW show results. For most of the issues, Resiluxus had been found and are implemented. And we have right now 2 areas where we focus on better with the manufacturers. This is, for 1, this is the date of the 3rd stage of the engine, based on solution implemented for all deliveries in starting all delivered in June, it starts. And another area for a year where we have also or expect a solution in by September to be implemented. So all these methods are under control. We have no EMGs. We have sufficient spare engines. And so we are absolutely confident in how the engine is operating. On the second point, you mentioned the pilots. If you recall, we had a certain pilot we had a pilot shortage, say, 4 months ago. I have to admit that. But in the meantime, we have and we released about 40% every month. In the meantime, we have come up with sufficient pilots and able and have enough numbers to execute by our extension program. So we are well on track. And looking forward, we also have something like 285 Jet Airways pilots who already joined us, and they will be online within 3 to 6 months. And I expect this number of 285 to increase further. So looking forward, we will have sufficient pilot to execute to support our expansion program. So this is Rohit. I will address your questions on County Standard 116 and the sale and leaseback question. So first on 116, I think in my prepared remarks, I spoke about the fact that we have adopted the new standard as of the 1st April where we are going to our operating leases will be on balance sheet. I'll give you a little bit more color in terms of rough numbers. So roughly, we will have a lease liability of approximately INR140 1,000,000,000 that will be on our balance sheet. And a corresponding asset of about INR140 1,000,000,000 will also be on our balance sheet. So that will be the balance sheet impact. On the P and L side, for the financial year FY 'twenty, the coming year, we would expect it to be roughly neutral. The reduction in lease rent expense will be almost exactly offset by the increase in depreciation and interest expense. So P and L impact will be neutral, which is kind of what you would expect, but at the same time that is only trying to bring the liability on the balance sheet. The only other issue that I will point out is we will be marking the liability to market and that impact will flow through our P and L. So depending on the change in the exchange rate, the mark to market of the liability will also affect our P L. So that's 116. And on the business class issue, we said repeatedly, I think, airline business really segmented strongly of less than 6 hours flying and over 6 hours flying. And the less than 6 hours flying, the business model has been tried, tested and established everywhere around the world. In the long haul, over 6 hours flying, many people have tried, no one has come up with a good model yet. I'm not saying we have any other answers either. So when people say, I can go to a business class, I can go to a wide body, I can go to a long haul? This is very preliminary in our thinking. We're just putting our thoughts together. So all options are open at this point on that regard. And so this is Rohit. Just to finish up on my on 116, there's just one more point I wanted to add. I think most of you on the call are very familiar with the fact that the airline industry for years, analysts and investors have always looked at off balance sheet debt and estimated an adjusted debt number using different lease utilization factors. Some people use 5 times rent, some people use 7 times rent, etcetera. So there's nothing really new with this standard other than it puts it on the balance sheet. I also wanted to address your question on other financing model. So we primarily have been relying on sale and leaseback to the sale and leaseback model to finance the planes. Having said that, over the last year and a half, we've signaled that we would like to start having owning some planes outright with the cash flow that we generate. We had started buying I think we own about 12 of our ATRs, which we bought outright with cash. We had planned to buy some A320s, but because of the little bit of uncertain financial environment over the last year, I think over the last many calls, that explained that we sort of temporarily slowed down our sort of thoughts to buy planes. But as our cash starts building up, it's certainly something that we will utilize some of our cash balance to buy from brands as well. Okay. So doing that, what I understand is that I take this very positive, which you said that there is a mutual impact on the P and L other than the products impact. Because generally, what I understand is the young leases are seeing more in the initial years and you have all the young leases, so which are not appreciated. So in the initial year, that should have a more impact on the single. I'm not sure if I'm true, but that's what I get from the international airlines and international standards. Yes. Seats, you're absolutely right. The issue is that most of our leases are fixed year leases. On average, you'll have our leases that we're facing the closing, which will sort of be sort of on an average life. It's not so if that will be true if we had if our leases were like 12 year leases, but here, this sort of early part of the lease is the 1st 3 years and the latter half is the next 3 years. And so because our leases are short term, that's where the effect You won't see that, that will impact. Okay. Thank you. Thank you so much. Thank you. Next question is from the line of Sonal Gupta from UBS Securities. Please go ahead. Hi. Good evening. Thanks for taking my question. Just could you give us some more insights on the 5% unit revenue improvement that you talked about? I mean, is this going to come because of faster ancillary revenue, cargo growth, etcetera? Or do you see you said this is driven by internal initiatives, right? That's right, right. Look, Fargo and CREB is also important areas for us. I would also say that so far we've been handicapped in cargo a little because we are flying routes that are not cargo rich. As we go internationally, we do get more cargo rich. So I would those are add ons. Yes, cargo should be better and clearly the same thing. As you go long haul, people will tend to have more prime more meals. They will tend to sometimes have 2 meals. So all that are potentials, but I'm not including that in the 5%. We had a project team put together in last around December, January, and we said we need to improve revenue and what can we do. And these are the 3 areas we focused on as low hanging fruit. That doesn't mean that that's all there is going on in the customer, of course not. We have got initiative to improve customer service, initiative to improve cargo, initiative to improve ancillary as you suggested. Those are not included in the 5%. Okay. And just another question, if I may, is just on the international slots, I mean, how does that allocation take place? I mean, do you need permission from the I mean, like you say trying to Middle East or somewhere? Absolutely. So there are 2 issues and we looked on almost separately. Domestically, it's our own slots. And it's not just Delhi and Bombay people seem to think. It is also like IKEA, the slot in the snow, Pune and Goa. Everywhere there's a slot issue. So those are domestic. Then you come to the international line and they are governed by bilateral. So who has how many bilateral by country is an issue and who has applied for it. So with JET is a good example, taking place on. JET has shut down and a lot of authorities, if you will, that are now available. So several discussions going on with the ministry, everyone is applying for some of those, but we can't fly them until the ministry approves them. And they'll approve them by saying, okay, Indigo, you get this and go here, you get that. And after they give us authority, then we have to start the slot process again. Because if you just say that you can fly Mumbai to Hong Kong, doesn't mean you can stop flying. You still have to go to the Hong Kong airport and get a slot. You still have to go to the Bombay airport and get a slot. So yes, for international, it's 2 step process. 1st, get the bilateral authority, then get the slots at both airports. And would that require any payments also for international slots like Hong Kong? I mean, if you're going to Heathrow, yes, but all these other but they are highly slot constrained, let me tell you. I mean, getting a slot in Hong Kong is not easy. We have some rights that we cannot be able to use because we don't have the slots. So these are tough to negotiate inside. But Shunu, it sounds like the slots itself, we don't the Epochtar charge you they charge you landing fees. So that's the way that's their model is they charge landing fees. Sure. So basically given that we have a certain fixed number of bilateral flights which are there from India and update not jets allocation obviously going out. So you can play it with other people in the airport slot. So you don't need an approval from other government to fly, right? You just need approval from the Indian Ministry and then negotiate those slots with the airport? That is correct. Okay, great. Thank you so much. I'll join now in the queue. Thank you. The next question is from the line of Deepika Modra from JPMorgan. Please go ahead. Hi, good evening. Thank you for taking my question. As your stage rent increases with the increasing international mix, does that factor in into your 5% unit revenue growth? The 5% unit revenue growth is a set of actions taken on a specific project. So everything else remains the same. As we talked about cargo, our CASK, our RASK, everything remains the same and goes along with the trend, which was a very concerted specific project effort to try and give our unit revenue. So it doesn't affect everything else. Understood. And could you give us a little bit more color on the slightly longer haul routes? How is the utilization now trending? I mean, the newer routes that you've launched? And particularly on the return, are you getting enough demand on the 6 hour, 7 hour routes? Yes. We are very pleased with it. I mean, I'll tell you, it's the only route that as you can imagine with Delhi, Istanbul because we now have a fuel stop. That one is an issue for us on Hindusta, Pakistan, yes, they're looking tough. But by and large, most routes have proved well. We are happy with utilization, happy with the profitability. So yes, and as I just read in my prepared remarks, year over year international actually improved sharper than domestic. And so we know how much of an impact jet had on the domestic. The international overlap with Jet is not that fast access in the Middle East. And yet we are performing very well. So yes, we're pleased with international. And one last question, if I may. You mentioned that you plan to divide a dividend each year. Any specific dividend policy in terms of a payout? You mean in terms of what EDA we're targeting? No. It depends on profitability. What we're saying is we are committed to make sure we earn enough profits to give out our dividends, but it will all depend on what percentage profits we're making and other cash needs. As we said, we would also factor in that we'd like to own some more airplanes. Got it. Thank you so much. Thank you. Thank you. The next question is from the line of Santosh from SBCAP Securities. Please go ahead. Yes. Many thanks for the opportunity. I had two questions. First one on the nonfueled CASK side, you had mentioned gone up in the quarter by 67% and part of it is due to the movement in ForEx. You had mentioned that some of it is attributable to the maintenance side, which has seen an increase. This one is more of a one off or we should expect this to continue going ahead? Yes. So Santhosh, the you're absolutely right. So I think the 0.7% was partially ForEx and partially maintenance. ForEx without ForEx, it was 4%. The majority of the 4% is maintenance. This is something that has been there for the last year or 12 to 15 months as we've had a number of our older aircraft, the CEO aircraft who went through lease extensions go through a second shop visit. And the second shop visit is usually the 8 year mark, which was not sort of originally anticipated because originally we expected to keep all these aircraft going for 6 years. I think I've explained on the last couple calls as well that we have this bubble. I think this bubble will continue through the next year or so, but it starts to dissipate over the next year. So we won't see it. We'll see it come down slightly over the next year, but then this sort of move will be behind us 2 years from now. Sure. So this is mostly linked with the average of the fleet, so to say. That's how once you do that, right? Yes, that's correct. As those older aircraft exit the fleet and are replaced by neos, this bubble will sort of be behind us. Understood. The second one was around the A321 news that we started reading now. Just wanted to understand the unit cost structure, how is it different from the A320 NEO? It's in the range of 8% to 10% better on a unit cost basis than the A320neo. So this is for A320neo, is it? Yes. Neo to neo, 3.21 versus 3.20neo to neo. Next question is from the line of Sushath Jaidak from IISL. Please go ahead. This is Joseph from IISL. I had a couple of questions. One was, right now, when we look across the economy, we are seeing significant slowdown in many consumption categories autos, be it FMCG growth or consumer electronics, etcetera. I just wanted to check whether you're seeing a similar trend in your category as well, especially when you hold the fares constant on a regular basis? Actually, we are not seeing that kind of slowdown that the press is reporting. You know the press suppose that traffic has gone down. And the fact is that traffic is passenger traffic is very closely correlated to capacity. So if capacity goes up, traffic goes up. If capacity goes down, traffic tends to go down with it. And recently, capacity has gone down, helped led by the MAXs, the running of the MAXs and then, of course, Jets. So I think the correlation is very tight. Now going forward to May June, looking at our load factors, they are bouncing back up nicely. So if you were to say so what do you think is happening to airline traffic in the next year in the short term, we say it's going to be up 20 some percent. That's our best forecast. All right. My second question was based on your internal estimates, what do you think domestic industry capacity will grow in the coming next 'twenty? Or any rough sense that you would be able to give us? That's very hard to say because we know our numbers and everyone else's numbers I think are sort of speculation. So as you know, sites have a lot of jet airplanes with Tara talking about the same. So we don't have a clear sort of cycling for the people's growth plan. It seems very volatile at this point. Okay. Thank you. Thank you. The next question is from the line of Nikkalu from Bellossom Life Management. I heard you say that your fares have not gone up. It's more about, I mean, your margins have basically increased because of different routes and the costs coming and being under control. So just want to understand, your yields show up pretty decent increase on a year on year basis. So just if you could throw some light on that, that how are you all of that mix? Right. So as we said, March April were strongly affected by Jet and sales did go up. The rest of the day, remember, jet overlaps on last about 40% of the routes. So 60% of the routes, there is no jet effect. So what is happening there is we do have strong routes, we do have weaker routes. And to the extent we optimize our network by saying it's almost like a plumbing problem. Where is the choke point? Try and add capacity there and where the pipes empty and try and take capacity out of there. When you do that, you get an automatically improvement you need. Although in each specific market, sales have gone up. So it's this mix change that creates most of this impact, but acknowledging from ET that March, April May I have to project. Okay. Sure. So I want to Sure. So I want to understand, let's say, your yield saw approximately 10% improvement over last year in this quarter. So would it be fair to say that more than twothree of it is because of mix and the rest is because of fare? Because not all routes would have seen fare increase. Right. So as we said, of a 5.9% improvement for the quarter now. I'm not steady stating it to the next quarter. Last quarter, we had a 4.9 percent unit revenue improvement. And we looked at that and said, how much is that because of high axles and how much of that is because of jet? And our best guess is that 2.5% of that is us doing stock for the quarter and the remaining 3.5% or so is because of jet. So you can use that ratio as to what's happening in the marketplace. Okay. So when you say fares have now again come back down, so that means only that part will actually go down, the balance of balance of and you'll actually continue to retain going ahead. Is that a fair understanding? That's why I tried to give it a you have to understand 3 different factors. What are we doing in terms of the mix? And don't forget, there's sales channel initiatives and there's international different activities. So don't just focus on the optimization of the network. All 3 had an impact. And how much is that? We'll give you that number. That's a 5% steady state. We're saying for the whole year we should get it. Year over year, we should get a 5% improvement. Then you said separately, there's a jet impact. And we said the jet impact was strong in March, stronger in April, coming down in May and disappears in June. That's a bump effect. And then we said, however, there's a third effect, which is actually a negative, which is much of this capacity has gone into metro to metro markets. And in metro to metro markets before we had established players doing that thing and it was pretty steady environment. And now we have new players coming into that market and they're coming in very closely. And they don't have a 96% premium though. So the third impact is actually negative in terms of this new capacity coming into high yield markets. So those are the 3 trends we were trying to delineate one from the other. Okay. And my last question is, I mean, now that you mentioned that initial squeeze which happened and which took place up, which is no longer which is behind us at home, right? So now how do you see the situation, especially in that up to 15 days bucket? How do you see fares and competition behaving in that bucket? So in June, we said that 0 to 15 in the window, the fares are weaker, appreciably weaker. So after 2 May, we are good. After June, it seems to be getting weaker. But again, as they get 90 day buffer windows behind them, they could behave differently. I mean, clearly, if you're going to push in a flight to Bombay, Bangalore with a sort of 20 day notice, you'll rush to fill the seats, right? And you're still going to bring down for it. Okay. Understood. Thank you so much. Thank you. Next question is from the line of Nitin Agarwal from Chain Financial. Please go ahead. Yes. Thank you for taking my opportunity. Sir, like you said, capitalized lease in the industry we produce somewhere around 5 to 7x. So if in FY 'nineteen we see we have a €50,000,000,000 of potential. So if we use €5,000,000,000 to €7,000,000,000 to €350,000,000,000 However, you said a rough cut lease liability, which will be in our balance sheet, will be around RMB140 1,000,000,000. So can you explain the difference of what is being missed and or maybe you can reconcile this for us? Yes. It's actually a very simple explanation. Our leases are 6 year leases, while sort of that normal industry standard of 5 or 7 times is assuming more like a 12 or 15 year lease. So because our leases are 6 years, we have sort of an average life of 3 years. So our number is going to be more like 3.5x number, which is sort of the which will reconcile more closely with the number which is which will reconcile the number with the number I've given you. Thank you. The next question is from the line of Mayur Murat from Indian English. Please go ahead. Hello. Yes. Yes. Hi. So, 2 questions from my side. 1, I'm just trying to analyze. So GGC recently reported the April numbers. Now what we see is that Indigo has gained significantly. We see a 20% YOY growth in passenger traffic for Intego versus the minus 5% for the industry. And we see 0 market share improvement for SkyJet. Now what we don't understand is while there are the weaker enforcement, the SkyJet has picked up a lot of Jet Airways aircrafts. We haven't really seen any benefit really flowing there. So just wanted to understand that do we see that impact coming now? And will it hit more positive in terms of competition and the yield benefits? So remember that, 1st of all, the capacity went down because of the MAX grounding. And then they're trying to bring in this jet aircraft. And the jet aircraft, they're coming in at a certain pace, if you will. So I don't think they're all in there and all flying and all flying at full utilization. So they had a bump down because of MAX building up and decide to kind of volatile when you say what is the domestic capacity going to do next year, especially in the next 3, 4 months. It's a lot of depending how quickly Spice will be able to get these chains up in the air. Right. And secondly, continuing on the same thing. So while we've seen your personal traffic growth really going up by 30%, you are also mentioning that you're going to see additional about 30% in your ASK for the quarter and for the year as well. So even if that improvement continues, my sense is that your fixed cost will be up for about 30% of the capacity while you'll be generating revenue for about, let's say, 30%. That is why I'm assuming that you continue with the same kind of growth, we should yourself mentioning that you are now seeing a kind of zero percent diminishing impact of DG FELI going forward. So just want to understand that how are we planned over cost when the fixed cost energy looks to be going up because of higher capacity conditions for the company? Let's see if I can decide for that. So you're saying our costs will grow faster than the revenue, is that your concern? Yes. So Yes. So my sense is that most of the aviation cost is kind of fixed in nature. When you add 30% potentially, you are definitely adding a cost of 30% aviation. And as you rightly know that Pfizer will become aggressive, the other guy is factoring in the digital routes. The yields might again go back into pressure. So just trying to understand, is there any other lever left with us other than the external yield where we could still continue the kind of performance that you've generated? Look, I mean, I'd like to say that I look at this at a market by market basis. And I say, are we gaining or are we losing? And I'm very comfortable that we're gaining ground. I mean, so our system, remember, I talked about choke points. Our biggest choke point was Mumbai. So I we look at each market, we say, okay, Patna, Coimbatore, Lucknow, I want to do this. That's where we're going. It's like, okay, we're doing well in every direction, but in the direction of Mumbai, we're so. Now suddenly now, Mumbai is open. That clearly makes a big impact to all our markets where the traffic was getting choked before. Then we look at the Middle East markets. The Middle East market also long term, there has been a reduction in capacity because of that. And I'm saying, hey, that looks pretty good too. So in and then I can go eastwards. And we are quite optimistic about the markets we're going to fly into Asia. Actually, no one is flying today. So as we said, we'll go to Hanoi and China. We'll be the only Indian carrier flying in those routes. Metro to metro, we used to have some gaps in our schedule. And just I mean, just to make this more light, if you will, we were like, oh, if you only had a Mumbai, Chennai in the morning, we're missing that. Well, now we have Mumbai, Chennai in the morning, we've seen that before. So if I look at every market, it's like, right, there's not a room to be positive here. Just on the cost structure, Wolfgang here. I mean, it's the amount of our cost are fixed cost, and that's the only expense they stay like this or only decrease much below the increase our capacity. And the way we plan our expansion is the most efficient way because we bring in our own aircraft which we have ordered in the same configuration, it is playing in also bigger aircraft in ASV-twenty 1. So all that tends to lead to much lower unit costs going forward. And so I didn't fully understand your question that fixed costs grow more or less the same rate as a perpetual option. In our experience, it's not the case. And coupled with the, let's say, very homogeneous growth with our own aircraft coming in, no big suddenly extraction of business class, which naturally brings up unit costs. So we don't need to bring in other aircraft. All that together, I think, the calculation will show that they'll have a very positive effect compared to the industry. Thank you. The next question is from the line of Manish Goswold from Nirnwald Bank. Please go ahead. Thank you for the question. My question already answered. On the last question, Most of the questions have been answered. Only one question I have. As for the media report, there is some difference of differences between the promoters. So can you update on the same, sir? Well, like we said in the press release, we want to confirm that there are absolutely no differences on strategy and no differences on international expansion, no differences on management selection. There is one issue that we are addressing right now, There is one issue that we are addressing right now and we hope to resolve that in the next in the very near future. So only one issue remaining, it will be activated and we're very optimistic it will be resolved shortly. The next question is from the line of Shukulangam Narayan from JMP Parikh. Please go ahead. No, the last question was what I wanted to ask. Thank you. Thank you. The next question is from the line of Chintan Sheik from Samixar Capital. Please go ahead. Hi, this is Pavin. Could you comment on what sort of you talked about the unit revenue improvement from the initiatives. Could you comment based on the fleet improvement and the 20% ASP growth, What sort of improvement can we expect for fuel cost with the pricing, assuming the steel price? And also because of the economies of scale, what sort of improvement can we expect in your cost? Yes. So in terms of fuel this is Rohit. In terms of fuel CASK, as we continue to take on more NEOs, we will see a 15% improvement in fuel burn. So if you look at our CASK if you look at our fuel CASK for this quarter and compare it to the same quarter a year ago, our CASK fuel CASK was 8% better. Even though fuel prices were actually roughly the same a year ago and this quarter. So that is primarily driven by the improvement in NEOS as well as some improvement in the fact on a per ASK basis and lower fuel taxes in international as well. So those are the two points, but the NIO is actually contributing a portion of that and that you'll see going forward. And as we get more and more NIOs and some of the older planes exit, you'll see that increase. As far as the overall CASK goes, with the sort of the nonfuel CASK flows, as you see A320s coming in. I think I mentioned earlier to another question that we see about an 8% to 10% improvement on unit cost of A321s versus A320s, Nios to Nios. So that we'll see improvements from that as well. So if I may just ask one follow-up on that. So if I take Q4 back here or $20 versus things that you just completed and all these things being the same, the prices of fuel and everything, Lots of improvement can we expect on our 12 month basis on those two parameters? So I think I've given you some of the information that I could give you, I think, on Understood. Other income management come down. 1 quartet with a lot of money moving into foreign currency, it would come down. So what is the reason? I mean, can we expect it to continue at this kind of levels? It will start from our interest income, which is based on the interest we earn on the deposits with foreign currency was coming down with the reduction and with the foreign currency deposits. So you'll start to see that coming down. Thank you. Our next question is from the line of Sonal Gupta from UBS Securities. Please go ahead. Yes. Hi. Thanks for taking my question again. Just on the international, I mean, one is, do we see this expansion largely in the 321 led in that sense? And the second thing was also in terms of keeping your numbers on 50% of capacity going into international route seems to imply like 80%, 90% growth in international ASK for the year And like you were hinting at that it's not easy to get slots, etcetera. So are we I mean, is this already pre modeled build out? Or I mean, given that things have also opened up the JetVee products and this is including that benefit? Just some color there. So the growth ticking now and December of this year is pretty much sort of size, it's high and see in terms of we've got the slots, we've got the bilaterals, etcetera. Going forward from December to the rest of the year, we are still applying for slots, applying for bilateral routes and so on. So most of it is done. I would also say that the international as you grow, you're growing into less profitable areas and that really is not true. Many of these international markets, we are quite excited about that this will be highly profitable. And don't forget, for every international passenger, you really get a bump of 0.3 passengers domestically because every international passenger tends to do a domestic connect or the domestic route. So all of that makes us pretty optimistic about our route networks going forward with international being a major add. David, I'm going to add here that not including a space with 20 families that we can use as aircraft in a very flexible way. There are certain routes which might require only A320 size, and another route will require A321. So actually we can deploy our family from all parts of the country on our international routes. We will be very, heterogeneous network we're having on international. So that's HP20 family will play a very important role, both HP20 HV20 and HV21 to us. And HV21 has the added benefit that we can also use the aircraft on high density domestic routes where the airports are not constrained. That's not constrained. It will also give us an additional advantage related to 'twenty one going forward. Would you be able to indicate a number for how many A321s you expect to share? The total number of deliveries you expect going to serve 53 in narrow volume, meaning 80, 20 in its range of clients and 11 ATRs. This is the 2 next financial year. This is not all growth because there are some aircraft returns as well. We can actually do the 15% as we've had in this financial year. Okay, great. Thank you so much. Thank you. Ladies and gentlemen, that would be the last question. I now hand the conference over to Sam Pimper for closing comments. Thank you, and over to you, sir. Thank you all for joining us. I hope you have the call useful. Thank you very much. Ladies and gentlemen, on behalf of Pinnacle, that concludes today's conference. Thank you all for joining us and you may now disconnect your lines.