Earnings Call: Q3 2018

Jan 24, 2018

Good evening, ladies and gentlemen, and welcome to IndiGo's conference call to discuss the 3rd quarter financial results for fiscal year 2018. 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'd now like to turn the conference to your moderator, Mr. Ankur Goyer, Associate Vice President, Treasury and Investor Relations for Indigo. Thank you, and over to you, sir. Thank you, Aman. Good evening, and welcome, everyone. Thank you for joining us for the Q3 fiscal 2018 earnings call. I have with me our President and Hook and Director, Aditya Ghosh and our Chief Financial Officer, Rohit Phillip. 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 question and answer session will be uploaded subsequently. With this, let me hand over the call to Aditya Ghosh. Good evening, everyone, and thank you for joining us on this call. We announced our Q3 fiscal 2018 financial results today. And this quarter, we have reported a profit after tax of INR 7,600,000,000, an increase of 56.4% compared to the same period last year. Our after tax margin for the quarter was 12.3%. This year over year improvement in profitability is driven by better RASK performance. Similar to the last quarter, our year over year RASK improvement was due to better revenue management as well as credits received from our manufacturers. Rohit will discuss this when he takes you through our numbers in detail. We continue to be the leading airline in terms of on time performance and were ranked number 1 with an average OTP of 81.8 percent for the quarter. In fact, recently, we've been ranked as one of the top 5 airlines amongst the top 20 mega airlines globally in terms of on time performance based on the data compiled by OAG for the entire year 2017. These are the 20 largest airlines in the world in terms of weekly scheduled flights. Indigo is the only Indian carrier to have made it to this list. And while we're thrilled with this achievement, we take even greater pride in seeing India up there. For the quarter, our technical dispatch reliability was 99.87% and our flight cancellation rate was 0.3%. Other than our strong profits, we also had several operational milestones during the quarter. We became the 1st Indian carrier to cross 1,000 daily flights. This quarter was also special since we carried our 200,000,000 customer. These achievements have come within a period of just 11 years of our operations, and we're grateful for the support and encouragement that we get from the millions of customers that choose Indigo. We also inducted our first ATR-seventy two-six hundred aircraft during the quarter and commenced our maiden ATR flight on the 21st December from Hyderabad to Mangalore. The induction of ATR will help us reach out deeper into India and also open up our network of domestic and international markets by offering connectivity to and from many regional cities. In order to strengthen our regional operations, we recently introduced 90 new flight connections that improved routes to and from Tirupati, Rajamundari, Hyderabad, Chennai, Bengaluru, Mangalore, Madurai and Nagpur. With this, we strive to take the InduGo experience to customers in many more cities in India, who so far have been subjected to erratic schedules, old airplanes and high fares. We started operations from Tirupati and Rajamundri earlier this month with our ATR aircraft. And on the very first day of operations in both these cities, we became the airline offering the most number of flights from there. Earlier this week, we also commenced operations from Colombo, our 8th international destination. With this, we now fly to 41 domestic destinations and 8 international destinations. We added 12 aircraft during the quarter, of which 8 were A320neos and 3 were ATRs, taking our total fleet count to 153 and our A320neo fleet count to 32. In addition, we are also operating 4 aircraft under a short term dam please arrangement with SmallPlanet Airlines to meet our near term schedule requirements. The first of these aircraft started to fly on the 28th December, and these 4 aircraft will be operated till the end of April 2018. Now talking about NEOS. We are now receiving the required spare engines from Kraken Whitney and therefore all our neo aircraft are in active operation. Speaking of our long haul plans and Air India. While the government has made certain announcements relating to the privatization of Air India, we are still awaiting details of the process. We remain interested in acquiring international operations of Air India. But as we have said previously, we will explore the long haul opportunity with or without Air India. In that context, we will start seeking route rights and other necessary regulatory approvals as we will require to operate long haul flights. With this, let me hand over the call to Rohit for an overview of our financials. Thank you, Avithya, and good evening, everyone. For the quarter ended December 2017, we reported a profit after tax of INR 7,600,000,000 with an after tax profit margin of 12.3 percent compared to a profit after tax of INR4.9 billion with an after tax profit margin of 9.8 percent during the same period last year. We reported an EBITDA of INR20 1,000,000,000 with an EBITDAR margin of 32.4 percent compared to an EBITDAR of INR 14,600,000,000 with an EBITDAR margin of 29.3% during the same period last year. Our year over year profitability was better primarily because of an improvement in our RASK. Our total capacity for the December quarter was RASK 16,300,000,000 ASKs, an increase of 13% compared to the same period last year. Our revenue from operations in the December quarter was RUB 61,800,000,000, an increase of 23.9 percent over the same period last year. Our other income was INR2.7 billion for the quarter. Our RASK for the quarter was INR 3.84, an increase of 10.4% from INR 3.48 during the same period last year. Our load factor was up by 1.2 points to 88.5 percent, and our yield was up by 6.3% to INR 3.70. This improvement in yield and load factor was a result of better revenue management as well as the effects of demonetization, which had impacted our revenues last year. In addition, similar to the last quarter, we also received credits from our manufacturers. We do not expect such large year over year improvements in RASK going forward. Our CASK for the quarter was INR3.18 compared to INR3.06 for the same period last year. CASK excluding fuel was INR 1.94 in the current quarter, an increase of 2.2% from the same period last year. This year over year increase in CASK, excluding fuel, was primarily driven by an increase in engine shop visits, an increase in airport charges at Mumbai, the imposition of the RCS levy and a reduction in our utilization because of the groundings grounding of some of our NIOs during the first half of the quarter. This increase in CASK excluding fuel was partially offset by a foreign exchange gain we recorded in the quarter due to the strengthening of our currency against the U. S. Dollar. Now talking about GST. As you may recall, we paid a GST of INR784 1,000,000 under protest last quarter. Similarly, we have paid a GST of INR689 1,000,000 under protest this quarter. While the GST rate for the import of repaired engines in certain parts has been reduced from 18% to 5%, the airline industry in India continues to believe that this should be exempt from GST, and we have appealed against it. During the quarter, one of our founders sold some of his shares through the offer for sale or OFS process. This sale combined with the IPP offering in September has brought our public shareholding to the required 25%. Moving to the balance sheet. We had total debt of INR 24,300,000,000 at the end of the quarter. We purchased 3 ATRs during the quarter with our free cash, and our cash balance at the end of the quarter was INR 138,900,000,000. This comprised of INR 81,000,000,000 of free cash and INR 57,900,000,000 of restricted cash. 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 24% for the Q4. With this, let me hand it back to Ankur. Thank you, Aditya and Rohit. To answer as many questions as possible, I would like to request that each participant limit themselves to one question and one brief follow-up question, if needed. And The first question is from the line of Ashutosh Shamani from Jain Financial. Please go ahead. Thanks for taking my question. Aditi, I just wanted to gather your thoughts around the pass through of crude oil prices. What are the dynamics that influence it? So if you look at a period of FY 'ten to 'fourteen when the crude prices actually shot up significantly, how has Indigo Fed? And vis a vis that particular point in time, how has the industry changed now and made the fare hikes sort of unfavorable to take right now given the competition intensity or the capacity addition or the book mix, if you can comment just directionally or just a structured thought process around how pass throughs happened in terms of crude oil processes, it would be great. Ashish, it's Rohit. I'll start and then Azithya can chime in. The essentially, you've seen in the past that effectively what happens is there's usually a lag before fuel prices fuel price increases get passed through into ticket prices. I think the market typically waits to see how permanent the price increase is, and then it takes a little time for it to actually get passed through. And it doesn't usually get passed through 100%. So there's usually a lag and they are not 100% passed through. So that's what has happened historically. We can't really predict what's going to happen in the future, but that's what we've seen historically. Sanjay, any Yes. I think it's in line with what has been happening in the past. So nothing new as such. So Aditya, if you look at FY 'ten to 'fourteen, the pass through was a significant number. We had upwards of 80% of cost being we were able to pass it on to customers via fare hikes. But I think the competition intensity today is a lot different from what it was in FY 'ten to 'fourteen or the capacity addition. So do you think that will be some of the variables that will influence the fare hikes in the next 12 to 12 months? So while I cannot predict what's going to happen in the future, again, if you look at if you're looking at such a long period of 4 years from FY 'ten to 'fourteen, there will be times when fuel prices would have gone up and down, intensity of competition, like you mentioned, would be similar to what we have today. So there are a lot of other market dynamics that come into play. But again, we what we're probably trying to say is that we're not seeing anything different in behavior than what we've seen in the past several years. Sure. Vivek. Thanks. Thank you. We have the next question from the line of Sonal Gupta from UBS Securities. Please go ahead. Yes. Hi. Good evening, gentlemen. Thanks for taking my question. Rohit, could you just tell us on the how much was the FX gain for the quarter? And if you could shed some light on the higher other income in this quarter as well? Sure. So the FX gain for the quarter was INR803 1,000,000. Now it is booked into 2 line items. DKK408,000,000 is booked in other income and DKK394,000,000 is booked as an offset in other expenses. And just for the reason for that is for the between the first and second quarter, we had booked a cumulative loss for the year of GBP 394,000,000. So the GBP 803,000,000 for the quarter is firstly a reversal of the GBP 394,000,000 and then the net gain of 4 0 8,000,000 is booked into other income. So that's what is in other income. Okay. Thanks. I'll join back the queue. The remainder, Sonal, of other income is finance is interest earnings on our cash balance. Okay, sure. Thank you. Thank you. The next question is from the line of Ambat Taneja from Drift Asset Management. Please go ahead. My question is how are the plans progressing for the plane purchase that you had outlined in previous calls because you were saying it's going to be cheaper than leasing and that's something that you had talked about? And the second question is, is there any movement on direct fuel import versus buying from the national oil companies? Thanks. Sure. So on the first question, we have I think as I said in my prepared remarks, we have acquired 3 APRs outright out of cash rather than doing a sale leaseback. We expect that will save us money. We have not yet started buying A320s with cash, but we fully expect to do that over the coming periods. In terms sorry, your second question? On the fuel, I mean is there any direct fuel import or still buying from the mostly from the of of buying from national oil companies. There's a private oil company as well. Reliance is in this thing as well. So there's local operators, the national oil companies plus Reliance as well as selectively, we look at opportunities on imports selectively. And we do import some fuel when we see the opportunities are favorable. So that strategy continues. I'm sorry, would there be a cost saving if you kind of build up on infrastructure for direct fuel import? I mean, just wondering if there's more efficiency to be gained out of importing directly versus getting it from a supplier? There are efficiencies, but there are logistical constraints as well. It's not that straightforward, and you have to commit to purchase a fairly large quantity for it to be economical to ship the fuel across. That's why it's not and not everyone does it all the time. But we look at the opportunities and we try to take advantage of the opportunities that are in our interest. Fair enough. Thank you. Thank you. We have the next question from the line of Pulkit Singhal from Motilal Osw Asset Management. Please go ahead. Yes. Hi, congrats on an excellent set of numbers. Just two questions. One is, do the financials contain benefits from Pratt and Whitney? So Pulkit, it's Rohit. I think as we said in the prepared remarks, we do have credits that from our manufacturers that are in that are in our results. Okay. And if I understand correct, you mentioned the RASK performance will not be repeated going ahead? Or I mean Yes. I mean, I think just to repeat what I said, I think there were a few things that helped our asset performance. One was better revenue management. And when we talked about that in the last couple of quarters, now when we look at Q4 last year is when we had the systems in place last year. So that better revenue management from our new systems and processes That effect is already baked in going forward. And then the quarter the similar quarter last year, Q3 had the demonetization effect, which obviously, you want to have that. So on a year over year basis, there was a that helps. And then there was the compensation as well. So those are the three factors that helped to ask that won't be there going forward. Okay. The compensation goes off as well, Vincent? Well, compensation, we don't know. It will all depend on the nature of what happens. Clearly, we had some groundings in the early part of this quarter, which is why we still see some compensation. We can't predict what that will be going forward. Okay. Just a quick second question on I mean, cumulatively, over the 3 quarters, you've done profits more than anything in the past. Any communication on the dividend policy given that you will also be buying planes now? So any thought process on where you will be pegging it? So Pulkit, we expect to give you more guidance on that on the next call at the end of the 4th quarter. The overall policy and framework is no different from what we've articulated the last few quarters, which is that in determining the annual dividend, our Board will look at the profit of the profits for the year, the cash needs to run the business, the prudent amount of cash that the company should maintain. And of course, now the cash needs of the business also include a use of cash to purchase aircraft. And so after all, capturing all that in our board will declare a dividend. Directionally, we expect to pay a much lower percentage of the profits in dividend, but we do expect to pay a dividend. But beyond that, we can't give you more guidance, and we'll give you more guidance on the next call. Congrats, guys, all the best. Thank you, Pulk. Thank you. Thank you. We'll take the next question from the line of Srinath Krishnan from Sundaram Mutual Fund. Please go ahead. Good evening and thanks a lot for the opportunity. I understand this is a seasonal business, so and there was a demonetization impact during 3Q last year. If I look at the last 3 years numbers, the spreads that is RASK minus fuel costs, this quarter seems to be the lowest despite an increase in load factors over the last 4 years. Similarly, your EBITDA per ASK is also on the lower end. Why I mean, going ahead with increasing yes, rather with increasing fuel cost. Even if we have a higher load factor, does this mean that we would sacrifice on our profitability to gain share? Thank you. Yes. So it's Rohit. Yes, I think as we said before, the fuel price increase in the the only way to sort of get that back into profitability is to pass that on in ticket prices. We expect there's always a lag and not 100% pass through. So there will be some effect of that on margins as fuel prices go up in the short term. Now your spreads have been declining despite lower fuel costs and higher growth factors? I'm not sure I fully understood the question. If I look at 3Q FY 2015, your fuel costs per ASK was much lower what it is today. And your spreads were something like 2.66, that is RASK minus fuel cost, that is now it is about 2.54 and your load factor was around 81% and now it's around 88%. The trend has been the spreads have been on a declining trend. Why would that be when your passenger growth has been pretty strong and fuel costs have also been benign when compared to where they were 3 years back? Yes. So you're talking about a longer term trend. I think there's clearly when you looked at FY 2017, and we talked about it through our calls on FY 2017, that on a year over year basis, the revenue environment was weaker in FY 2015, where there was an effect of clearly lower fuel prices and there was obviously a point in time where the revenue fares were very high. The competition had reduced a significant amount of capacity. So there was a situation in FY 2016 that was a very favorable environment. FY 'seventeen was a little bit more challenging. FY 'eighteen so far is somewhere in the middle from of FY 2015 and FY2016 and FY2017. So it's not a declining trend. It's sort of FY 'eighteen as a recovery versus FY 'seventeen, but not quite at the FY 'sixteen margin levels. Does that answer your question? Sure. Thanks. Anadark. Thank you. We'll take the next question from the line of Achal Kumar from HSBC. Please go ahead. Yes, hi. First of all, congratulations on the strong set of numbers. I have two questions. One, if you could please talk about your ATR business. I understand that you said that ATR business is going to be separate, of course, except the top management. So how that has been structured? How it is performing, if you can share something on that side? And secondly, about if you could talk about your plan on the international versus domestic. So you said that your capacity is in Q4 going to be increased by about 24%. How you see that diverting into international domestic traffic, domestic capacity? And given that in December, you increased your international capacity by a lot, I think more than 60%. So how you are how that is structuring? So if you could please share some light on your international operations versus domestic? This is Aditya. So first on the ATR. I mean, it's still very early days. So we're just flying 3 airplanes, and it's been not even been a it's barely been a month since our first flight. So it's too early to try and kind of either declare victory or to say give a judgment call on how the operation is running. Now operationally, it's doing well. Flights are running on time. We haven't had any cancellations. It seems like people like the product. But to the question of how we have kept it separately, we have stuck to what we have said in the past. The pilots and the cabin crew, they're for APRs are separated out from our narrow body operations. So that's an ecosystem by itself, which is not intertwined with the ecosystem that exists for the narrow bodies. And as we've also said this is Rohit, sorry, as we've said previously that we also where other functions like corporate functions, etcetera, there's a lot more synergies to not have a separate structure and we leverage the corporate structure of the corporate. So we largely so we're largely sticking to what we've talked about previously, which is we think, the most efficient way to manage these 2 fleets. And now back to Aditiya. This is Aditiya. Coming to international and how we will expand there, well, as we said in the past, we just look at our international flights as pretty much accidentally crossing an international border. It's the same flight and it's the same airplane, similar product. So yes, you'll see some more international, but you'll see a lot more domestic. We'll just go chase where the opportunity is. So it's not that we have a they're either tied down to 1 or the other. So having so if you look at our quarter this quarter, I think we had about 14.5% of our capacity international. The previous quarter was around 13%. A year ago, it was around 10%. So yes, directionally, we have definitely increased our international capacity. But as we've added capacity, we still have more capacity domestically, but the percentage has been shut up a little bit, and we'll probably continue to do so. Fine. Thank you so much. Thank you. We have the next question from the line of Anshooman Dev from ICICI Securities. Please go ahead. Yes, thanks for the opportunity. I had a question regarding the non fuel CASK. Now some of the one of our competitors are have said they're going to reduce non fuel CASK going ahead. I wanted to understand whether we do have some opportunities to reduce non fill CASK. And the short term leases that we have taken, would there be any material increase in rentals, which can increase the non fuel CASK? So this is Rohit. Absolutely. So we have we definitely have some issues sorry, so we definitely have to deal with the fact that we have shorter term leases as well as we've extended the leases of several aircraft in our fleet, which in order to meet the capacity needs that we've had as all of you know, the aircraft deliveries for new deliveries has not been at the pace that we originally planned. And that does put some challenges on the cost side. That's incorporated in our numbers. As we start getting the new planes at the pace we want them and the older planes on short term leases start to go away, we will see that benefit of that so called penalty for older planes going away. So we'll actually see that improvement. We also see improvements in on the CASK side from owning fleet versus leasing, which we've talked about previously. We've also previously talked about adding A321s into our network. So our A321s will have 234 seats versus 186 on our A320s. So significantly lower unit cost spend, that will help our CASK as well. So all of these factors will do that. We also will continue to look for productivity and efficiency improvements. We while I think we've done a fairly good job so far, we see a lot of opportunities to continue to create efficiency. So we will continue to push the envelope on the cost side. Thanks. One follow-up one another question I had regarding the Unan scheme. So the routes that we have received, I guess, 20 RCS routes. So are those which we wanted in the sense if you could give some color on the routes that we have won? Well, I mean, the results are coming on literally as we are on the call. You're right. This is what I have also just preliminary heard that we've been allocated 20 routes. So we'll examine it. So it's I mean, it's only in the last few minutes that this news is coming up. Sure, sure. Thanks. Thank you. The next question is from the line of Vinay Singh from Morgan Stanley. Please go ahead. Hi, team. Thanks for the opportunity. Looking at the ancillary revenues, we've seen a pretty good traction from around 1% to 2% growth to almost 21% growth this quarter. At the same time, we had a lot of news flow on cancellation fees and Air India waiving off baggage fees. So how do you see hands free revenues moving ahead? Vinay, it's Rohit. So ancillary revenue this quarter, as we said, has been pretty strong. Baggage fees, cancellation fees are 2 certainly drivers of that, but we also have good performance in cargo as well. And we see some continued opportunities there. We going forward, we see some opportunities for this for continued improvement, but largely, there are but largely in line with capacity is what we would say. Okay. Okay. And in terms of capacity, you maintained 20% ASKM growth outlook for 2019 2020, right? There is no update on that. There is no update on that, Binay. We will give more detailed guidance on that in the next quarter's earnings call, obviously, for the fiscal year 2019. Directionally, we will say that we expect it to be much higher than the 20%. So you recall, we said a CAGR of 20% over the next 3 years. We will expect to be around 17% for this fiscal year based on the 24% for the Q4. Next year will be significantly more than 20%, but we'll give more detailed guidance on the next call. We'll take the next question from the line of Charles Cartlidge from Sunil Robinson. Please go ahead. Thanks very much for the call and congratulations on the results. I just want to make sure I'm sort of understanding the messaging here. 1st couple of years now, you've unfortunately suffered from price competition from your competitors as will always be the case, but it was quite aggressive. And your competitors have higher cost structures than you do. So and picking up on a question made earlier, So the expectation, I think, is that because jet fuel prices have risen so much over the last couple of years, then your competitors will find it harder to compete on price because of their higher cost structure. And so is the expectation that the competitive intensity you've been suffering under will sort of go away because of higher fuel prices, which gives you a more competitive edge. And to your comments earlier that it just hasn't come through yet because it always takes a few months to pass through the pricing cycle? Charles, it's Rohit. So I think as we said earlier, the and what you just said, it takes a while for it to go for the market to sort of embrace the fact that there is higher fuel prices and then for it to get passed through. So that's just what normally happens. We can speculate about the what would drive the competition to ability to absorb higher fuel prices and make that a catalyst to raise prices. I think your speculation is probably as good as ours. So we'll wait and see and really not put out a comment on that. But certainly, as we said historically, we've seen certain behavior, and we would expect that to continue. Thank you. And forgive me if I've missed some policy statements on this subject. But per the earlier question, do you actually disclose the amount of compensation from Pratt and Whitney? Or is that simply left undisclosed? That is not disclosed, Charles. Okay. Thank you. Thank you. Thank you. We have the next question from the line of Himanshu Varya from Motilal Oswal Securities. Please go ahead. Good evening team and congratulations for a a good set of numbers. I just had one small query regarding the credits received. I wanted to just clarify, does both our revenue and cost per ASK both individually affected positively by credits received from unfactors as it says on Page 4 of the presentation? Yes, it does. Great. The next question is from the line of Ashish Shah from IDFC Securities. Yes. Good evening, sir. So first question is in terms of your international long haul Mr. Ashish Shah, may I have your question to speak a bit loud, please? Sure. The first question is in terms of the international long haul business as we spoke about. Could you elaborate a bit on what would be your fleet acquisition plans? And what sort of routes would you look at? And what sort of a product offering you have in mind? Would it be a low cost or regular international service? Yes. So I mean, it's too early for me to comment on the exact nature of the product and which routes we'll be flying to. So we'll update you as we get closer to those plans. Sure. But would that be in like a 12 month horizon or longer than that? Well, I've actually said in my opening remarks that we will go ahead and apply for some route rights. So a lot depends on what happens after that. Sure. 2nd is on the load factors. We're already at about 88.5 percent. In terms of the mix we have, do you think there is a scope for load factors to rise further? Or you think in terms of practical feasibility, this is where we could be? So the answer to that question is practically, you can have higher load factors, absolutely. But the from our perspective, the focus is not to maximize load factor in isolation. It's to maximize our RASK, which is a combination of yield and load factor. And so really all our revenue management systems are basically geared to optimize RASK. And sometimes it means higher yield and slightly lower load factor or sometimes it's the reverse. But practically, load factors, there's no reason why it can't be high. Sure. And just last question. Since we have plans to add assets, aircrafts on the balance sheet, could you indicate a broad CapEx plan or what would be the gross block addition in FY '18 or FY 'nineteen visavis the previous year? So I think when we give guidance on the dividend next quarter, we'll be able to shed a little bit more light on that as well. But essentially, we'll look to use some of the cash that we raised. We look to use the cash that we raised through this ITP offering to acquire aircraft. So that's in the range of around $400,000,000 So that gets will eventually be utilized all for aircraft purchases. In addition, we will expect to use a portion of our free cash flow that we generate every year to buy aircraft. So directionally, that's what I can tell you. Sure. Thank you so much for your time. Thank you. Thank you. The next question from the line of Prithvi Raj from Unifi Capital. Please go ahead. Hi, good evening. Thanks for taking a question. Could you give us a sense of what the GAAP potential is from the new 20 routes that we've added under the Urdan scheme? And importantly, are they incremental to the existing routes or would they single part of our existing routes? So we've not added any routes under the run scheme literally after we started the call and before we've ended it, we've just got the results. So that's one. The second is that we will whatever we implement will be absolutely over and above what we are currently doing. Sure. So which means that the 20% GAAP guidance that you've given for FY 'nineteen, there could be material upside to that, right, for the whole of FY 'nineteen? Capacity guidance, it's a capacity guidance. That has nothing to do with the routes. It has everything to do with the planes we're adding. Right. So I think when we talk about our overall capacity guidance, it's going to be in that range that we've talked about previously. And as I said earlier, in the next quarter, we'll give you an updated guidance for fiscal 2019, which will include or which will include all the down routes as well. Okay. So fulfilling these, how much would be dependent on a function of us getting delivery of new planes? And what time frames are we looking at for these new routes? So I think the I think as Azithya mentioned, the new routes, we've not even had a time to really analyze what we've actually got as part of the offering. So once we do that, we can give you more commentary. But at a high level, we bid for routes based on aircraft that we know we're going to that we either have or have in the delivery pipeline. So it's all based on aircraft that we have that we either have or are scheduled for delivery. Okay. So the last question before I get back, adjusted for the lack of income, that lack of other income from the engine suppliers that we've seen in the quarters to come. How long do you think would it take for yields to adjust and for your margins to normalize at current rates? So I think I'd answered this a couple of times on the call already that there's always a lag. And as to the period of the lag for prices to adjust, it varies from time to time. So we don't we can't really speculate on how quickly that will happen. Thank you. Mr. Raj, maybe the question will join the question queue for any follow ups as we have several participants waiting for their turn. Thank you. We have the next question from the line of Ashal Kumar from HSBC. Please go ahead. Yes, hi. Thanks for another opportunity. I had two questions. One about the cost. So on the fuel cost, the and I'm talking about quarter on quarter. So from Q2, the fuel costs in Q3 is up by 22%. So I'm not sure if you can really help us how we can make that. I mean, so I understand that capacity increased by 8% and then of course price increased by about, what, 13%, 14%. So how do you see that? And similarly the lease cost, the lease cost has again gone up by almost 22% and you have added 8 aircraft. So if you could help us in making those two things out. And of course, we just want to understand how do we model and how it will happen? That is first question on the cost. And on the price war, I mean, recently, we saw there was a sort of price war independent of software and now of course, Indigo joined that price war. So do you really see that happening? I mean, given that we are still in the peak season, I mean, January is a good season, of course. So how do you see that? I mean, do you see another paisa? Or do you see that's a short term funda? Thanks. Yes. Sure, Achal. So first on the cost side, I think you were talking about sequential quarter over quarter fuel test? Yes, yes. Yes. So firstly, there's always a danger in looking at our business sequentially. So sequentially and that's why we always look at it on a year over year basis. So but sequentially, essentially, what happens in fuel is because of the fog season in November December, the same flight tends to burn more fuel because it circles in the end a little longer. So the same ASKs to generate the same ASKs, you actually fly more block hours, which is what would what has happened if you look sequentially. So even if you're paying the exact same rate for the fuel and fly the exact same missions, you'll just burn more fuel and your fuel cost will go up during fog season. So that largely will drive almost entirely the cost difference if you try to look at it sequentially. So that was on the fuel side. You had a question on lease rentals. I think I mentioned that there are some credits that are booked that offset lease rentals on the last quarter call, and that would explain some of the why there's a sequential difference there. I obviously can't give you more details, but directionally, I can point to that as a reason. Your question on pricing, well, I mean, there's always sales and fair sales and things in the market. That's not I wouldn't really call them that a price war. Sales are sometimes done just to stimulate demand and people match them. I wouldn't really call it a price war. So those are very normal things in the industry, and you'll see that happening all the time. And in this industry, usually, competitors definitely match would match these fair sales. So this is normal demand generative activity that happens. Okay. And thanks. Again, coming back to the fuel, I mean, as you rightly said, yes, because of the fog and all the fuel burn, that was exactly my question. I mean, you must have calculated that, okay, fine, due to the volume, we have increased as much fuel cost. But due to the currency, we have got this much of benefit and due to the capacity. So that was exactly what I wanted to understand, how do we make it? I'm not sure if you can elaborate on that. I think I tried to explain it as best I could. Maybe we can do this off line. You can talk to Ankur Gohr, our Investor Relations Head, and he can help you model it. But directionally, I think I explained it as best I could. Thank you. The next question is from the line of Arvind Sharma from Citi. Please go ahead. Hi, good evening, sir. Thanks for taking my question. Hi, Arvind. Hi. So I understand that RASK include some of the credits from the manufacturers. Just want to clarify that the yields, I. E. The passenger revenues per RPK, would that also include the credits? Or are the yields clean of those credits received? I think, Arvind, we clarified this on the last call as well, and I'll that the passenger revenue that we report in the press release does not include any of these credits. Okay. So just as a corollary, understand that the Y o Y increase would not be sustainable going forward. But if you see the sequential increase in the past, I. E. 4Q versus CQ in the past, could we expect a similar trend to continue this year as well? I mean, there's always yes, there's always the seasonality issues that you'll see, but that's why we don't really track sequential changes because there's always seasonality. So it's difficult for me to even answer that because we don't track it. No, I understand the sequential. And I'm just saying there is no big change in seasonality. It's as it was in the previous years. Seasonality aspect should absolutely be. There might be new factors that happened in this in the Q4 relative to the Q4 last year, but the seasonality element should be no different. Okay. Thanks, sir. Thanks a lot for taking my question. Yes. Thanks, Alvin. Thank you. The next question from the line of Danish Mersi from Tata Mutual Fund. Please go ahead. Actually, my question has been answered. Thank you. Okay. Thank you. Thank you. The next question from the line of Kaustubh Gugna from SKS Capital and Research. Please go ahead. Yes, hi. So with crude prices going up, could you give us some indication of yield pressure in quarter 4? And as we expect 24% capacity growth in quarter 4, do we see this I mean this translating into robust revenue growth, which should partially offset our yield pressure? Could you like give me some sort of indication on how quarter 4 will be? So firstly, we don't comment on forward looking results, and that's just our has always been our policy. So we'll talk about Q4 only at the Q4 call after the quarter. In terms of fuel, I think we've talked about it many times that we expect that we've seen historically that fuel price gets passed on only with a lag with a lag. In terms I think that And Khosla, this is Aditya. Just stepping back into the fundamentals of the business, we have 32 neos on our fleet, which burns 15% less fuel than a comparative legacy aircraft. So in a strange way, as fuel prices go up, our cost advantage vis a vis another competitor who has older airplanes or older generation airplanes, that cost advantage only increases. Okay. Could you explain how this 24% capacity growth is coming for next quarter? And also, could you shed some light on, let's say, we don't get the Air India International Business, how do we plan to expand the international business? So on the 24% capacity addition, it's coming from additional aircraft that we're taking both new neos as well as some used aircraft that we've taken delivery of. Some of it were scheduled originally scheduled to be delivered earlier in the year, but because of delivery delays that we've talked about, we're getting them in this quarter. So that's what you see. And we've gotten a fair number of aircraft even at the end of Q3 as well, which will add capacity obviously in Q4 because in Q3, we didn't have them for the full quarter. So that's really the capacity addition. It's well in line with our longer term plan. It's just that it got more lumped into Q4 than the earlier part of the year because of delivery delays. As far as the Air India piece is concerned, I mean, since we do not have any details of the process, I cannot comment on the Air India transaction. But again, I'll just repeat what I've said in the past that we were anyway going to look at long haul with or without Air India, and we'll do whatever it needs to do in the right time frame to on those lines. Thank you. The next question is from the line of Karima Mishra from Kotak Securities. Please go ahead. Hi, thanks for the opportunity. Could you shed some light on the NEO's addition in this calendar year? And what is the latest that you've been hearing from Pratt and Whitney? And what is the latest on the issue of the engines wearing down faster than expected? So as this is Aditi. As I've said in the past, the issue is around these components, which I've discussed probably on 2 calls in the past, I won't go over that again. But I think that we have made it very clear that essentially all we were looking for is spare engines so that we quickly saw the engines out and the planes are flying, which is exactly what's happening now. So all our neos are flying up in the air. But there was also this talk that Pratt and Whitney is looking for a fix of the engine so that this whole spare engine requirement itself gets curtailed. Is there any update on that? That's correct. And there is a time frame to it. And I think 2 quarters back, we had said that it will take about 12 to 18 months, and there's nothing that changes our guidance on that. Okay. And lastly, on I mean, any sort of guidance or indication that you can give on the new addition for this calendar year? So we've given our ASK capacity guidance, and we've kind of moved away from trying to give number of shells and number of specific aircraft. But I think we should just look at that ASK guidance. Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Ankur Goyal for closing comments. Thank you. And over to you, sir. Thank you for joining us. Hope to talk to you again in the next quarter. Thank you very much. Ladies and gentlemen, with that, we conclude today's conference call. Thank you for joining us, and you may now disconnect your lines.