Earnings Call: Q2 2018

Oct 31, 2017

Evening, ladies and gentlemen, and welcome to Indigo's Conference Call to discuss the Second 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 now like to turn the conference over to your moderator, Mr. Ankur Goel, Associate Vice President of Treasury and Investor Relations for IndiGo. Thank you, and over to you, sir. Good morning, everyone, and thank you for joining us for the Q2 fiscal 2018 earnings call. I have with me our President and Whole Time 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 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 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 Q2 fiscal 2018 financial results today. We reported a profit after tax of INR 5,500,000,000 with an after tax profit margin of 10.4%. Our year on year profit improvement was favorably impacted by 2 factors. One, we did not optimally manage our revenue last year and as a result, our RASP performance last year was suboptimal. Since then, we've corrected this and we have put in place new people and processes in our revenue management function. This has resulted in a much better revenue performance for us in this fiscal year. And 2, we were significantly helped this quarter by the credits we received from our manufacturers related to aircraft groundings and delivery delays. Rohit will discuss this when he takes you through our numbers in detail. We also continue to be the leading airline in terms of on time performance and were ranked number 1 in OTP in July, August September with an average OTP of 87% for the quarter. Our technical dispatch reliability during the quarter was 99.84%. Our flight cancellation for the quarter was 0.37%. Our preparation for the launch of our turboprop operations are on track for a year end start. The teams have put in a lot of hard work in order to launch our regional operations within a relatively short period of time. In fact, we've already started selling tickets and our first ATR aircraft is expected to commence operations from the 21st December this year. We are excited the opportunity of once again being able to redefine air travel in India by bringing in the reliability and efficiency of IndiGo's operations to towns and regions in our country, which have so far been devoid of reliable air service or have been subject to exorbitant airfares. With the commencement of our regional operations, we will introduce 3 new destinations, Tirupati, Rajamundri and Vijayawala into our network between December 2017 January 2018. We added 6 aircraft during the quarter, of which 2 were A320neos, taking our fleet count to 141 and our A320neo fleet count to 24. As we discussed previously, the challenges associated with theneo engines and the shortage of spare engines from Pratt and Whitney led to the grounding of as many as 9 NEO airplanes at its peak last quarter. We've started receiving some of the spare engines and currently we have no A320 on the ground A320neo on the ground awaiting spare engines. Having said that, we continue to monitor the situation closely and work with the manufacturer to maintain sufficient spares. In parallel, we are also looking at various options to mitigate the shortfall in our desired capacity growth by looking at getting more aircraft from the secondary market on short term leases. With this, let me hand over the call to Rohit for an overview of our financials. Thank you, Aditya, and good evening, everyone. For the quarter ended September 2017, we reported a profit after tax of INR 5,500,000,000 with an after tax profit margin of 10.4% compared to a profit after tax of INR 1,400,000,000 with an after tax profit margin of 3.4% during the same period last year. We reported an EBITDAR of INR 15,800,000,000 with an EBITDAR margin of 29.9% compared to an EBITDAR of INR9,800,000,000 with an EBITDAR margin of 23.5% during the same period last year. As Alethia mentioned, our profitability was favorably impacted this quarter because of the improvements we have made in revenue management as well as the credits we have received from our manufacturers related to aircraft groundings and delivery delays. As far as the credits we receive from manufacturers are concerned, we will not be able to go into the specific details of our confidential contractual arrangements. However, it is important for me to point out that we do get compensated by our manufacturers for the loss of revenue due to the grounding of our planes, as well as reimburse for some operational expenses that we incurred due to delays in delivery of our aircraft. In the event there is an improvement in the situation related to the number of grounded planes and the delay in deliveries, we would expect to receive the same magnitude of credits from manufacturers going forward. That said, even if you exclude these credits, we saw a strong improvement in our year over year profitability this year. Our total capacity for the September quarter was 15,100,000,000 ASKs, an increase of 13% compared to the same period last year. This is lower than our previously guided number of 15% due to the unavailability of some of our NEOs during the quarter. Our revenue from operations in the September quarter was INR 52,900,000,000, an increase of 27% over the same period last year. Our other income was INR 2,100,000,000 for the quarter. Our RASK for the quarter was INR 3.52, an increase of 12.6 percent from INR 3.12 during the same quarter last year. This increase in RASK was helped by both an increase in our load factors as well as yields. Our load factors were up 1.8 points to 84% and our yields were up by 8.9 percent to INR 3.57. Our RASK performance was also helped by the 2 factors we have mentioned before, the improvement in revenue management and the credits we received from manufacturers. Talking about the revenue management improvements, while we are pleased with the revenue performance this quarter, you should not expect to see these kinds of year over year improvements in RAS going forward. On the cost side, our CASK was INR3.01 for the quarter compared to INR 2.99 for the same period last year. Our CASK excluding fuel was INR 1.92 in the current quarter, an increase of 5% from the same period last year. This was primarily on account of 2 issues. 1, we had a reduction in ASKs due to the grounding of our A320neos, but still had to incur some of the associated costs. And 2, the Indian currency depreciated over the quarter and we recorded a mark to market foreign exchange loss on our liabilities. Now as you are aware, the new GST law went into effect from July this year. The airline industry in India as a whole has raised a number of concerns with respect to certain aspects of the law as well as how it has been interpreted. The airline industry with the support of the Ministry of Civil Aviation is in active discussion with the Ministry of Finance on this subject and has represented to the government to help resolve this issue in a matter that does not impose an incremental financial burden on the INR784,000,000 under protest during the last quarter related to engine repairs, which we believe should not be subject to GST. This has not been recorded as a cost this quarter, but has been shown as a recoverable on our balance sheet. During the quarter, our company successfully completed an institutional private an institutional placement program or IPP through an issue of 33,600,000 shares consisting of a fresh issue of 22,400,000 shares and an offer for sale of 11,200,000 shares to comply with the minimum public shareholding requirement. The IPP proceeds with which the company has received will primarily be used for the purchase of aircraft. Moving to the balance sheet, we had a total debt of INR 25,400,000,000 at the end of the quarter. Our cash balance at the end of the quarter was INR 129,300,000,000 comprising of INR53,200,000,000 of restricted cash and INR76,000,000,000 of free cash, which includes the net IPP proceeds of INR24,800,000,000. Before I close my remarks, let me give you our capacity guidance for the coming quarter. We are expecting a year over year capacity increase in terms of ASKs of 14% for the Q3. For the full year, we're expecting a year over year increase in capacity of 19%. With this, let me hand it back to Ankur. Thank you, Agitya and Rohit. To answer as many questions as possible, I would like to request that each participant limit themselves to one question and one brief follow-up, if needed. And with that, we're ready for the Q and A. Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. The first question is from the line of Vishal Rampuja from HDFC Securities. Please go ahead. Hello. Hi, Vishal. Go ahead. Hi. Sir, I have one question on your fuel cost. On a quarter on quarter basis, ATA rates are up, but slower fuel cost on per ASK basis, still it is down. You give more insight about what led to this drop in the fuel cost? Are you talking about year on year or quarter on quarter? Quarter on quarter. Yes. Our quarter on quarter improvement of CASK is a result of some of the things that we talked about on the last call that we've taken a number of steps to improve our fuel costs and this is a result of those improvements. Okay. And the second question is that this increase in yield, does it also include the credit which you got from the supplier? The yield amount is based on passenger revenue. While I will not be able to go into further details of the compensation, passenger revenue does not include any compensation. Okay. Thank you so much. Thank you. We have the next question from the line of Saurabh from JPMorgan. Please go ahead. Saurabh, just on this compensation, so assuming that these Indian issues are resolved, one should not expect improvement in profitability at Indigo, right, at net income levels. Will that be a correct assumption? If the question is specifically related to the fact of the engines, the aircraft not being grounded and being able to fly again. Obviously, they will generate additional revenue, but it won't improve the overall profitability because we have, as we said, credits from manufacturers to offset the losses we had due to offset the costs we had due to the aircraft grounding. So your statement is correct. Okay, sir. And second is, essentially, do you have an update from PNW as to when is an updated time line as to when these engine issues resolve? This is Aditya. It's the same as we have guided before, is that it will take about another, say, 12 to 15 months. And that's why what we are focused on is while Pratt and Whitney is working away at the design issues, we are focused on getting spare engines. And as you can see, once we start getting spare engines, we don't have a single A320neo on the ground today. Okay. Sir, I have a few follow ups, but I'll probably come back later. Thank you. Thank you. Thank you. We have the next question from the line of Pulkit Singhals from Motilal Oswal Asset Management. Please go ahead. Yes. Hi, congrats on a great set of numbers. Just to clarify the accounting of this compensation, is it on the revenue line or is it subtracted from costs or it's an element of both? Okay. There's an element of both, but that's true. That's the extent I can go in. You mentioned that passenger ticket revenues does not have this cost, right, have this competition. So if I look at that, it's 11% almost average ticket price increase which is pretty strong. And even 1Q was around 1%. So what I'm seeing is this is possibly the 1st year where your ASK growth is coming down and that seems to be pushing up ATPs, if I were to interpret it that way. What is your view on the same? So, Kukit, I think what I said in a little while earlier, so firstly, I think yields are up 8.9% year on year for the same quarter last year. And we look at yields rather than average fares as a better measure of sort of where those fares are trending up. So yes, it's been a strong improvement. But as I said, it's primarily driven by the fact that we believe we didn't optimally manage this activity in the same period last year. Got it. Thank you. Thank you. We have the next question from the line of Sonal Gupta from UBI. Please go ahead. Hi, this is Sonal. Congrats on a very good set of numbers. Just on, I mean, so will just to try and understand, 1, the engine rentals have actually dropped sequentially. So and then the second thing is, could you just tell us how much was the FX related, any gain or loss in this quarter? Yes. So on the aircraft and engine rentals, as we mentioned earlier, we do get credits from our manufacturers. And so I can't get into the details of that, but that will explain some of that. As far as your the foreign exchange is concerned, we booked a loss of INR460,000,000 in the quarter compared to a gain of INR 346 1,000,000 in the same period last year. So on a comparison basis, it's an 800,000,000 difference. Okay. So there's a loss of 460,000,000? Yes, that's right. Okay. Thanks. I'll join back the queue. Thank you. We have the next question from the line of Yousafik Appadia from Edelweiss. Please go ahead. Sir, I want to know about the last year. I believe it was like Q2 of last year, the same base quarter where we took a pricing correction to follow the competition when while in Q1, as you said, the revenue management was not there when the pricing was independent of the competition. Therefore, probably the yield during the quarter versus last year, which is 9% up, was Q2 of last year when we took the price correction to reflect competition. So how much is the yield increase because of the pricing correction we have taken? And how much is to do with increasing cost during the quarter? So I think it was acute of last year when we actually corrected our pricing methodology. Yes. So what we said, I think, at the end of the Q1 call last year was that we had not been matching the competition. And we had signaled that we were going to match the competition aggressively going forward. And in Q2 of last year, you're right that we did start taking that strategy change of matching the competition. Now what we're seeing here is that while we made that strategy change, we were still not managing the revenue optimally because we didn't have the people and processes and tools to manage this operation the way we think would be optimal, which we now have put into place. So as a result, you can see that even though we had high load factors last year, we left some money on the table in terms of yield, in terms of how you price manage that. So I think we've taken those corrective steps and that's the reason why we're seeing, a, an improvement in yield. Okay. Thank you. Thank you. We have the next question from the line of Prashant Gotari from Pick N Pay. Please go ahead. Yes, Halas, very good set of numbers. Congratulations on that. Thanks, Prashant. Slightly away from the quarterly numbers, I just wanted some update on the Air India bid that we are trying to make. Is there any progress on the same? How is the government kind of thinking about it? Are they willing to sell it in parts like domestic and international, which would be more amenable to us? Any more kind of updated thoughts on that? Yes. So Prashant, I mean, there are no further updates from the government. We also see what we read in the newspapers that they're in the process of appointing advisers. Having said that, what we've always said, we are interested in that, which is just the international operations. We continue to be interested in that. But other than that, I have no further updates at the moment. Okay. Thank you. Thank you. We have the next question from the line of Anshoom Mande from ICICI Securities. Please go ahead. Yes. Congrats on a great set of numbers. First question is regarding the new engine issues. So I believe there has been a change in strategy of the parent company of Pratt and Whitney where they now have a plan to give as many spare engines possible to current aircrafts in need of engines rather than empty airframes. So will that help our spare engine outlook and the overall new capacity induction as far as FY 'eighteen and 'nineteen is concerned? Yes. So as I was saying, Anchuman, that we are focused on making sure that we have enough spare engines. And obviously, as the design issues get resolved over a period of time, the pressure of getting spare engines will come down. And I'm guessing that gradually, it will start going back to the original delivery schedule. But for us, frankly, the way we look at our world, as long as we have enough spare engines, those planes fly. And that's all we are focused on. And in argument, we are happy that, as Aditya mentioned earlier that we've gotten the spare we've gotten a fair amount of spare engines, which has allowed us to have all the neos back up in the air right now. Great. And one more follow-up, would you be disclosing your NCLG revenue this quarter? Yes, it's in the press release. Okay. Thank you. Thank you. We have the next question from the line of Ambat Taneja from Griffin Asset Management. Please go ahead. Yes. Hi. I wanted to ask, you mentioned last time one of the strategies you are using to reduce cost is direct import of fuel. I wanted to ask, is it a substantial component of your fuel bill? And if so, are there any savings vis a vis buying from the Indian oil majors? As I think I mentioned last time, we've taken we look at a number of initiatives to reduce our fuel costs, including the import of fuel as we can see selectively. But beyond that, it is competitively sensitive information that we can't sort of give you further information. But absolutely, we look at all the available opportunities as we try to lower our fuel costs. Okay. Am I allowed to follow-up here or? Absolutely. Please go ahead. With the entry of Chinese lessor companies in addition to the traditional lessors from North America and Japan, are you seeing more competitive rates for smaller planes like the 320, NIOs and CEOs that you have? I mean, is there a what I'm trying to ask is, is there a yield reduction in their expectations, which is leading to a better negotiating position for you guys? So rates of the lease rentals and the rates, there are a lot of different factors that go into play. What is the demand of that airplane on the market, how people value it and so on and so forth. So but having said that, absolutely, as more lessors come in, it gives us more choices. But the phenomenon you're talking about, about the Chinese lessors, that's been in place for a number of years now. So it's not a brand new phenomenon. It's certainly maybe 10 years ago, it wasn't the case, but more recently, it's been the case. So we've had that competitive dynamic in the marketplace for a while. Okay. Okay. Thank you. Thank you. We have the next question from the line of Sanjay Bimbalkar from LIC Mutual Fund. Please go ahead. Great. Thanks. Sir, I'm hearing media reports with respect to price corrections in the corporate jet market. In medium to long term, how does it impact us? Do we see it as a risk to our capacity addition or risk to our low cost advantage in medium to long term? Frankly, no. So you mean to say these are like joint disjoint markets as such, commercial and corporate debt markets? But if you just see the number of ASKs that corporate jets fly versus the billions of ASKs that commercial airplanes fly, I mean, it's yes, we do not see that impacting us. Okay. And may I have another follow-up that in if you strip out the impact of extra cost for this ATR launch ATR operation launches, can you give us some idea about what can be the profitability? We don't have we obviously have some cost that we're incurring in terms of launch preparation, but they're not material in the scheme of things. So we're not we won't be able to give you any further details, but that won't change the profitability significantly. Okay. Thank you. Thank you. We have the next question from the line of Sreedhar Tayaslambani from SPICAP. Please go ahead. Yes. Thanks for the opportunity. This is Santosh here from SPIC. So I had a question on the compensation bit again. Just want to check, will is the compensation which has been booked reflect reflective of only what has been pertinent to this quarter? It also reflects something of the past as well. I mean Q1 are probably some delays that we might have seen in terms of deliveries in FY 'seventeen as well. So Santosh, unfortunately, I'm not able to give you more details on the credits that we referred to. All I am able to say is that as we see less issues going forward, we will not expect to see these kind of credits continue. Sure. But if I were to look at the pieces where it has been booked, you said that it is part of the revenue as well as cost. So is that understanding correct that you have some bit of compensation being booked as a revenue line item and some bit of this credit which is going to offset some of the cost items. Is that a correct understanding? That is correct. That's what we said. There are credits in both the revenue line and the cost line. Understood. Can I have one bit on the GST, can I go ahead? Absolutely. Sure. So from what we could understand, there is a 5% levy on the lease interest that we pay. Is there an offset which is available because there was some confusion that it is available only for the ticketing on the business side of business class tickets, but not for the economy? And also this confusion around these levies on the maintenance part of it, where do we stand on that right now? Sure. So firstly, in terms of lease rentals, yes, there is GST applicable on lease land rentals, but and it is at 5%, but it is since the lease is a service, it's been clarified that those are all subject to offsets. So you can claim input credits against those lease rentals or the GST on the lease rentals. However, what is still not clarified and there is still an open issue is if you actually purchase an aircraft outright, if you don't, if it's not through a lease, there is potential for GST to be imposed on the import of the aircraft. That's the issue that is still being worked through with the government. So that's on the leasing side. On the maintenance side, what we talked about what I talked about earlier was we have had to pay INR 78 crore, INR 780,000,000 this quarter related to engine repairs. And so this relates to the when we send out an engine for repair to the engine provider and they repair the engine and send it back, There's a potential for a GST to be levied on this. We don't believe it is applicable, which is why we've paid it under protest. But that's the issue that again the industry is trying to work through and resolve with the government. That percentage that they're looking that they're levying right now is 18 percent on the repairs. All the other airlines in India are facing the same issue. Sure. So this 5% you said is also applicable on the so called maintenance reserves or the so called secondary lease rentals that we have to provide for? Or is it only on the base lease into that we? It is on all Alistair rentals. Okay. Thank you. Here's the next question from the line of Sonal Gupta from UBI. Please go ahead. All right. Thanks for taking my question again. So just in terms of I mean on so when by when do we expect this thing I mean like this thing on the GST to get have you got any indications around that? We are actively working I mean, the entire industry is actively working with the along with the Ministry of Civil Aviation, we had some meetings even with the Minister of Finance. So I don't have a timeline for it, but I can definitely tell you that it's very high on everybody's priority, including Induos. All right. And just secondly, on like this quarter, you've added mainly, I mean, if I look at the capacity additions we mainly on the international side. And so can you just talk about that? And is that just because you added these destinations this quarter? Or do we see more aggressive international expansion in the I mean capacity additions on the international aggressive expansion on the international side. The aggressive expansion on the international side. The way we look at it is that it's actually, frankly, the same product and the same airplane and the same flight attendants and the same seats, which is accidentally crossing an international border. For us, we just manage the network with a view to maximizing profitability and going to wherever people need to fly Indigo. Yes. And so just to add to that, as we get new planes, we look to deploy it in all aspects of our network, whether it's domestic or international. So there's no specific push to go in one direction or the other. Sure. And just if I could take one more question. Just on the in terms of the I mean the owned aircraft strategy now. So do we have any numbers for the rest of the year or by end of this year, how much are we looking to add? And secondly, in terms of your guidance, it seems to imply a pretty strong growth in Q4 because Q3 again is going to be pretty muted in terms of ASK growth. So I mean do we have any additional are we expecting new additional deliveries or have we tied up for more aircrafts on short term lease? Just if you could just talk about that. Sure. I think so firstly on the in terms of the capacity, you're right. The implied guidance of 19% for the full year means the 4th quarter will ramp up. And that's as a result of both us expecting to have in the 4th quarter availability of our neo fleet that we've not had full availability of the last couple of quarters, as well as some of the delays in deliveries that we are getting in by the Q4. So you'll see both that plus some leases that we've got from the used market. So combination of all those factors. Right. And on the ownership side? On the ownership side, we don't have a specific update. What we we've signaled that we will start to look at owning some aircraft going forward. We are looking at owning the ATR planes outright. So we'll start taking delivery of those at the first one comes in December. And but we fully intend to start buying planes. The IPP proceeds that we talked about, we expect to utilize primarily airplanes. Right. But this is still financial We'll We have the next question from the line of Abdul Kaderajah from Ratna Bali Capital Markets Private Limited. Please go ahead. Sir, can you hear me now? Yes, we can hear you. Please go ahead. Yes. Sir, I just wanted to know also Mumbai and Delhi are airports almost jokobrop. So like, sir, like how do you plan to use your increased capacity? So in terms of slots and all, it's with choco block. So like how do you plan to get your increased capacity in place, sir? This is Aditya. Yes, there are challenges in obtaining slots at major airports, especially during peak times. Having said that, we see huge opportunities in adding flights throughout the day in all of these large airports. And then there is all this unmet demand in non metro airports where we are currently flying to. And then there are another 36 A320 compliant airports that we haven't even begun to serve yet. And I'm not even talking about Ulan airports. So there is huge demand in India, which is something that we've always maintained every quarter, every year. We have the next question from the line of Vishal Rampurier from HDFC Securities. Please go ahead. Hello. So one question on the acquisition of your aircraft. So do you plan to do more CapEx beyond what free cash we have in our books? Yes. So I think so firstly, Vishal, I think we said we will utilize most of the primarily the IPP proceeds primarily to buy aircraft. We do have some excess free cash that we have on our books that we will look to use as well. But we have also signaled on the last earnings call that on an ongoing basis, we will use some of our free cash flow that we generate every year to buy at wins. So we'll do both. We'll use some of the free cash that we have today plus we'll use ongoing free cash flow as well. Okay. Thank you. Thank you. We have the next question from the line of Youssefika Paredes from Wedelweiss. Please go ahead. Thanks for taking my follow-up question. So I had a question on the up goj of A320neos to A321neos, which are planned from CY 2018, which you mentioned earlier on your call. So just wanted to know, do we have full flexibility to replace part of A320neos by larger A321 with 50 more seats? So the regulation, does it allow you the full flexibility? Because in constrained airports like Mumbai, it always makes sense to fly a larger aircraft in the same slot. Do we have full flexibility on the peak hour slots to basically replace it with the larger aircraft like A321neos rather than A320? So just wanted to know about the regulatory angle on this. Thank you. There is no constraint on us being able to change the equipment on those slots. Relating to your question on the flexibility under our acquisition contract, with some notice period, we have the ability to tell Airbus on any particular delivery slot to give us an A320 or an A321 or for that matter, an A319. They're all the A320 family. So with an appropriate notice period, we can get any of those aircraft. So we'll get our first A321neos from October next year, so about 12 months from now. And then we'll get a bunch of them in one after the other. So yes, so basically, what I want to do is on peak slots, when we have significant From a slot point of view, there is absolutely no restriction or constraint on us being able to put A321neos in all ATRs, whatever we want on in those slots. But maybe we can improve the mix during peak hours through these A321? Sure. Sure. Sure. Okay. Okay. Thank you. We have the next question from the line of Kunal Lakhhan from AXIS Capital. Any update on So it's a long complicated discussion. And in a nutshell, it is simply this. While we are supportive of any expansion, any development of airport infrastructure, we do not want our operations to be split up. And therefore, we have given several options or solutions to the Delhi International Airport and other airlines and the ministry, where we just want to be in one terminal rather than splitting up our operations because it will be extremely painful for our customers. Imagine what's going to happen to customers who are trying to take connecting flight or if there is aircraft that is suddenly grounded, how to switch airplanes. So it just leads to a whole bunch of complications. So at the moment, we are absolutely making representations and discussions with the government and staying in any one terminal. Okay. Well, I believe there is a deadline set by DGCA, I guess, to No, there's no deadline set by DGCA. In fact, DGCA is not involved. And if at all, DGCA would actually want to act in the interest of customers. There is a date that Delhi International Airport had given in the middle of October. When we represented against it, they moved that date. Now the date is somewhere on the 4th January, which is in the middle of the fall period, and we've again represented against it. So we are absolutely going to fight for the interest of the customer. Sure. Great. Secondly, what will be the CapEx in terms of rupees outlined over the next 2 to 3 years, year wise, if you can share? CapEx in terms of airplanes or it's CapEx? Airplanes, yes, yes. Airplanes. We don't give specific CapEx guidance in terms of airplanes. I think we've talked about an overall fleet addition, which talking about a compound annual growth rate of 20% a year for the next 3 years. And so you can imagine our fleet would drop will increase roughly in that proportion. But beyond that, we haven't given additional guidance. Okay. But besides the ATR planes, we would be in CapEx So any color on that? Like, say, out of 20% capacity addition, maybe like half of that would be basically ownership based. So we need to build that CapEx in. Any color on that? We aren't able to give you further color on what I said earlier is that we will use we will expect to use the IPO, IPP proceeds that we got plus some of our free cash flow to buy aircraft. And then on an ongoing basis, depending on the free cash flow generation in the year, we will apply some of that free cash flow generation towards purchase of aircraft. Thank you. The next question from the line of Chitrangda Kapoor from Samiksha Capital. Please go ahead. Hello. Hi, thank you for taking my questions. Two quick questions. One is, is it possible to give a like to like comparison of headline financials reported for this quarter with same quarter last year? And the second question is, as per your current sale and leaseback kind of a leaseback kind of a model, one of the advantages that you have always enjoyed is the deep discounts that you have received on giving bulk orders of the aircraft from Airbus. Is a similar strategy also playing out when you are shifting from leaseback model to outright purchase model for ATS? Because previously in the call, you mentioned that you will be starting to purchase ATR outright. So yes, that's it. Thank you. So firstly, on the headline financial numbers, I think I went through in pretty detail in the prepared remarks the comparisons versus the last quarter versus the same period last year. And in our press release, we actually have a table which compares it the table of all the key metrics comparing it to the same period last year. So hopefully that should answer your question. In terms of the sale leaseback question, not sure I fully understood the question, but really from our perspective, we see an opportunity and we to to lower our expenses by doing by owning aircraft versus doing a sale and leaseback. And so as we have free cash flow, we will look to deploy some of that to own aircraft rather than do a sale leaseback, and that's what we said we'll do. Okay. Thank you. Thank you. We have the next question from the line of Chintan Gupta from Way2 Wealth. Please go ahead. Hi, sir. Thanks for the opportunity. Are we planning to take debt to fund our ATR fleet or will it be out of the IPP proceeds and the free cash flows which we have? At this point in time, we don't intend to take on new debt to finance aircraft. So we would utilize our free cash flow to buy our free cash rather to buy the ATRs. Okay. And so one more question. In the event we are able to successfully bid for Air India, in what proportion of debt and equity are we planning to fund the cost? It's too premature to comment on that. I mean, it's a long way before we even know what the process is. Okay, sir. Okay. Thanks for the opportunity. That's it for me. Thank you. Thank you. We have the next question from the line of Prashant Kotari from Pick N Pay. Please go ahead. Yes. And also just a follow-up question on this GST impact. You're saying even on even if they are kind of buying aircraft that will be GST, would be 18% or 28% and whatever it is, would it affect our buy versus lease kind of decision? Prashant, so firstly, yes, the rate for the import of aircraft is 5%, not 18% or 28%. And so yes, that does get factored into the buy versus lease analysis. And as we are also talking about, we are working with the rest of the industry on representative to the government that this is that this doesn't make sense. So but we are factoring that into our calculations. It would still be okay for us to buy even if there is a 5% GST? Answer to that is yes. Okay. Okay. And we are still looking to buy the ATR aircrafts, right? That is correct. That is correct. How many of them over what period? Well, we have 21 aircraft coming in between December of 2017 January of 2019. So over that period, we have those ATRs coming in. So we would expect to buy the majority of them. We haven't because we won't confirm that we'll buy all of them, but we will expect to buy a significant portion of them with cash. Okay, all right. Thank you. Thank you. Follow-up question from the line of Pulkit Singhal from Autoladossal Asset Management. Please go ahead. Yes. Hi. My question is again relating to the 8.9% increase in yields and the 2 aspects to this. 1 is company specific aspects, which are your efforts and the other is industry specific aspects, which means competition, etcetera. So on the second part, industry specific aspect, are you seeing in general over the last four quarters a better pricing environment? So Pulkit, so just on the previous quarter, I think you saw a little better pricing in overall in the industry with respect to prices in the sort of the within the last week of travel hold up better than it had been previously. But clearly, we made a lot of improvements in how we manage our yield as well. So it's a combination of both factors. Right. And on the company specific aspects, again, there are 2 things. I think last year in Q2 is when you decided to match the fares. And this particular revenue management, has it come in this quarter itself? We started to put it in place, the teams and processes in place in Q4 of last year. So that's why when we talked about Q1 last Q1, we saw that was that was where we saw the significant year over year benefits. So you see that continue in Q2. Okay. So it would continue until 3Q, but not in 4Q then, Yes. You'll see some of that start to taper off. Just I'm not commenting about yields forward looking. I'm just commenting about our base from last year. So some of that, it would have started to improve even in the Q3 and a little bit more in the Q4. But really Q1 was when we were sort of had most of it in place. But that's pretty much all I can share on that. Perfect. Thank you. Thank you. We have the next question from the line of Souda from JPMorgan. Please go ahead. Sir, just following up on this yield management. So what exactly are we doing here? Are we like booking less percentage of the aircraft 1 month, 2 month out? Or can you just give a color of what is I mean, what do you mean when do you say the yield management exercise? And second is, generally, we have seen the load factors increase. So would it be fair to say that Q2 anyway saw in general a yield increase across the industry? So on the last question, I think you'll have to wait till you see the other carriers announce their results because we don't have insight into their books as well. So that we'll have to wait to see the others results. In terms of your question on the yield management, I mean, it's a whole bunch of things. So it's not like you book less or you book more or you sell more seats or less at different price points, but it's a whole bunch of things. It is a better automated system, better people, more analytics. And so clearly, I mean, there is a lot of hard work that goes behind this. It's just something that when you get to the scale that we're at right now with the number of aircraft, number of flights, number of connecting sort of opportunities that you have, you start to get exponentially more complicated and manual processes, which work really well up to a certain point, start to break down. And that's where you need to put into effect more systematic tools, demand forecasting by flight and changing inventory buckets, sort of real time based on how the demand forecasting or demand forecast is going. And these are all tools and systems that Global Airlines are adopting for many, many years. So it's not something that we're inventing. We're just trying to adopt that those best practices because at this scale for us it matters a lot. Okay. It's good to see Indigo actually taking a lead on this. Secondly, on your free cash flow. So we have about INR75 100 crores free cash on the book, plus we will be generating through our operations through the year. But would you say that your dividend at least I'm just trying to figure out how much cash you have for acquisitions. So would you say that your dividend payout and absolute level will remain the same? Or do you think you will look to drop that level as well? I think on the last call, we clearly signaled that as our Board firstly, our Board will look at the dividend question on an annual basis at the end of the fiscal year. And in determining the annual dividend, our Board looks at the profit for the year, the cash needs to run the business and the prudent amount of cash that the company should maintain. That is sort of always the case. But going but now the use of cash to purchase aircraft will also be factored in as one of the cash needs to run the business. And so that will be factored in. Beyond that, I can't give you more specific guidance. All I can tell you is our Board will be primarily focused on making decisions that create long term shareholder value. Thank you. We have the next question from the line of Santosh Shiradisai from SPICAP. Please go ahead. Thanks again for the opportunity, sir. So my question is more to do with the regional bit. While it will be too small in the overall scheme to begin with, but I just want to understand how does the cost structure actually change when we shift from so called conventional or the one fleet strategy of A320s to this mix? So what does it mean for the cost structure? And how should one look at it? So if you look, yes, first of all, yes, the overall the OPA of operations will be a very small percentage of our overall ASKs, right? Now and but now going on to costs, on a CASK basis, while the A320s would have a lower CASK compared to ATRs because just the sheer high number of seats on a 320, The ATRs will, on the other hand, allow us to cost effectively tap into those markets where flying 180 seater jet will may not be just physically possible because the runway is not there or it's not commercially viable. So the CASK in itself is not the decision criteria since we also have to look at what is happening on the RASK side. And ultimately, the spread between RASK and CASK is what determines the feasibility of the operation, and we feel very confident that our turboprop operations will be very profitable. And if I can just add, when you look at sort of the CASK of the 2 different fleets, they're serving 2 they will serve 2 different markets. And so if you were flying in one market with a combination of both, then your average cost of that particular market will be affected by the mix of fleet that you serve. But if you fly it on different markets, as long as you have the right cost structure and the best cost structure for that particular market, that's what we focus on. And so that's how we look at it. Sure. And so would you be kind of evaluating the gudan under the 2nd phase? Yes. I mean, we are obviously looking at the Udan bids that I mean, the current process that is out there. Now it's too early for me to and obviously competitively sensitive for me to express exactly what we are going to bid for and to what extent. But yes, absolutely, we're looking at it seriously. But having said that, our ATR operations have nothing to do with the Quran scheme in itself. The Uran scheme is one of those opportunities that will be available for turboprops. Thank you. We have the next question from the line of Khosla Bovna from SKS Capital and Research. Please go ahead. Yes. Hi. What is the increase in ATF you're expecting for the coming quarter compared to last quarter and the year before? So I'm sorry, we will not be able to give forward looking guidance on ETF or any metric for that matter. Quite honestly, even if we have best experts come up with a forecast of fuel prices, I can guarantee one thing that they'll be wrong. So we try to manage the business and the things that we can control and that's pretty much all we can do. Okay. And so could you somehow, I mean, to the best of your ability or if you can quantify the scale of the ADR business, let's say, 3 years down the line compared to your overall business? Yes. It's in the range of 5% of our overall capacity. You're saying that's 3 years down the line? No. We're saying it's more in the next couple of years, but I mean, it also depends on how many beyond that, it depends on how many 320s we get and how many more ATRs we get. Okay. And your intention on Air India, which shows that you want to expand your international fleet of presence. So I mean, let's say we don't get that in India, but what's our plan? Do we have a plan long term to expand internationally? Because I mean, Air India would give us access to like routes going to America and stuff. So I mean, what's our plan if we don't get there in India a bit? The answer to that is yes. We are interested in long haul operations. Air India's international operation certainly gives us a jump start because of the slots and route authorities that come with that. If that doesn't work, then we have a much more slower and long process of building our long haul operations. Thank you. A follow-up question from the line of Anshooman Dev from ICICI Securities. Please go ahead. Yes. Thanks for the opportunity, sir. So we had two questions. One is regarding the ATR operations. So would we have a new management team or a new set of resources for that operation? That's 1. And second, with crude at levels of 60 right now, are we looking into any active hedging policy going ahead? Thank you. So I'll this is Aditya. I'll take the ATR question. No, I mean, we are actually less than 6 weeks away from launching operation in the same management team. Of course, we'll have a dedicated crew and pilots for that operation and dedicated teams of, let's say, network planning or crew scheduling, but the rest of the synergy is drawn from the mainline operations. And on the hedging policy, sir? Yes. On our hedging policy, as we've said before, we don't believe in hedging fuel. Again, we think that ultimately is a speculative activity. So again, we manage the things that we can control and we don't hedge fuel. Thank you. Thank you. We have the next question from the line of Mitten Nati from HDFC Securities. HDFC Mutual Fund. Please go ahead. Yes. Good evening, sir. Does the compensation received reflect actual costs incurred? Or does it reflect profit forgone for the company? It reflects both items. And the basis of allocation of that compensation between revenue and cost items would be the potential impact that would have had if the aircraft would have come in on those respective line items? Is that sort of broadly what it looks like to us? I mean, is that how it has gone? I can't provide any further clarity. I'm sorry for confidentiality reasons, but I think I've given you some broad guidelines in terms of what how it occurs. Fair. Thanks a lot. Thank you. Thank you. 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 all for joining us on this call. Look forward to speaking to you again next quarter. Thank you very much. Ladies and gentlemen, with that, we conclude today's conference.