Good evening, ladies and gentlemen, and welcome to IndiGo's conference call to discuss the fourth quarter and fiscal year 2018 financial results. My name is Aman, and I'll be the Moderator for this conference call. 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 Goel, Associate Vice President of Treasury and Investor Relations for IndiGo. Thank you, over to you, Mr. Goel.
Good evening, everyone, and thank you for joining us for the fourth quarter and fiscal 2018 earnings call. I have with me our Co-founder and interim CEO, Rahul Bhatia, and our Chief Financial Officer, Rohit Philip, to take you through our performance for the quarter. I also have with me Holger and Prakash 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 will be considered as forward-looking. Our actual results may be materially different from these forward-looking statements. The information provided on this call is as of today's date, and we undertake no obligation to update the information subsequently. A transcript of today's call will also be archived on our website. We will upload the transcript of today's prepared remarks within an hour. The transcript of the Q&A session will be uploaded subsequently.
With this, let me hand over the call to Rahul Bhatia.
Good evening, everyone, and thank you for joining us on this call. As you all would be aware, Aditya Ghosh has resigned and will leave the company on July 31. Aditya wishes to explore starting a new business venture, and we respect his decision to do so. Our board of directors and I want to thank him for all his hard work and contributions for the successes that our company has enjoyed over the years. That said, I am very excited to announce the return of Gregory Taylor as Senior Advisor to the company, who will be reporting directly to me. Our board of directors will consider his appointment as President and CEO of the company subject to receiving the necessary regulatory approvals and paperwork. We announced our fourth quarter and full year fiscal 2018 financial results today.
We have recorded our highest-ever annual after-tax profit of INR 22.4 billion for the fiscal 2018, with a profit margin of 9.7%. For the fourth quarter, we reported a profit after tax of INR 1.2 billion with a profit margin of 2%. I would also like to announce that our board of directors has recommended a dividend of INR 6 per share, subject to shareholder approval at the annual general meeting. Rohit will discuss this when he talks about our financial performance in detail. We continue to be the leading airline in terms of on-time performance, and we rank number 1 in on-time performance for the fiscal year 2018 with an average OTP of 83.1%. For the quarter, our OTP was 78.1%, technical dispatch reliability was 99.87%, and flight cancellation rate was 1.74%.
Our flight cancellation rate was higher, especially during the month of March, due to the ongoing issues with some of our NEOs. Our passengers were informed well in advance and were re-accommodated and assisted. We are happy that our passengers have once again acknowledged our consistent performance and reliable service. We were awarded the Best Low-Fare Airline Domestic and Best International Low-Cost Airline in and out of India by the Air Passengers Association of India during the quarter. We have also been awarded as the Best Low-Cost Airline in Asia by the TripAdvisor Travelers' Choice Award 2018. We have added four new destinations in the quarter, bringing our total number of destinations to 50, including eight international destinations. We were also awarded 20 routes covering 10 additional destinations in the phase 2 of bidding under the Regional Connectivity Scheme.
Over the next three to four months, we plan to open five additional destinations including Dhaka, Allahabad, Hubli, Jorhat, and Kolhapur. We have already opened our ticket sales for Trichy, which is going to be our 51st destination. We added a net of six aircraft during the quarter, of which three were ATRs. This takes our total fleet count to 159, which includes 32 NEOs and six ATRs at the end of March 2018. In addition to this, as mentioned in our previous call, we also operated four aircraft during the quarter under a short-term damp lease arrangement. Let me now take a few minutes to talk about how our performance is tracking against our long-term plan. As we had outlined in our company presentation back in August last year, we are focused on creating shareholder value by building a large and profitable air transportation network.
India is a severely under-penetrated market, and we continue to capitalize on opportunities that this market presents. Also, as we said in that presentation, we are cognizant of the challenges that we face and are taking steps to address them. We spoke about building upon our domestic leadership. To that end, we added 161 daily flights and four new stations during the course of fiscal 2018 in the domestic market and successfully launched our turboprop operations. We also substantially increased our international operations, whereby our current share of international operations is 15% of our total capacity as compared to 11% one year ago. We have also started executing on the financing strategy, which we had discussed previously, with the objective of lowering our aircraft ownership costs going forward. As you all are aware, there are certain issues with the NEO engines.
Also, as we have discussed previously, these issues will take some time to get resolved, and we continue to work with Pratt & Whitney and Airbus to ensure that we have sufficient spare engines available. During the quarter, a new issue cropped up with a subpopulation of A320neos powered by Pratt & Whitney engines with engine serial number 450 and beyond. This led to the grounding of some of these aircraft by the Indian DGCA. As we receive new engines from Pratt & Whitney, we have replaced all the affected engines, and these planes are now back in service. We have been continuously putting in place the building blocks for our future plans. A key element of this is to build a talent pool with deep functional expertise that will be able to successfully execute on our long-term plan.
As part of this effort, I am delighted that we have new leaders joining the team. Since our last call, in addition to Wolfgang Prock-Schauer, Raj Agarwal has joined us as our Head of HR, Michael Schwitek as our Chief Planning Officer, and William Boulter as our Chief Strategy Officer. 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. As Rahul mentioned, we reported record profitability for the year with a 35.1% growth in profits compared to last year. We reported a profit after tax of INR 22.4 billion with a profit margin of 9.7% for the year, compared to a profit after tax of INR 16.6 billion with a profit margin of 8.9% last year. Our EBITDAR for the year was INR 66.8 billion with an EBITDAR margin of 29%, compared to an EBITDAR of INR 54.4 billion with an EBITDAR margin of 29.3% last year. For the quarter ended March 2018, we reported a profit after tax of INR 1.2 billion with an after-tax profit margin of 2%, compared to a profit after tax of INR 4.4 billion with an after-tax profit margin of 9.1% during the same period last year.
We reported an EBITDAR of INR 11.3 billion with an EBITDAR margin of 19.5%, compared to an EBITDAR of INR 14.5 billion with an EBITDAR margin of 29.9% 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 for the quarter were lower compared to the same period last year, primarily because of three reasons. One, the fuel price increased by 11.6%. Two, our yields declined by 5.6%. Three, we were adversely impacted by foreign exchange. We booked a loss of INR 925 million this quarter, compared to a gain of INR 1.6 billion in the same period last year. Just the foreign exchange impact resulted in a year-over-year swing of INR 2.5 billion for the quarter.
Our earnings per share were INR 3.06 for the quarter and INR 60.03 for the full year. Our total capacity for the year was 63.5 billion ASKs, an increase of 16.4% compared to the same period last year. Our total capacity for the fourth quarter was 17.1 billion ASKs, an increase of 20.9% compared to the same period last year. This is lower than the capacity we had previously guided due to the grounding of some of our NEOs during the quarter. Our revenue from operations in the March quarter was INR 58 billion, an increase of 19.6% over the same period last year. Our other income was INR 2.6 billion for the quarter. Our RASK for the quarter was INR 3.40 compared to INR 3.52 during the same quarter last year, a decline of 3.2%.
This decline in RASK was primarily driven by lower yields, partially offset by higher load factors. While our yields were down 5.6% to INR 3.31, our load factors were up by 2.8 points to 88.9%. We normally do not give guidance on how the revenue environment in the current quarter is shaping up. Last year, we did share certain short-term yield trends post the demonetization event, since it had resulted in a sharp decline in yields during that quarter. Having said that, let me provide some color on near-term yield trends. Currently, we're seeing yield pressures in the industry. We saw that in the 0 to 15-day booking window, the fares are materially lower compared to a year ago. This is typically high-yielding traffic, and consequently, our yields have been impacted more than expected, and that is in spite of increasing fuel prices.
In April, the revenue environment was weak and year-over-year yields were down more than we were expecting, primarily driven again by the weak pricing in the 0 to 15-day booking window. That said, there have been some recent signs of yield improvements in this window, but it's too early for us to comment whether this will sustain over the quarter. Fuel prices increased by 11.6%, which led to an overall increase in CASK by 7.4%. Our CASK for the quarter was INR 3.30 compared to INR 3.08 during the same period last year. CASK excluding fuel was INR 1.94 in the current quarter, an increase of 5.3% from the same period last year, primarily on account of the depreciation of the Indian rupee this quarter compared to an appreciation in the Indian rupee in the same period last year.
Similar to previous quarters, we also paid a GST of INR 356 million under protest in the March quarter. Moving to the balance sheet, we had total debt of INR 24.5 billion at the end of March 2018. As we have discussed previously, we have started purchasing some of our aircraft with our free cash. We purchased three more ATRs during the quarter with our free cash, in addition to the three ATRs we had purchased in the previous quarter. We will continue to purchase more aircraft with our free cash going forward. Our cash balance at the end of the period was INR 137.1 billion, comprising of INR 70.6 billion of free cash and INR 66.5 billion of restricted cash.
Based on our cash position, the cash required to purchase aircraft, and the overall profitability for the year, the board of directors has recommended a dividend of INR 6 per share for fiscal 2018. This is subject to approval by our shareholders in the upcoming annual general meeting. Let me give you guidance for the coming quarter and for fiscal 2019. We expect a year-over-year capacity increase in terms of ASKs of 18% for the first quarter of 2019, and 25% for the full year of fiscal 2019. To recap the year, we generated record profits. We continue to focus on our costs and have delivered consistent and profitable growth. With this, let me hand it back to Ankur.
Thank you, Rahul 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. With that, we are ready for the Q&A.
Thank you, sir. Ladies and gentlemen, we will now begin with the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset while asking questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. To ask a question, please press star and one. The first question is from the line of Binay from Morgan Stanley. Please go ahead.
Hi, team. Thanks for the opportunity. My question is on the load factors. The load factors currently are close to all-time high. When we look at next year, should we look at the March quarter load factor and look at that as a doable, or should we adjust for seasonality and benchmark it to the financial year 2018 load factor? Could you sort of guide a little bit about how do you see load factors moving in a year where capacity will grow by 25%?
Hi, Binay. It's Rohit. I think as we've historically talked about, we don't try to look at load factor or yield in isolation. We try to maximize RASK. There are various periods in time where sometimes the optimal RASK includes high load factors and slightly lower yields and vice versa. We've always looked and our revenue management systems are all trained to optimize RASK. Having said that, yields have been low this quarter, and that was offset a little bit with higher load factors. That will not necessarily be indicative of what to expect going forward, and we don't normally give forward-looking guidance on that in any case.
Right. Because one of the questions we get on load factors is that some of the peers are running at much higher load factors. Would you normally attribute it to them having a larger fleet of smaller planes? For an A320neo or an A320, what would be the ideal load factor? I know it's tricky to answer that, but any point on that?
Binay, as you probably have noticed over the last year, our load factors have increased on a year-over-year basis, primarily on account of us being much more aggressive as we've signaled in terms of matching competitive fares. That's what you would see with load factors. There's no ideal load factor, as I said, because it's always a combination of optimizing yield and load factor.
Great. Thanks a lot. I'll come back in the queue for my second question.
Thanks, Binay.
Thank you. The next question is from the line of Sonal Gupta from UBS Securities. Please go ahead.
Hi. Good evening. Thanks for taking my question. Rohit, I just want to understand, again, thinking load factors are at an all-time high. Your load factors are running close to 88%, and still we're seeing the yields drop. I just want to understand that, even for the industry as a whole, it's not just you, the whole industry is running at all-time high load factors. Still you're facing this yield pressure. Could you just explain, as any, why this should ideally you would think that at certain capacity utilization levels, you could actually start seeing it moving the other way, over and above the fuel price increase. It's going the other way. Can you just explain the phenomenon and just what do you think?
Sure. Clearly we're not happy with what's going on in the industry with respect to yields, especially with respect to close-in bookings. However, in the past, we've made this mistake where we didn't match the fares that the competition was offering. We've clearly indicated we will not make that mistake again. It's fundamental to our business that we should always remain competitive. Our competitors have been offering discounts to passengers through coupons, special email promotions, and we continue to match these offers. At the end of the day, our perspective is the revenue environment can always remain volatile, but we remain focused on our cost. Our cost structure is the lowest in the industry, and that provides us the cushion to withstand these short-term pressures.
We feel these fare levels, especially with today's fuel price levels, in the light of the fuel price level, these fare levels are just not sustainable. That's why, again, our lowest cost structure gives us that cushion to withstand the short-term volatility. Rahul, anything you want to add?
No. I agree with you entirely.
Sorry. If I could just during the 15-day booking window thing.
Sorry to interrupt, Sonal Gupta, your voice is breaking. If you could just.
Can you hear me? I'm sorry. I'm in a slightly bad coverage area.
Yeah, please go ahead, sir.
Thank you. Just on this 15 booking window thing.
Sonal, I think maybe you can go back into the queue and join. We'll take your question.
Sure. Thanks. No problem.
Thank you.
Thank you. The next question is from the line of Kunal Lakhan from Axis Capital. Please go ahead.
Yeah, hi. Good evening. In your opening comments, you mentioned about the company being compensated in some way for the revenue lost due to the grounding of planes. Have you been fully compensated or partially compensated? Can we look at some partial compensation coming in Q1 of this fiscal year? How should we look at it?
I think we've said on the last few calls that we do get compensation, but we won't be able to comment anything more about that. I think that's pretty much all we can tell you on that.
All right. Just one last one. In terms of dividends, how should we look at going forward? Our payout ratio has been declining in the last three, four years. You have mentioned about it that you'll be spending cash more towards purchasing planes now and towards adding capacity. In terms of directionally, should we look at these kind of payout ratios sustaining in the next few years?
Firstly, the context under which our board looks at dividends is in terms of long-term shareholder value. That's a very clear lens that our board looks at. In the context of long-term shareholder value, we believe that our best use of cash right now is to invest in buying aircraft. We think that's a significant competitive advantage that we will create. It'll bring down our cost structure. In light of what you see in the marketplace today, it all the more reinforces that cost structure is the key to fundamental long-term success. With that context, that's the reason the board has allocated the majority of our cash generation in fiscal 2018 towards the purchase of aircraft. We won't be able to give you specific guidance going forward, but the context around the decision-making is as I said.
All right, thanks, and all the best.
Thank you.
Thank you. Our next question is from the line of Achal Kumar from HSBC. Please go ahead.
Hi. Thanks for the opportunity. I have two questions, actually. One is about what sort of price elasticity you see in the system. Do you think industry will be able to pass on some of the fuel burden without having any impact on demand? Do you think the fuel might turn out to be a big hurdle for the growth? In that context, how do you see yourself placed? That is my first question. Secondly, you said you are going to increase your capacity by 25%, 18% in Q1, which implies 27% in the next three quarters. Given that the capacity, the Mumbai and Delhi are both almost full, how do you see that capacity deployment? If you can comment on that. Obviously, the strong demand on metro to metro and metro to non-metro.
Do you see that you'll have to deploy more capacity on the non-metro to non-metro routes where, of course, the demand is picking up, but yet you may face some bit of softer load factor? Thank you.
Sure. I think just in terms of the question on our capacity guidance and capacity deployment, we see no issues with the deployment of the capacity. We've got plans across all the metros. Yes, there are across all markets, both metro markets, non-metro markets, as well as international markets. Yes, there are slot constraints in Mumbai and some in Delhi. The other metros still have capacity available. You'll see us add capacity across all aspects of our network. Sorry, I missed the first part of the question, if you can repeat that.
The first question about the price elasticity you see in the system, do you think industry will be able to pass on some of the fuel burden without having any impact on demand? Do you think the fuel might turn out to be a big hurdle for the growth? In that context, how do you see yourself placed in things?
Right. Yeah. Clearly there is elasticity of demand, but what we see that's going on is in the 0 to 15 booking day window where actually you have the most of the inelastic demand exists in that market. The industry has discounted the price of those tickets. We think there's clearly some inefficiencies with industry pricing right now. That's one, and as I said, we don't think it's sustainable for the industry as a whole. As far as we're concerned in our position, we see, again, as I said, our low-cost structure gives us that cushion to withstand short-term pressures much better than others in the industry. Do you want me to talk about our capacity?
Yeah. This is Rahul. Let's take a step back. The quarter is the quarter, but let's step back and look at sort of where IndiGo is going long term. We are not going to shrink our capacity deployment based on quarter-to-quarter performance. IndiGo, as a business, is here for the long term. We have taken a large punt on India. We have the lowest cost structure in the industry, we'll continue to grow and continue to build the franchise. Like Rohit said earlier, at the end of the day, our view is that the airline with the lowest cost structure must prevail, and we are firmly in control of that. The guidance we've given of 25% for this year, we're very comfortable with putting it out there.
Thanks, Rahul. Does that mean
Sorry to interrupt. May we request you to return to the queue for your follow-up question, please?
Yeah, sure.
Thank you. Next question is from the line of Ashutosh Somani from JM Financial. Please go ahead.
Thanks for taking my question. Just wanted to understand the PLF yield trade-off a step better. Just in terms of PLF, the increase in the PLF, how much of it is through metro or not how much, just directionally, whether metro contributed more or non-metro contributed more in terms of increased PLF? The fare pressure that we have talked about, do you see it in the metro routes or the non-metro routes? If you can answer these questions.
Sure, Ashutosh. I think the answer to the question is you see it pretty much across the network, so there's no specific trend difference on both load factor and yield across our network.
Which is?
Which is you see the overall load factor improvement across the network. You see the overall yield decline across the network.
Okay, across the network. There's no bifurcation between metro or non-metro. You are not particularly facing a pressure in the non-metro routes in fares. Is it fair to say that?
That's absolutely fair. There's nothing different going on in those markets.
Sure. Thank you. Thanks.
Thank you. Next question is from the line of Pulkit Singhal from Motilal Oswal Asset Management. Please go ahead.
Yes. Hi. Thanks for taking my question. First question is just really in this yield environment, I am kind of shocked with the kind of yield decline. Just wanted to understand, in airports like Mumbai and Delhi, where it is anyways chock-a-block, one would expect there could be yield increases out there at least. One would not need to compete in such airports. Is that what you are seeing, or is it just the opposite?
As I said, I think the yield declines are across the system. Yes, maybe Mumbai, where there is no capacity being added, has slightly less pressure, but you see pretty low fares in Mumbai as well. It is this pricing in this zero to 15-day window that has been mostly affected.
All right.
Having said that, as I said earlier in the prepared remarks, we have seen some firming up of these yields in the zero to 15-day window over the last week or so. We said it is too early to say whether that trend will continue. We have seen some firming up of this in the last week or so.
Sure. Are there any some one-off costs relating to the NEO issues in the last quarter, which is substantial enough for you to mention that may not be repeated?
No, there's nothing that we need to mention on that.
Got it. Thank you.
Thank you.
Thanks, Pulkit.
The next question is from the line of Saurabh from JP Morgan. Please go ahead.
Hi. Good evening. My question was essentially on the NEO engines. United Technologies in their analyst meet in March have indicated that they now expect to resume supplies to almost normalcy for the PW engines in the case to balance of 2018.
I was wondering whether you have had any communication on that from them. A related question is, how much of the aircraft you have on your fleet would be short-term leases?
Okay. Wolfgang, here I'm taking the first part.
Yeah.
Yes, we have got information that deliveries will resume, and that's why we end up with a forecast of 25% capacity increase for the financial year. We'll see a ramp-up of deliveries. The issues around this post-450 or above 450 in serial number has been resolved. All the engines have been replaced. All new aircraft are flying, and we will get substantial deliveries from May onwards until the end of the financial year. That is the first part of your question regarding resumption of deliveries. Second part?
Yeah. The second part, I think you were asking about what percentage of our aircraft are on short-term leases. I think we have a certain number of Aside from our NEOs, we've got the rest of our Airbus aircraft as CEOs. Some of them are CEOs that we owned right from when they were new aircraft. There's about 40 planes that we've leased from the secondary market. They were all leased in the 3 to 4-year lease terms.
Okay. Rohit, just as a follow-up, if I may. As the NEO deliveries resume, do you expect to retire a substantial, at least part of these short-term leases? Just trying to figure out your cost structure for FY 2019 method.
The reason we did all these short-term leases was to bridge the gap because of the delays in NEOs. The lease terms are designed such that as we start getting NEOs, we start to return these planes and have our fleet be predominantly NEOs over time. That's still very much the plan.
Okay. Thank you very much.
Thank you. The next question is from the line of Naveen Bhat from Aditya Birla Capital. Please go ahead. Mr. Naveen Bhat, your line has been unmuted. You may go ahead with your question, please. As there is no response from the line, we'll move to the next question, which is from the line of Joseph George from IIFL. Please go ahead.
Thank you. The next question is from the line of Naveen Bhat from Aditya Birla Capital. Please go ahead. Mr. Naveen Bhat, your line has been unmuted. You may go ahead with your question, please. As there is no response from the line, we will move to the next question, which is from the line of Joseph George from IIFL. Please go ahead.
Thank you for the opportunity. My question is in relation to the impact that the flight cancellations in March had on your yields. Would it be right to say that you now face pressure on pricing because of the cancellation and related impact on the brand, et cetera? In order to cover that up, or in order to mitigate that you went ahead with aggressive pricing to make sure that you don't lose the customers and that effect continued in April. Would that be a right statement to make?
That would not be accurate at all. We didn't see any decline in bookings, so with that event.
All right. The second thing I wanted to check was, in terms of trend, is it that you saw deterioration through the quarter from, say, Jan, Feb, March, and as you mentioned April has not been great from a pricing perspective, and now we are starting to see improvement in May. Would March and April be the peak of the weak pricing scenario? Do you think it continued through the quarter?
We can't really speculate on that. I think we gave you the information on April and slight firming up over the last week. We would hope that the firming up would continue, but we can't tell. Clearly, the firming up is a sign that the fare levels were not sustainable for the last-
Actually, Rohit, my question is more on what happened in Q4 rather than outlook. My question is whether the pricing then deteriorated over the course of Q4, that's from January to February to March, and then starting to improve now in April. My question is more on the trend that you saw within Q4 rather than outlook.
No, there's no such trend like that. I think you can see that really what happened was the zero to 15-day booking window prices just went down. That you saw across the quarter, you saw it continue in April.
Understood. Okay. Thank you.
Thank you. Next question is from the line of Anshumandeep Singh from ICICI Securities. Please go ahead.
Yes, thanks for the opportunity. I had two questions. First is that regarding our CapEx, why have we not bought the NEOs that we inducted in 2H FY 2018? Whatever CapEx we have would have a substantial amount of NEOs being bought in FY 2019. Is that the correct understanding? Second is regarding Air India's acquisition that we have kind of rejected. What changes, if the government made at all, what were the reasons for which we thought that the Air India acquisition was not capable of turning around as per our design initially? What specifically you thought?
Thank you. Sure. I'll take the CapEx question, then Rahul will talk about Air India. In terms of aircraft CapEx, we've started to buy ATRs with our free cash. ATRs where we got the most bang for our buck because the sale and lease back market for ATRs is not as efficient as the Airbus market. We definitely get the best bang for our buck by buying ATRs. We will start buying Airbus planes, but we also have struck some attractive sale and lease back deals previously on these. You will see us buying some Airbus planes in the coming year.
Hi, Anshuman. This is Rahul. Just to answer your question on Air India. As we had stated, we were very interested primarily in the acquisition of Air India's international operations and Air India Express. Unfortunately, such an option is not available under the government's current divestiture plan of Air India, and hence we express our inability to turn around the entire airline operations of the company. Having said this, we continue to look at the long-haul opportunity without Air India. We continue to seek route rights and other necessary regulatory approvals as may be required to operate long-haul flights. We are also actively studying the choice of wide-body aircraft and will update you once we have made more progress on this issue.
Thank you.
Thank you. The next question is from the line of Ashish Shah from IDFC Securities. Please go ahead.
Yeah, good evening, sir. Just wanted to check how were the yields different in the domestic versus the international operations that we have? Whether the domestic yields were any better than the international or vice versa.
Okay. We saw yield pressures across the network, both domestic and international.
Right. Fair. Second on the non-fuel cost. This year, we have seen about 2.5% increase in the non-fuel cost. Going into FY 2019, we obviously have plans to expand our operations, probably also start the various UDAN routes. What would be a reasonable outlook for the non-fuel cost for FY 2019? If you can give some direction on that.
We don't give specific guidance going forward. All I can tell you is that we manage our costs very tightly. We're very aggressive at looking at how to control our costs and offset inflationary pressures that you inevitably get. There are pressures with foreign exchange as well that affect the cost structure, but we aggressively manage our costs. Beyond that, I won't be able to give you any specific guidance on a number.
Sure. Okay. Thank you.
Thank you. The next question is from the line of Binay from Morgan Stanley. Please go ahead.
Hi, team. Thanks for the opportunity. Actually two questions. Firstly, could you share some impact, like, the lease rentals, are they on fixed rates or floating rates? Globally rates are rising, so will that have an impact on lease rentals? Secondly, on the restricted cash, just for better understanding, like it's up 15% quarter-on-quarter. What are the big drivers for restricted cash?
Sure. The restricted cash is, I'll take the second question first. The restricted cash is based on our supplementary lease rental liability that we have to lessors. We give them letters of credit, and we place cash collateral with the banks to issue that. When you look at our balance sheet, in addition to our debt, there's other liabilities. You'll see that is largely the effect of our supplementary lease rental liability and the cash balance will grow, I mean, our restricted cash will grow, requirements grow are largely in line with that.
Okay.
I forgot your first question. I'm sorry, Binay.
That control. Supplementary rentals remain the key reason for the changes in cash. In changes in restricted cash.
That's correct. The first question is about lease rentals, whether it is fixed or floating. Most of our, in fact all our leases are fixed rate leases. We fix the rates during at the time of the lease, so there's no exposure to additional rates. There is some exposure of the debt in our balance sheet, which relates to the financial leases of about INR 2,000 crores of debt on our books, which is floating rate debt. All our leases are fixed rate debt. Now, having said that, new leases that we get set at, those rates are set at the time we sign the lease agreements, and those get exposed to new rates. The old leases don't get marked up because they're fixed rate.
That's very helpful. Just a follow-up.
Mr. Binay, sorry to interrupt.
Could you share the number-
Mr. Binay, sorry to interrupt. May I request you to return to the queue for your follow-up question, please?
Great. Okay. Thank you.
Thank you. The next question is from the line of Achal Kumar from HSBC. Please go ahead.
Hi. Thanks for the opportunity again. First question is mainly around the cost. I mean, of course, your unit cost is lowest in the Indian aviation industry. Now, obviously, you started with a single type of fleet, pure low-cost model, which worked pretty well. Then you added ATRs for UDAN. Now you're planning to add wide-body. So how do you see your model evolving? Then do you see you could lose the tightening or discipline around the cost? How do you see that happening? Obviously, you are ordering A320neo, those are almost 40% or 50% more expensive than A320. So how do you see how you will be able to control the cost? Secondly, around the UDAN, if you could please talk us about how the UDAN is doing.
Then on last call also, I asked this that you were supposed to keep the operations separately, how that independent operations are doing? Thank you so much.
Sure. Firstly, on the business model perspective, there is absolutely no change and no effect on our business model with the fact that we have a turboprop operation, and we have a wide-body operation, and potentially a wide-body operation in the future. The key is in a particular market to have a single fleet type and have the cost efficiencies associated with that fleet type and have the best cost structure in the market. From our perspective, in the Airbus operations where we compete with other similar aircraft types, we need to be the lowest cost in that market. In the turboprop business, where we compete with other people in the turboprop business, we need to be the lowest cost there, and we fully expect to be the lowest cost in that market.
If we go into the wide-body market, we would expect to have the lowest cost structure in that market. The key is to have the right cost structure in each market. The weighted average cost structure doesn't matter. It matters to have the right cost structure in each market. In terms of the cost structure, we also have A321s coming into our fleet this year, which have all the commonalities of an A320. Same pilot, same engines, it doesn't add any complexity, but it has a 15% lower seat mile cost because it'll have a number more seats than the A320. We'll continue to manage our cost very tightly and the additional operations won't affect that.
In terms of what we talked about, the turboprop operations, yes, we have a separate group of operations in terms of pilots and flight attendants, which run the turboprop operation. That's working very well.
Yeah, operations, that was an example to actually reset our cost structure going down. It's a very lean setup and actually a lot of ideas when we set this up, we see a lot of advantage in getting good ideas how to bring our cost structure down. It's a good lean setup in our turboprop operation.
My second question was about the UDAN performance. How that business is doing in terms of profitability and all?
We have not started our UDAN market flying. We are flying a turboprop operation in certain markets. We're very pleased with the ramp-up so far. Load factors have been good. It's still very much in the ramp-up phase. We have only a few aircraft flying, but we're very optimistic based on how the operations are ramping up.
Okay. Thank you.
Thank you. Next question is from the line of Kunal Lakhan from Axis Capital. Please go ahead.
Yeah. Hi. Thanks for taking my question again. Just wanted to understand in terms of in current environment, we don't seem to have control on the fares, but we do have certain expenses lined up in forex and this quarter only we saw some losses booked on that account. Just wanted to understand in terms of what kind of a forex hedging policy that we follow and any color on that side.
On foreign exchange, our philosophy that we've shared before is a lot of the foreign exchange expenses which are lease rentals, maintenance costs, are all expenses that the rest of the industry follows. The rest of the industry also incurs. We are a firm believer that the business has to offset these pressures, very similar to how we think about fuel hedging. Fuel is a cost, foreign currency, lease rentals, and maintenance costs are a cost. They're all input costs that the industry has, and ultimately, the industry has to absorb this as a whole. Any financial instruments you use are really more speculating on those markets than actually hedging. We view that the business has to actually withstand that, and that's been a consistent hedging policy that we've had on both foreign exchange and fuel.
All right. Secondly, just wanted to understand the 25% ASK growth that we spoke about. In terms of additions of neos, if you can give some guidance on that front for the full year, that would be helpful.
We have not given the guidance of break-up yet, certainly a large chunk of this capacity increase will be neos.
All right. Thanks.
Thank you. Next question is from the line of Naveen Bhat from Aditya Birla Capital. Please go ahead.
Yeah, thanks for the opportunity. This is a more philosophical question that industry is being facing cost pressures with crude having risen from about, say, $40 to $75 now. At $75, if this is an indication of the profitability, is it safe to assume that the best days of the industry can only be attained at about $60, $65, and anything beyond that, the profitability will be severely dampened?
I wouldn't say that. We wouldn't say that at all. I think, firstly.
let me just add to that, because you said that there are no one-offs in this quarter. There are no adjustments that needed to be made, apart from the fact that you don't hedge your foreign exchange expenses. Even after you adjust for the foreign exchange hedges, at this level of crude, is this the normal profitability that one should expect?
I think, as we said, we don't believe that this combination of this today's fare levels and fuel prices is a sustainable situation for the industry. As we said, we are very comfortable because we have that cost structure that gives us that cushion. As I said, we have some recent signs of things firming up.
If I may add, going forward with NEOs, with minus 15% less fuel consumption, actually we're even better positioned going forward. That's the edge we are building up here in terms of the high fuel cost.
Okay. Thank you.
Thank you. Next question is from the line of Nitin Lathia from HDFC Mutual Fund. Please go ahead.
Hi. I don't know if we have chosen what we will do to what type of fleet we will use for our international long-haul operations, if not, then by when would we be freezing it?
Nitin, as we said, we're actively studying this opportunity, when we have more information, we'll provide it.
The press has reported that the first international long-haul flight will probably be in the winter later this year. That's not a whole lot of time left between now and then.
Honestly, I don't read the press because I learn new things about IndiGo every time I read the press.
Fine.
We'll update you when we have more information to share.
Okay, great. Thanks a lot. Yes.
Thank you. Next question is from the line of Pranav Tendulkar from RARE Enterprises. Please go ahead.
Hi. Thanks a lot for the opportunity. Sir, could you please compare cost per available kilometer for various models that you have? For example, the new 3 ATRs that you have bought.
We don't have that breakup to share right now because it's too early. The ramp-up of the operation is still very new. We don't have that breakup to share.
Okay. Out of the capacity addition that will happen in FY 2019, how much of this capacity will be deployed on existing routes and how much of it will be new destinations?
It will be a combination of both, just like when you look at what happened over the past fiscal year. We added a lot of capacity in existing routes, and we opened new destinations. I think Rahul talked about the fact that we're going to add five additional destinations where we've also got these new routes, the 20 routes under the UDAN scheme. We'll definitely add some new destinations. We'll also add capacity in existing markets. Absolutely, it will be a combination of both.
Right. Last question from my side. On UDAN routes, can you just highlight the operating parameters like revenue and costs?
We have not started UDAN markets yet. There's nothing we can share yet on that.
Okay. Thanks a lot.
Thank you. Next question is from the line of Saurabh from JP Morgan. Please go ahead.
Hi. Just two data points. One is, what was the block hour utilization this year and what was it last year? Secondly, the landing charges, how have they tended year-over-year and if any outlook for FY19?
Sure. On aircraft utilization, we had a total aircraft utilization of 12.5 hours this quarter compared to 12.65 a year ago.
What if you check the portfolio level, if you can give as well, that'll be nice.
Yeah. In this current quarter, as you know, we had some NEOs on the ground. If you exclude the NEOs and you look at operational utilization, it was 13.2. We target that about 13% utilization is sort of the 13 hours a day utilization is what we target. Year-over-year, because of the grounding of the NEOs, it is low. I'm sorry, I forgot your second question.
if you can give the block hour for the year, secondly, what the landing charges, how much have they gone up year-over-year? What's your outlook for FY 2019, if you can?
Landing charges have gone up a little bit year-over-year primarily because of the RCS levy.
Correct. Yeah.
That adds a little bit. Excluding the RCS levy for the quarter, Nothing material had changed. Going forward, the landing fees for when we have our turboprop operations ramping up will be a little lower. Overall, for the year, we had some increases in the previous quarter that we talked about year-over-year in some other airports. For the quarter year-over-year, the only increase was RCS.
This year, landing charges could have gone at a higher rate than traffic fuel. Is that a fair assumption to make?
Right. Yes.
Okay. Thank you very much.
Thank you.
Thank you.
Next question is from the line of Pulkit Singhal from Motilal Oswal. Please go ahead.
Yeah. Hi. My question is on the international operations. You mentioned 15% of ASK is on the international side. From a three-year perspective, broadly, where do you see this going? Is it 25%, 30%? Is that what you're looking at?
It's too early to give you that kind of guidance. It'll probably inch up, but it's too early to give you that kind of guidance.
What is the impact of this currently on your margins and profitability of the business?
As we said, we manage our business based on where the opportunities are to fly. On the short-haul international, we view it just like domestic. It just incidentally crosses a geographic border. We look at optimizing the network and the markets based on the opportunity. We don't view this any differently. Long-haul would be obviously looked at slightly differently. The short-haul international is just an extension of domestic.
Okay. Lastly, the long haul, is it fair to assume it would require a certain amount of investment period or gestation period before it becomes profitable? The kind of competition out there is a lot different than competing with the Indian carriers in India.
Pulkit, this is Rahul. Like we said earlier, there's a lot of work going on internally on this whole opportunity, and when we are ready to share the details, we would do so. More than that, we're not able to share anything at this time.
Understood. Thank you.
Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Ankur Goel for closing comments. Over to you, sir.
Thank-
Mr. Goel, we are not able to hear you, sir.
Thank you all for joining us on the call. I hope you found it useful.
Thank you very much. Ladies and gentlemen, on behalf of IndiGo, that concludes today's conference call. Thank you all for joining us. You may now disconnect your lines.