Earnings Call: Q1 2019

Jul 30, 2018

Evening, ladies and gentlemen, and welcome to Indigo's conference call to discuss the Q1 fiscal year 2019 financial results. My name is Aman, and I'll be your coordinator. At this time, the participants are in a listen only mode. A question and answer session will follow today's management discussion. As a reminder, today's conference call is being recorded. I would now like to turn the call over to your moderator, Mr. Ankur Goyal, Associate Vice President of Treasury and Investor Relations for Indigo. Thank you, and over to you, sir. Good evening, everyone, and thank you for joining us for the Q1 fiscal year 2019 earnings call. I have with me our Co Founder and Interim CEO, Rahul Bhatia and our Chief Financial Officer, Rohit Pillai, to take you through our performance for the quarter. I also have with me Greg Taylor and Wolfgang Prokschauer for the question and answer session. Before we begin, please note that today's discussion may contain certain statements on our business or financials, which may be construed as forward looking. Our actual results may be materially different from these forward looking statements. The information provided on this call is as of today's date, and we undertake no obligation to update the information subsequently. A transcript of today's call will also be archived on our website. We will upload the transcript of today's prepared remarks within an hour. The transcript of the Q and A session will be uploaded subsequently. With this, let me hand over the call to Raul Bhatia. Good evening, everyone, and thank you for joining us on this call. We announced our Q1 fiscal 2019 financial results today. This quarter, we reported a profit after tax of INR 278,000,000. Our profits for the quarter were adversely impacted primarily by depreciation of the Indian rupee, increase in fuel prices, continued pressure on yields and increase in our maintenance costs. While Rohit will discuss this when he talks about our financial performance in detail, let me take you through what's going on in the industry. The current revenue environment continues to remain weak, particularly in the 0 to 15 day booking window. While we spoke about some signs of improvement in the last call, the fares continued to be lower in the quarter compared to the same period last year. We do not believe that these fair levels are sustainable, especially given the increase in input costs. Clearly, with industry load factor in the high 80s or 90s, the industry is turning away passenger demand at current fare levels, but we have no choice but to keep our fares competitive. Having said that, we believe that Indivo is best positioned to withstand these pressures because we have the lowest cost structure and the strongest balance sheet. We have 169 aircraft in our fleet at the end of June 2018, including 124 A320 CEOs, 36 A320neos and 9 ATRs. We added a net of 10 aircraft during the quarter, including 3 ATRs and 4 A320neos. As you are aware, the neos continue to have issues resulting in a couple of parts wearing out sooner than they should, and we are not happy about the situation. Pratt and Whitney and Airbus are working on fixing these issues. UTC, Pratt and Whitney's parent company, in their investor call last week mentioned that they believe they have resolved the steel issue and are continuing to make progress on the combustion chamber. We remain cautiously optimistic and hope these issues are resolved at the earliest. In the interim, we continue to rely on adequate availability of spare engines to keep the aircraft flying. However, sporadically, we do face shortages and some planes have been temporarily grounded. We expect the situation with the spare engines to improve in the current quarter. IndiGo continues to be the leading airline in terms of on time performance, and we ranked number 1 in the DGCA reported OTP for each of the months of April, May June with an average OTP of 83.9% for the quarter. Our technical dispatcher liability was 99.85 percent, and flight cancellation rate was 0.33% for the quarter. I'm also happy to report that our company has been awarded the best low cost airline in Central Asia and India at the Skytrax World Airline Awards 2018 for the 9th time in a row and the Best Domestic Airline India at the GMR Annual Awards 2018 for the 7th time in a row. These great operating results and accolades are due to the hard work of over 18,000 committed Indigo team members, and I want to take this opportunity to thank them. As we continue to add capacity over the course of the year, you will see Indigo deploy capacity to new routes and destinations. During the quarter, we have added 2 new destinations: Hubli, our first destination under the Ulan scheme and Tricci. This brings our total number of destinations to 52, including 18 international cities. We have started 9 new routes during the quarter: Calica to Chennai and Bengaluru Trichi to Chennai, Bengaluru and Kochi sorry, Trichi to Chennai, Bengaluru and Kochi Hubli to Kochi and Goa Kochi to Ahmedabad and Madurai to Hyderabad. In addition to this, we have also started selling tickets for 5 new destinations: Dhaka, Gorapur, Johorhat, Surat and Tuticorin. While we remain focused on building our domestic network, we will also continue to connect international destinations to additional cities in India and also open up new destinations internationally. With our existing fleet and the new A321neos that we expect to start getting towards the end of the year, Indigo will have the capacity capability to reach cities in China, the Middle East and Southeast Asia. We have also secured traffic rights to fly to cities like Abu Dhabi, Kuala Lumpur, Kuwait, Male, Jeddah and Hong Kong. We are evaluating all such opportunities to expand our network and provide many more choices to our customers. With this, let me hand over the call to Rohit for an overview of our financials. Thank you. Thank you, Rahul, and good evening, everyone. For the quarter ended June 2018, we reported a profit after tax of INR278,000,000 compared to a profit after tax of INR8 1,000,000,000 during the same period last year. We reported an EBITDAR of INR11 1,000,000,000 with an EBITDA margin of 17.4 percent compared to an EBITDA of INR20 1,000,000,000 with an EBITDA margin of 34.1 percent during the same period last year. As we had said in the last few quarters, we also received credits from our manufacturers this quarter to offset some of the adverse impact from aircraft groundings and delivery delays. Our profits were lower compared to the same period last year, primarily because of 4 factors. First, foreign exchange. The Indian rupee depreciated significantly during the quarter and closed INR68.44 per U. S. Dollar. Based on this, we booked a foreign exchange loss of INR2.5 billion compared to a gain of INR 66,000,000 during the same period last year. 2nd, fuel prices were higher in the quarter compared to the same period last year. After adjusting for the increased volumes, this increase in fuel price resulted in higher fuel costs of INR 5,600,000,000 compared to the same period last year. 3rd, we continue to see a competitive fare environment in the industry. And despite the increase in fuel prices, while our load factors are up, our yields are down year over year. The impact on the impact of these lower yields on our profits was SEK3.3 billion. As Rahul mentioned earlier, we do not believe that the current revenue environment is sustainable given the increase in input costs. And 4th, we had an increased number of shop visits this quarter on engines pertaining to our older A320 CEO aircraft. These engine shop visits are a regular event and happen in the ordinary course of operating an aircraft based on the number of hours the engine has been used. We had significantly more scheduled shop visits during the quarter compared to the same period last year, which resulted in an increase in our maintenance cost. Our total capacity for the June quarter was ASK 17,800,000,000, an increase of 18 point 4% compared to the same period last year. Our revenue from operations in the June quarter was INR 65,000,000,000, an increase of 13.2 percent over the same period last year. Our other income was INR 3,000,000,000 for the quarter. Our RASK for the quarter was INR 3.70 compared to INR 3.82 during the same quarter last year, a decline of 3.1 percent. This decline in RASK was primarily driven by lower yields, partially offset by higher load factors. While our yields were down 5.4 percent to INR 3.62, our load factors were up by 1.3 points to 89.3%. As I mentioned earlier, fuel prices have risen by over 27%, which led to an overall increase in CASK of 19.8%. Our CASK for the quarter was INR 3.69 compared to INR 3.08 during the same period last year. CASK excluding fuel was INR 2.17 in the current quarter, an increase of 13.3% over the same period last year. As I mentioned earlier, this was mainly because of the adverse effect of foreign exchange and the engine shock with its derivatives discussed earlier. The foreign exchange loss combined with the impact of currency depreciation on our dollar based expenses resulted in an increase of 9.1% on our CASK excluding fuel. The engine shock visits in the quarter contributed another 5.4% to the increase in CASK excluding fuel. Excluding these two factors, our CASK excluding fuel would have gone down by 1.2%. As we have said before, we have the lowest cost structure in the industry, which we believe is fundamental to our business. Over time, as our older planes get replaced by A320neos, in addition to the fuel burn advantage, we expect to see a reduction in our maintenance costs as well. Further, as we start getting larger A321neos, our unit costs will further reduce. We also continue to optimize our cost structure by improving efficiency and leveraging our scale. We are strengthening our balance sheet by purchasing aircraft without free cash. We purchased 3 more ATRs during the quarter and have a total of 9 ATRs purchased so far. Our cash balance at the end of the period was INR 132,000,000,000 comprised of INR 61,000,000,000 of free cash and INR 71,000,000,000 of restricted cash. We had total debt of INR25 1,000,000,000 at the end of June 2018. During the previous quarter, our Board recommended a dividend of INR 6 per share for fiscal 2018. This will be placed for approval of our shareholders in the upcoming Annual General Meeting, which will be held on August 10. Subject to us receiving the approval, the dividend will be paid shortly after that. Before I close my remarks, let me give you our capacity guidance for the coming quarter. We expect a year over year capacity increase in terms of ASKs of 28% for the Q2. We still expect a full year capacity increase of 25%. With this, let me hand it back to Ankur. Thank you, Rahul and Rohit. To answer as many questions as possible, we would like to conclude that each participant limit then sets to one question. Can I take your full name and company name, please? This is the operator. Can I take your full name and company? The first question is from the line of Sonar Gupta from UBS Securities. Please go ahead. Hi, good evening. Thank you so much for taking my question. Rohit, I just wanted to if you could just talk about your maintenance accounting, I mean, because clearly, there's a huge jump on maintenance shop visits. I thought you guys used to sort of amortize it out or in a way we were sort of regularly planning for this, so we should not see one off jumps. So could you just talk about the maintenance accounting? And do we continue to see then going forward be sort of I mean, those sort of unforecasted jumps in maintenance costs? Sure, Sonu. So the way the accounting works for maintenance is fairly simple. We have leased majority of our aircraft are leased aircraft for which we accrue a supplementary rent liability. So we accrue we take a supplementary rent expense on our books every month and it creates a liability. And when the maintenance event happens, we pay for the maintenance event out of the supplementary rent accrual. Depending on the nature of the shop visit, the actual cost may be higher or lower than the supplementary rent accruals. Typically, what happens is when a lot of these are older aircraft that are going through a second shop visit, if you recall, we've extended the leases of several of our original planes beyond the original 6 year term. And so several of these aircraft are going through what's called a second shop visit. The first shop visit is around 4 years, second shop visit is around 8 years. And so a seller will be the 2nd shop visit, which typically tends to be a little bit more expensive. And then the supplementary rent accrual, which is done on a straight line basis, typically is insufficient to cover the 2nd shop visit. So that's why you'll see an extra credit in maintenance expense. So that's typically how the accounting works. Sorry. So just to understand this better, the so we have to pay for this I mean, so this doesn't get paid out of completely out of the supplementary rental and we need to take this in addition to that? We will first utilize the balance that's available under supplementary rent accrual. And then if there's an excess, which as I said, in some cases, there is, and in this quarter, there clearly was, We will take that charge to maintenance expense, which is in the other expense category. And okay. But this applies to all the aircrafts then? I guess, like even the additional ones that you've taken on leave as well as the newer ones, right? Ketur, these typically will relate to older aircraft because the first engine shop visit is typically at the 4 year mark. So these will typically relate to older aircraft. Okay. I'll join back the queue for more questions. Thank you. Thank you. Next question is from the line of Binay Singh from Morgan Stanley. Please go ahead. Hi, team. Thanks for the opportunity. Just a follow on from the previous question. So how do you see this expense going ahead? Was it the 1 quarter thing and the issue has been resolved? The higher maintenance cost? Because or are you going to sort of increase the provisioning going ahead for supplementary and those to adjust for this? So, Vinay, what you'll see is the year over year impact in Q1 was more significant because we had a very low number of shop visits in the same period a year ago. If you go forward, yes, there was a little bit of a spike in shop visits this quarter, just happened to be, But you'll still see these kind of things going forward, but the year over year impact will be less because in Q2 to Q4 last year, we had a similar sort of situation with shop visits. So it just shows up starkly in Q1 just because Q1 last year had a lower number of shop visits. Going forward, this is all a result of the fact that because of the delivery delays in our A320neos, we had extended the leases of several of our older planes. Over time, as the new NEOs come into the fleet and these planes get returned, you'll go back to sort of having maintenance costs in line with a younger fleet. Okay. Okay. That's clear. And just one question on the annual report. We talked about almost a €75,000,000,000 ForEx outgo. Understand this will include lease rental, this will include the purchase of planes. What else is included in this amount? Because I assume fuel costs will not be included in this, right? When we talk about ForEx outgoing the annual report of almost 75,000,000,000? So effectively, so I'm not sure about the RMB75 1,000,000,000 figure, but it's effectively all the ForEx outgoes are dollar denominated expenses, which primarily are aircraft leases and maintenance costs as well as any capital costs for new aircraft purchases like we have with the APRs. In addition, there are several other areas where there are dollar denominated expenses like certain IT software and other matters. So there's several line items in the income statement that have had to have dollar denominated expenses as well as certain capital costs. But the fuel expenses will be skewed in this, right? Because all your fuel payments will be in iron atoms with the industry. Domestic fuel will be in INR terms. Obviously, we have a fair amount of capacity that's international and the international fuel will be dollar denominated as well as well as the station operation expenses associated with our international operations. Okay. I'll come back and Okay. Thank you. The next question is from the line of Deepika Munra from JPMorgan. Good evening. Thank you for taking my question. Firstly, I just noticed that your free cash has dropped slightly from the March quarter. This is largely because of the purchase of the ATRs? Or have you all commenced the NIO purchase program as well? No, we've not purchased any NIOs with our free cash. So the reason for the cash for the reduction in free cash in the quarter was, yes, primarily driven by the ATR purchases as well as certain CapEx associated with maintenance expense on our owned aircraft as well as the fact that typically in this quarter, you see a higher number amount of profits that since lower profits, there the cash flow wasn't generated through profits as well. So those are the three factors that reconcile the reduction in cash. And just to follow-up on that regarding the NIO purchase program, when is that expected to kick start? And both Pratt and Whitney and Airbus have recently highlighted a pickup in NEO deliveries. So when does Indigo start seeing the benefit of that? So firstly, on I'll answer the financing question first, and then we'll talk about sort of the deliveries. The on the financing question, we have indicated that we plan to start buying A320 aircraft as well with cash. We haven't made a firm decision as to when we've financed. As I also indicated previously, we have already pre financed a number of our A320 deliveries through sale and leasebacks for the remainder of the year. So we are still we still haven't decided when we're going to start buying those planes. We will keep you posted as we decide to stop buying A320 or A321 aircraft with cash. As far as the delivery schedule, Wolfgang, do you want to comment on the delivery schedule? Okay. So we saw during the quarter a temporary stoppage of deliveries because of the snack which has been detected which has been, in meantime, rectified. But now deliveries have resumed. And we see overall, moving forward to year end, a full recovery of the deliveries. So we see the aircraft moving in at a faster rate right now because all the backlog is clear now, will be clear now. Got it. Thank you so much. I'll get back in the queue. Thanks, Deepika. Thank you. The next question is from the line of Achal Kumar from HSBC. Please go ahead. Yes, hi. Thanks for the opportunity. I had two questions. One actually was about the profitability. Of course, you said that the fares are not sustainable and the input cost is rising. In that scenario, now of course, I understand from the recent news that most of the airports are trying to increase the charges as well as some of the charges are probably on the card for the peak hours slots. So I mean, so is that going to be the addition to the cost burden? And if that is the case, then do you see profitability further declining? I mean, are you expecting sort of sort of moving to the losses because you barely managed to make profits this quarter? And with such a high cost, I mean, we see additional burden from the dollar fuel is where it is. And then if these charges are coming, how do you see the profitability playing? And the second question I had about on the network planning. So it looks like you are adding more flights on the new route. So how do you see that playing with your yield? I mean, how do you see the balance between the yield and your new network planning targets, if you could insight on these 2 groups? So this is Greg Taylor. I'll take this question. So when we look at our capacity planning, we really don't focus on what's going on so much in the current quarter as we look at it much more as a long term strategy. Realistically, India continues to be a very underpenetrated market with respect to air travel and demand is growing, what, 20% a year. And although we're sitting here with fares and yields that we don't think are sustainable in the long run, we do think that with the cost that we have and the strong balance sheet, that we're in a better position to sustain and do well in this environment than anybody else. So although we're under a lot of pressure from costs and sort of this weak revenue environment, we still think that the long run strategy that we're pursuing is really the right strategy. And we're going to sort of quickly build up our network. We're going to make a broad network in a lot of markets that's deep with frequencies where we need them. And we think that that's clearly the right long term strategy for not only passengers but our shareholders. So again, I guess in summary, yes, there's a lot of short term pressures, but we think we're well positioned and we're taking a long term view that's going to be really the right strategy for shareholders. But do you think on the yes, I agree with you that India is immature market. I mean, it's quite under penetrated market. But the routes which you're talking about are still immature or under mature, I'll say. And then it will take years for these routes to see some maturity and where you can sort of charge the pay everyone. So don't you think that will add pressure to the yield? So I agree with you that some the markets are maturing. But what we're seeing is that when we put capacity in the markets, we're finding that there's a lot more demand out there than anybody thought was there. I mean, there's a lot of these city pairs where there's never been nonstop service before. And when we put capacity in there, what we're finding is that there is quite a bit of demand. I mean, if you look at where we are with respect to load factors, they're clearly very strong. So we're getting the demand is there at the current price. The real challenge for us is, as was mentioned by Raul, what's going on in the 0 to 15 day booking window? I mean, when we look at our sales outside 15 days, we're actually seeing yields up year over year. So that's the kind of pricing we're putting in the market to stimulate traffic is doing well. The challenge we're seeing is that inside 15 days, the period which would typically be business travelers who are not so price sensitive, where we would normally get higher yields, the competitive market is just not allowing us to get the kind of yields inside 15 days that we used to. I mean, it's a situation where historically airlines would use advanced purchase parameters. So low fares, you have to buy outside 15 days. When you buy inside 15 days, typically the fare is higher. Inside 7 would be even a little bit higher. And that structure has worked very well to the industry over the years where we could take these high yields that we get from business travelers and use it to offer low fares to leisure travelers. And the problem we're seeing right now in the markets is that these sort of advanced purchase rules have been competed away, and we're just not getting the higher yields inside 15 days than we used to. So we are our strategy is going to be that we're going to remain competitive because you don't have any choice. You have to be competitive in this market. And we just think over time, as we said, the fare structure is not really sustainable. It's going to have to get better. And we're going to focus on a longer term strategy and build our network, and we know things are going to get better over time. Okay. Thank you. I'll come back. Thank you. Thank you. The next question is from the line of Bhavan Shah from Samiksha Capital. Please go ahead. So if I look at the last episode of fuel price increase that happened in 2013, 2014, you were able to pass on about 50% of fuel price increase in form of fare increases or yield increase, whatever, the way you look at it. Now in that period, I guess the competitive dynamics with respect to what was happening to other airlines versus what we see today and by next couple of Mr. Shah, we are unable to hear you clarify. Your audio is breaking. Mr. Shah, you connected. It seems there's no response from the line. We'll move to the next question that is from the line of Prashant Kothari from Big Debt. Please go ahead. Two questions. One is on the fuel cost. This year, it could increase in fuel to 54%. This is not explained by the amount of ASP growth and the fuel percentage we have seen. And we should have had some benefit on the new appliances, which we were kind of seeing in the last few quarters. That doesn't seem to be good anymore. Is there any particular reason why we are seeing fuel expenses rising as much as sales? That's the first question. And the second Thanks, Prashant. So this is Roy. I'll take the first question and Greg will take the second. Sorry, on fuel, if you just look at fuel divided by the ASKs, if you look at fuel CASK, it went up about 50%. So that would adjust for the sort of the capacity increase. The IOCL published fuel price went up about 27%. So you're absolutely right, it went up slightly higher than the actual underlying IOCL price. And typically, you should see some savings from Neos as well, which we would have. The reason for the increases, it's just a function of how the domestic oil companies price their fuel. So the way they price their fuel is they give you a fixed you negotiate these deals, which have a discount per liter of fuel, and that's a fixed discount. So once fuel prices go up, that discount as a percentage of your fuel prices actually starts to become a smaller percentage. So it's a higher percentage at a lower fuel price. And when you go up, it just the arithmetic works against you as fuel prices go up. So it's just normally how the domestic oil companies price the fuel. So that's the explanation of how the likewise, the fuel CASK is slightly higher than the IOCL published price increase. On the industry capacity, Greg, you want to talk about it? Yes. I'm sorry. Could you repeat your question one more time? I didn't quite hear it clearly. So Krishna, simply about your outlook or your best estimates in terms of how much is the elasticity to grow by in the next 1 to 3 years? Year? Sorry, let me take that. So over we all know with industry capacity, lots of people try to make projections, but a lot of capacity comes in on short term leases. We people have talked about their orders. Some of the competitors have talked about their orders, but the delivery schedule of those are not clear. And so that sort of is fairly volatile. Overall, we're very comfortable with the level of capacity increase that we have planned, and we do expect industry is going to add some amount of capacity as we've been doing over the last several quarters. But a specific forecast, I think we don't have anything more to guide you on in terms of what other airlines are going to do. The next question is from the line of Anshooman Dev from ICICI Securities. Please go ahead. Thanks for the opportunity. So I had a question regarding the sustainability of the sales that you said, which was clearly not sustainable. So are we expecting some kind of capacity, sustainable in the sense that some kind of competition, some kind of capacity addition by the competition will be slowed down to so that they may be profitable and finance increase? And could you also give me the passenger number for this quarter? I don't see that anywhere actually. Thank you. So let me talk first about the fare situation. So and competitive capacity. So we say they know that the current fare levels are not sustainable. Currently, something's going to have to change. I mean, the revenue for the industry has to cover the input costs and that's going to have to play out over the long run. As I said before, I think that some changes in fare structure could benefit the industry and maybe that will help with the problem in the near term. But in the longer term, I think it is in fact supply and demand and that there'll have to be either adjustments in supply or we're going to have to wait long enough for demand to grow to fill the gap. So that's my sort of theory on the whole process. Passenger numbers, do we have those? Yes. I think we've reported those to the DGCA. I think the DGCA normal report, which comes out on 20th, hasn't come out yet. So it should come out shortly. And if not, we can Ankur can get you the you can call Ankur and we can get you the information. Sure. Thank you. Thank you. Thank you. The next question is from the line of Arvind Sharma from Citi. Please go ahead. Good evening, sir, and thanks for taking my question. My first question is on the ForEx losses part since this is the first time you are reporting the next facility. So what exactly are these ForEx losses? And do we expect them to continue over the year? Or do we expect that by the end of the year on a annual basis, they will more or less revert? Sure. So thanks, Alvin. So this number that we given the materiality, we've decided to put it as a separate line item in the financial statements. But historically, every quarter that I've been the last 8 quarters, we've always sort of given that number in during the Q and A session. So we thought we'd just put it in the financial statements. So it's the same number that I've been reporting every quarter. The number essentially is based on accounting standards. There's 2 components to the foreign exchange loss. 1 is unrealized mark to market loss and then there's a realized loss for any liability that's on your books that you pay out during the quarter. And so there's typically the majority of this expense is going to be mark to market on your sort of an unrealized mark to market loss on your foreign exchange liability, which is typically a supplementary rent liability. And so there's a significant supplementary rental liability in our books, which is a dollar based liability, And we mark to market that liability every quarter. And the foreign exchange loss is primarily related to that. So now if you want to talk about going forward, what we're doing is we're looking at we've already started implementing some new structures with our with how we secure our just say our foreign exchange supplementary rent liabilities with these collateralized letters of credit. And we're doing it in a manner where we're going to put dollar where we started putting dollar deposits on against these liabilities, which will match our expense and revenue. So we're not expecting this liability to continue to increase. And over the next 12 months, it will dramatically reduce as the renewals of these letters of credit come up over the course of the year. So we expect to start reducing this liability and just match dollar assets with the liability. Right. Thank you, sir. And if I may just get some clarification on the EBITDA number that you see of SEK 11,300,000,000, what exactly does this include in terms of the ForEx part? It includes the full foreign exchange number that we have in the P and L. All right. Okay. Thank you so much, sir. Thanks. Thank you. Thank you. The next question is from the line of Santosh Ivesai from SBI Cap Securities. Please go ahead. Thanks so much for the opportunity. So I had a question around the cost bet. So we keep reading a lot about pilot shortages and stuff like that. So is that the case that we see on the ground? And would it actually push up costs when we have more of expats, say, coming in for some of these new Yes, I'll take this question. I mean, in Indigo, we have a unique position that we had over the years, have had a proper planning in creating a pool of pilots that starts with the youngest pilot, with the so called cadet program. We get pilots with 18, 19 years, train them. And then after 4, 5 years, there will be upgrade to captains. So and this we take this project further. I have added new cadet schools to our program. And we have a unique pool of senior first officers, that's the last stage before you come a captain, which we can upgrade to Anasimha. And if you cross a certain size, which we have we are close to or have already crossed, then you can generate enough captains on your own because you have a huge pool of 1st offices, which is something 20% every year can be upgraded to captains. Having said that, there is a need for expatriates because we are in an expansion which is slightly higher or is higher than the market growth. And so we will temporarily expect it. But we are very confident that we can, after a certain interim period, equalize that and then be actually a fully sustainable airline in terms of pilots. So this is Rohit. Just to add, overall, we expect the majority of our pilot needs to be sourced through our internal programs, but there will be some expats that will add some cost. Sure. So second bit, I had a question on the revenue side. So while we understand that industry as such has been adding capacity in double digits, which is possibly putting pressure on the Indies as well, We don't see much of that coming on to another metros, right, I mean linked to Bombay and Delhi given the slot constraints. So this pressure on the pricing, is it broad based? Or is it more to do with the new routes that we see additions coming through? So we don't normally comment on route specific results. But what I would say, as I mentioned before, that the yield pressure we're seeing is primarily in wholesale bookings, which is generally business traffic. And so I think as you would expect, markets that have a lot would typically have a lot of business traffic are seeing more pressure than other markets that are primarily in the in Europe. The next question is from the line of Bhavan Shah from Samitsha Capital. Yes. So in the last episode of fuel price increase that happened in 2013, 2014, you were able to pass on about 50% of that increase in the form of fare and as a result of the yield improvement. Your ability to do so in coming quarter or year, when you look at the competitive dynamics back then versus what you see going forward? And then I have a follow-up question. I really don't have too much to add to what I've already said on this subject. The cost inputs are up. We know that the fare levels right now are down. The pressure that we're seeing on fares is primarily close in bookings. I think we hope to see some improvements there. Relative to what was done in the past, every day we sort of look at the fare environment and look for opportunities to pass on fuel costs to consumers, and we'll continue to do that. How it will play out over time is difficult for me to say. We know that we have to stay competitive in the marketplace, and that's what we're going to do. And we as I said before, I think we're better positioned probably than anybody else because we have the lowest cost structure, we have the strongest balance sheet, We have the economy benefits that go with sort of a new fleet of fuel efficient airplanes. And in the end, I think we're going to wait it out and we'll kind of be the winners in the end. That's my view. As a follow-up question, could you comment what percentage of your fleet or what percentage of your ASKRs in FY 2018? And also as of the end of this year will be from NIO? So we have a table in the investor presentation that we've uploaded that has the fleet count. Just use that as a rough guidelines to take the percentage of that. The neos on average fly the same as the CEOs. So just the fleet percentage and the scale percentage will be the same. So we have that cut by different periods. You can take a look at that and kind of just use that same percentage. The next question is from the line of Vikas Sinagar from SCS Securities. Please go ahead. Hello? Yes, Vikash, please go ahead. Yes. So, like we mentioned that there is pressure in the EBITDA 16 year window and apart from that, regime you're actually asked, would it be possible for you to really quantify the portion of the revenue which comes from the year to 15 units? Sorry, just to recap, sir, the line was not very clear. The first the second question was about I think, was it about our effective tax rate? Yes. Okay. And the first question, about our effective tax rate? Yes. Okay. And the first question also wasn't you weren't clear at all, if you can actually repeat the first one. Yes. I'll repeat. Yes. So like you're saying that we're facing pressure in the redo to 15 day window. And if you go beyond that, the yields are actually up for a year. So would it be possible for me to really quantify how much of the percentage comes from this window, if not the exact number, the remaining ballpark number? Well, I guess what I would tell you is that 40% of our bookings come from the inside 15 day window. With respect to the specific yields in the different windows, I don't really have that number. So I think I mean, I think that sort of I think gives you the information you need on the 0 to 15 day window. The majority of the yield decline is all explained by that 40% of the bookings that are in that window. Let me take the second question on effective tax rate. So as you know, the effective tax rate is an accounting sort of number that is based on a lot of different factors like your book tax differences, your permanent differences, the absolute level of profits. There's a lot of things that affect the effective tax rate. So based on all that, our effective tax rate for this quarter was 11%. Having said that, I would continue to advise you for modeling purposes to use the 28% to 30% range that I've historically guided. Okay. So just a follow-up. So what is this reading that is coming off here? And as it's coming this quarter ending? Or in the rest of the That note has been there in our financial statements for a long time. It's in our annual report for the last many years. So there's nothing new on that note. Okay. Thanks. And I'll go ahead. Thank you. Thank you. We'll take the next question from the line of Pranav Pendergkar from Baird Enterprises. Please go ahead. Thanks a lot. Could you give split between passenger revenue and cargo revenue in the operating revenue? Roughly 40% of our ancillary revenue is cargo revenue. That's roughly what it is. So passenger revenue sorry, cargo revenue was around RMB600, RMB700 per quarter, right? So is it around that? So we've reported our ancillary revenues in the press release, and 40% of that is roughly 40% of that is gone. Okay, okay. So when you calculate RISK in the presentation that you have given on the exchanges, you include just these 2, right? You won't include other operating income in the RASK calculation, right? So RASK would include all revenue. So our what we what we have in the investor presentation, the last page actually has an abbreviation definition that actually shows the exact sort of calculation that has total revenue. There is another measure that you can use called PRASK, which is passenger revenue per ASK, which is another measure you can track, which is not in that presentation. But all the ingredients of that are in the press release. If you just take the passenger revenue that we disclosed separately in the press release, you can calculate PRF CSK as well. Right, right. So another question just pertaining to this quarter because your reporting has changed a little bit. So CASK that you have calculated, did it include ForEx in previous quarters? So ForEx as a cost, did it include in CASK calculation in previous quarters vis a vis this quarter because this quarter it clearly includes? Yes. So the calculation of foreign exchange in CSK didn't change at all. It was just that it was always in other expenses, and now we've just highlighted it. We've just broken it out of other expenses to give better disclosure in the financial statements but the calculation. Okay. Thanks a lot. Thank you. The next question is from the line of Ravi Shrikanth from Muthoot Family Office. Please go ahead. Yes, thanks for the opportunity. So I have just two questions. One is that given the current environment and given the current RASK, do you think this is at optimal levels or there is some scope for improvement over here? And my second question is, I mean, basically general observations, what I observed is that even on a 1.5 hour flight, around half hour is spent just circling around the airport at the destination place. So what is the global average for this? And is this a big cost? I mean, is this a big cost, the time spent over the airport? Can you repeat? Yes. So we got the second question. The first question, were you talking about the were you asking if the current RASK, RASK environment was optimal? Was that your question? So the environment remains as it is. So for Indigo, do you see that the RISK that you reported of 3.7, is it at optimum levels? Or do you see some room for improvement over here, only for Indivo, not the industry as well? So let me start and let Greg jump in. But the I think Greg sort of talked a lot about the fact that we don't think the revenue environment is optimal right now, especially because of the fare environment in the 0 to 15 day bucket. So if that fare environment is improves, you should see a significant increase in RASK. So that's sort of the answer to the first question. I don't know if Greg, you want to add anything? I guess I would add 2 things. One is I think that we have a revenue management group and revenue management tools who are sort of constantly trying to optimize the revenue on every slide. And I think they're probably as good or better than anybody in the environment. On the other side of the coin, there are some revenue areas where I think we have upside potential going forward and focus, I think, on ancillary, I think, we're doing better, and we're going to focus on that. And the other area is cargo, where I feel like we've been a little bit underperforming there. And so going forward, I hope to see some improvements, and I expect to see some improvements in both of those areas over the next few quarters. Yes. Coming to your question on ATC delays, you're right that actually airlines spending a lot of money encircling around the major airports. And although I don't have the concrete figures with me, I'm quite sure that the number of hours spent unnecessarily in the air due to air traffic control delays is here in India much higher than, for example, in Europe or in the U. S. Having said that, if you look back the last couple of years, there was an improvement in innovation. That's why we could grow the industry by 15%, 20%. So there is some improvement. But as the industry is continuing growing, there's a constant challenge. And I can say we work very closely with the authorities here to improve the systems and there are many ideas which we can take from other countries to improve the situation further. So there are short term challenges, but in the medium to longer term, I think the challenges will be overcome. As a percentage of flying hours, how much is You can't give a general because it really depends on the route network, depends on the season. So to give a general figure here, it's not possible. The next question is from the line of Vinay Singh from Morgan Stanley. Hi, team. Thanks for the opportunity. In the starting, we talked about a couple of additional international destinations. Fair to assume that, that is coming from the additional order book from the existing order book only? Yes, that is correct. So there's a lot of media speculation on your long haul international strategy. Any update on that? When are you going to place an order? Or do we see something concrete playing out in financial year 'nineteen itself? Or is it more a 'twenty, FY 2020 thing? Vinay, like Rohit mentioned, I think on the last phone call, we tend to learn a lot about our company through the press. Okay. So I guess there is the opportunity for us to learn from you then, sir? I guess, as and when we are ready with the information, we'll be very happy to sort of extend that to yourselves. For the moment, it's all on the boilerplate and we're trying to figure out what's the best strategy going forward. And so the and just to again repeat what I said earlier, the routes and all that that we talked about are all with our existing A320 fleet and the order book. And just to add to that, like if you look at staff and number of fleet, in FY 'eighteen, we saw that number change up. So was it because of the fact that in FY 'eighteen, you built staff capacity, but then the actual capacity got delayed? So to an extent this year some leverage gains from that bench strength will be visible? Absolutely. That's a good observation, Biren. So as we've talked about this on prior calls that there's always a little bit of a timing issue between adding employees and capacity actually coming in. You always have to hire people in advance. And then if the delays come in, you're stuck with the cost for a little bit until the capacity comes in. You saw that a little bit last year. That's why this quarter actually, if you saw our employee expenses went up 11%, even though capacity went up 18%. So you saw some of that capacity increase absorbing some of the bench. So that unfortunately, given the growth plans, it will continue to sort of go up and down both ways, but that observation you are absolutely right. Great, great. Thanks a lot. Thank you. The next question is from the line of Garima Mishra from Kotak Securities. Please go ahead. Hi, thank you so much for the opportunity. I just had one question. Is there any evidence on the ground that you're seeing right now of competitor airlines cutting down capacity given their sort of cash burn would be sharply higher than you guys you are still in profits as of now? Thanks. So we don't have any evidence on the ground. It wouldn't be obvious to other people serving the industry. There's really we have nothing to add to that. Okay. Thank you. Bye. Thank you. Ladies and gentlemen, due to time constraints, that was the last question. I now hand the conference over to Mr. Ankur Goel for closing comments. Thank you and over to you. Thank you everyone for joining on this call. I hope you found this useful. Thank you very much, members of the management. Ladies and gentlemen, on behalf of Endicore, that concludes today's conference call. Thank you all for joining us, and you may now disconnect your lines.