Earnings Call: Q1 2018

Jul 31, 2017

Ladies and gentlemen, good evening, and welcome to the Indigo's conference call to discuss the First Quarter Financial Results for Fiscal Year 2018. My name is Zed, and I'll be the moderator for this conference call. As a reminder, all participant lines will be in the 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 hand the conference over to Mr. Ankur Goyal, Associate Vice President of Treasury and Investor Relations for Indigo. Thank you, and over to you, sir. Good evening, everyone, and thank you for joining us for the Q1 fiscal 2018 earnings call. I have with me our President and Hotel Director, Abhikya Ghosh and our Chief Financial Officer, Rohit Phillip. Before we begin, please note that today's discussion may contain some 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 subsequent. 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. However, the transcript of the question of the Q and A session will be uploaded in a week's time. With this, let me hand over the call to Aditya Ghosh. Good evening, everyone, and thank you for joining us on the call. Our comments today will be somewhat longer than our past calls since there's a lot to discuss and a lot that we would like to update you on. However, we expect to complete the call, including the question and answer session, within 1 hour. We announced our Q1 fiscal 2018 financial results today. We have reported our largest ever quarterly profit this quarter with a profit after tax of INR 8,100,000,000, an increase of 37.1% compared to the same period last year. Our after tax profit margin for the quarter was 14.1%. We added 4 aircraft during the quarter, of which 3 were A320neos, taking our total fleet count to 135 and our A320neo fleet count to 22. On the operational front, for the quarter, we were ranked number 1 in on time performance and our technical dispatch reliability was 99.85% and flight cancellation rate was 1.2%. Now let me address the operational reliability issues around the A320neos. As you may recall, we had mentioned in a prior call that we were experiencing operational issues with the NIO engines related to the premature degradation of the combustion chamber lining and the premature wear of the number 3 bearing seal. As a result, we continue to have a high number of engine removals and sufficient spare engines have not been available. Regrettably, there have been days when we have had to ground as many as 9 A320neos due to lack of spare engines. While we do receive certain compensation from Pratt and Whitney for these groundings, the operational disruptions are quite challenging, and we are not happy with that situation. Based on what we know today, it may be another year or so before the design changes are implemented by Kraken Whitney, which should allow these engines to have the ongoing flight hours that we expect from them. Pratt and Whitney is a good partner, and we have tremendous respect for their leadership team and have impressed upon them that they need to focus on increasing the number of spare engines that are available in the system. And under the assumption that we receive sufficient number of spares, we hope to see significantly reduced operational disruptions within the next few months. Now a brief update on our planned turboprop operations. During our last call, we announced our order of up to 50 ATR-seventy two-six hundred aircraft. Documentation work with the aircraft and engine manufacturers continues towards finalization of the purchase agreements. And currently, our plan is to launch commercial operations by the end of this calendar year. Earlier this month, on July 6, our founders, Mr. Bhati and Mr. Gangwal, had an analyst call and shared their views on the potential that exists in long haul international flying in India. And in that context, our specific interest in acquiring the international operations of Air India. We will wait to see how the government would like to undertake the divestment of Air India. Until such time that there is clarity available, it does not help to speculate on different scenarios. Also, on this call, I will not repeat all the details of that call, but would like to emphasize the following points. One, we believe that there is significant opportunity that exists in long haul international travel out of India. Today, a large number of people arrive or depart India on connecting international flights due to the lack of non stop flights into and out of India, and offering flights at lower fares would be an attractive value proposition for customers. 2, Indigo is uniquely placed to capitalize on this opportunity as over the last 10 years, Indigo has established a significant domestic presence and now has a little over 40% of the domestic market share. In doing so, we have also been able to build meaningful operations at all large metropolitan cities of India. We will not be attempting to enter this long haul international space, but for the fact that we have this large domestic feed network. Number 3, we recognize that this will present new challenges and complexities, but we believe that the overall opportunity is very compelling, and we will only go down this path if the business case is EPS accretive and creates shareholder value. 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 June 2017, we reported a profit after tax of INR 8,100,000,000 with an after tax profit margin of 14.1 percent compared to a profit after tax of INR5.9 billion with an after tax profit margin of 12.9 percent during the same period last year. Our profit after tax in the quarter was 37.1% higher than last year. As Aditya mentioned, this is our best ever quarterly profit. We reported an EBITDA of INR 19,600,000,000 with an EBITDA margin of 34.1 percent compared to an EBITDA of INR 15,500,000,000 with an EBITDA margin of 33.9% during the same period last year. Our total capacity for the June quarter was 15,100,000,000 ASKs, an increase of 18.7% compared to the same period last year. This is lower than our previously guided number of 22% due to the grounding of some of our A320neos that Aditya talked about earlier and the delay in some new deliveries. Our revenue from operations in the June quarter was INR 57,500,000,000, an increase of 25.6 percent over the same period last year. Our other income was INR 2,000,000,000 for the quarter. Our RASK for the quarter was INR 3.82, an increase of 5.5% from INR 3.62 during the same quarter last year. This increase in RASK was driven by both an increase in our load factors and yields. Our load factors were up by 4.7 points to 88% and our yields were up by 2% to INR 3.83. The year over year RAS growth that we have seen this quarter is a much better performance than what we have seen over the past few quarters. It is important that I point out that in the June quarter of last year, we did not execute optimally on our RASK performance. We placed a bit too much emphasis on yields and we were not matching competitors' fares. Consequently, we saw a decline in load factors and our RASK performance for the same quarter last year was adversely impacted. Now we have seen a year over year RASK improvement of 5.5% for the quarter in spite of capacity being up 18.7%. My point here is that this quarter's superior RASK performance does not necessarily portend the RASP performance for future quarters. Our cost performance continues to be good. CASK excluding fuel was lower by 2.5 percent from INR 1.96 in the prior quarter to INR 1.91 in the current quarter. We reported a total CASK of INR 3.08 for the quarter compared to INR 3.04 last year. Our total cash was higher by 1.3% in spite of a 15.8% increase in fuel prices. In all our prior conference calls, we have not articulated the implications and pressures on RASK and CASK as a result of adding capacity at such a torrid rate. At Indigo, for the past 5 years, our ASK or capacity has grown at a compound annual growth rate of 24.8% or almost 25%. And for the same period, our RPK or traffic has grown at a compound annual growth rate of over 26%. Let me try and attempt to claim the implications of growing an airline at 25% every year. When an airline grows its capacity at such a high rate, it tends to depress the RASP that it's able to generate every quarter due to the simple fact that new flights that were added during the quarter have yet to mature. This 25% capacity that was added during the quarter takes about 6 or more months before it established itself and takes hold in the market. During that time, its RAS generation is suboptimal. In other words, while the RAS new flights that were added during the same quarter last year have started to reach steady state maturity, the new flights that were added in the current quarter tend to be a drag on the system RASK. There is also another penalty associated with such rapid growth. There are significant costs that we incurred due to our target growth rate of 25%. We incurred material costs well before capacity additions have taken place. Costs such as hiring and training of pilots, flight attendants, maintenance staff, ground staff, the opening of stations, etcetera. This also creates a drag on our true steady state cost structure. So this rapid annual growth rate of 25% at Indigo tends to squeeze us both on the revenue side and the cost side. Our point is that while we're somewhat satisfied with our overall profitability during the store it growth phase, our true underlying profitability potential is suppressed due to this penalty on RASK and CASK. In years from now, the started growth rate will one day naturally slow down and that is one when we believe that we will see a margin expansion due to improvements in our RASK, CASK and profitability. But just so that there is no confusion and you do not misread my comments, we are in no ways attempting to signal that we will be slowing down our growth rate in the near future. In fact, based on our current plans, market conditions and aircraft deliveries, we expect to keep growing at a compound annual growth rate of about 20% through fiscal 2020. Another element that is impacting our profitability is the delay in A320neo deliveries. A320neos have not been delivered as per the plan with Airbus. By now, we should have had 36neos whereas we have currently 22neos. To make up for the shortfall, we've had to go to the aircraft leasing market and enter into short term leases of used A320s, some of them with GE engines and some of them with IAE engines. These short term leases have an average duration of 3 years. However, they come at a higher operating cost for us due to higher maintenance costs because they are somewhat older aircraft and higher fuel burn relative to the news. These higher costs are somewhat offset by lower lease rents because these are older aircraft. However, net net, the total cost to us of operating these used aircraft is higher than what we would have incurred relative to operating the A320neos. The only silver lining is that most of these used aircraft will be gone from our fleet within 3 years. Now moving to our balance sheet. We had total debt of INR 25,200,000,000 at the end of the quarter. Our cash balance at the end of the quarter was INR 101,800,000,000 comprising of INR 51,800,000,000 of free cash and INR 50,000,000,000 of restricted cash. I would now like to discuss the sale and leaseback model that we've historically been using to finance our aircraft. As Mr. Gangwal had mentioned during our analyst call on July 6, going forward, we anticipate reducing our use of short term sale and leaseback model and gradually begin the process of owning aircraft with internal funds and maybe some debt. Quite a few folks have not understood the pros and cons of the sale and leaseback model that we've deployed to date and maybe because we have not elaborated on this issue. In fact, some of our competitors claim that our superior profitability is driven by the fact that we generate some of our profitability from being able to sell the aircraft at a price higher than what we purchased the aircraft for when we do a sale and leaseback. This is simply not correct. Very simplistically and at a high level, the primary purpose of the short term sale 6 year sale and leaseback model that we had adopted was to be able to move the aircraft out of our fleet once new technology aircraft came into the market. The short term 6 year CRM leaseback models were expensive since lessors demanded a high lease rate because we were ending the lease in 6 years. Now that we have the A320neo, which delivers a 15% lower fuel burn and have a much lower risk of technological obsolescence, we may choose to operate these aircraft for a longer period than the 6 year period that we have historically used. Over the longer term, owning an aircraft tends to have a lower overall ownership cost than these planes. Hence, the shift in our fleet acquisition strategy will allow us to reduce our operating costs, which will result in higher profitability. Also in the longer term, our ongoing cash flow from operations will become stronger as a result of the depreciation tax shield that we get from owned aircraft. As we continue to evaluate the sale and leaseback model versus owning aircraft, we're also factoring in the implications of the newest new GST rules that went into effect earlier this month. To put into perspective our lease versus buy thinking, let me point out that many great airlines like Southwest, Ryanair, etcetera, have a large number of owned aircraft and it has helped these aircraft helped these carriers build a strong balance sheet. As we embark on this journey of optimizing aircraft ownership costs, we will use some of our cash to purchase aircraft. So far, in determining the annual dividend, our Board has looked at profits for the year, the cash needs to run the business and the prudent amount of cash that the company should maintain. Now going forward, this use of cash to purchase aircraft will also be factored. The primary focus will always be to create long term shareholder value. Now switching topics, we became a publicly listed company on 10th November 2015 and we are required by law to have a minimum public shareholding of at least 25% within the 3 year period post listing. We plan to seek approval of our shareholders to comply with this requirement in the upcoming Annual General Meeting, which is expected in the last week of August. Also, the Board of Directors of Indigo had recommended a dividend of INDiGO 34 per share for fiscal 2017. This will also be placed for approval in this Annual General Meeting and subject to us receiving that approval, the dividend will be paid shortly after that. Before I close my remarks, let me give you our latest capacity guidance. We're expecting a capacity increase in terms of ASKs of 15% for the Q2 20% for the full year of fiscal 2018, which is lower than the guidance we've given earlier. The reduction in our capacity guidance is primarily because of the grounding that we're currently experiencing on our neos as well as the delays in neos deliveries during the year. That said, we expect that over the 3 year term from fiscal 2018 to fiscal 2020, our capacity will grow at a compound annual growth rate of about 20%. 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 if needed. And with that, we are ready for the Q and A. Thank you very much, Mr. Goyal. Ladies and gentlemen, we will now begin with the question and answer session. The first question is from the line of Arvind Sharma from Citi. Please go ahead. Good evening, sir. Thanks for taking my question. Since you have reduced the ASK guidance, is there a change in our fleet guidance as well? Because remember, we were expecting 170 free by the end of FY 'eighteen. So is there a change to that as well? Hi, Aravind, it's Rohit. Yes, there will be a lower number than the 170. We're moving away from giving specific fleet count guidance and focusing more on the ASK guidance. So we're not going to give an updated number versus the 170,000,000. It will be lower than the 170,000,000, but we want to really focus on the ASK guidance. Just one question, if I may, just squeeze in. Incrementally, what are going to be the margin reverse? And how do you see the yields trending? Because we've seen very strong yields in 1Q. How do you see the yields trending over the next 9 months of the year? So Arvind, as you know, as a practice, we will not be giving guidance on forward looking yields. Okay. Thanks for that. Thanks for clarifications. Thank you. The next question is from the line of Vinay Singh from Morgan Stanley. Please go ahead. Hi, team. Congratulations for a good set of numbers. Just a follow-up, so does your capacity guidance include the APRs that you're adding? Hi, Vinay. It's Rohit. Yes, it does. The ATRs, as we've said previously, we expected to get to start operations in December and have 7 aircraft operating by the end of March. So the ASK number will be pretty small, but yes, it is included. And that ATR ramp up is irrespective of Phase II of the regional connectivity scheme, whether you get a bid in that or not? This is irrespective of that, right? Hi, Vinay. This is Aditya. That is correct. Okay. Then my sort of last question. Could you share with us if there was any one off in any of the line items like any M2M gains or anything of that sort? The mark to market for foreign exchange was a very small amount. There was a INR 6 crore, INR 65,000,000 gain. Okay. So apart from that, in none of the line items, we have any because our lease rentals per ASKM have gone down this quarter. So I was just curious to know what happened over there? There's no further sort of information that we can give you on that. Great, great. I'll come back in the queue. Thanks. Thank you. The next question is from Saurabh Kumar from JPMorgan. Please go ahead. Hi, Saurabh. Good evening. Sorry, is it possible to quantify what will be the savings you will get on a per aircraft basis on owned versus leased? So can we take like 5% as a good rate to assume if you owned an aircraft versus when you lease it? So we're not going to be able to give you specific numbers at this point. I think directionally, there are savings associated with owning versus leasing. But you see carriers over the across the world use a combination of owned and leased. But definitely, we see some opportunities for savings. I'm not going to be able to quantify it specifically on this call. And okay. So what will your average depreciation rate for your aircraft, including the components Yes. It obviously depends on the different components. So there's a different rate for the aircraft and different components. It's all laid out in our accounting policy. No, I'm just trying to get what would be like an average number versus the cost? You think your annual report is still not out, sir? It will be out tomorrow. So we can point you to the right numbers rather than go through all the different line items. Okay. And my second question is essentially on your fuel cost. Your fuel cost is up by 16% year on year, but your per ASKAM cost is up by just 8%. So that balance is because of the differential is coming because of the NIO or? Yes. So that's a very good question actually. We've taken a number of steps to reduce our fuel cost. So firstly, we have introduced more neos that are flying, as you pointed out, which have a 15% less fuel burn. And now you're starting to see the effect of that in our fuel numbers. So some of the fact that we have our fuel cost per ASK has gone up at a lower rate than the fuel prices is because of that. Secondly, we continue to see some opportunities on prices at many stations that are multiple suppliers and there are there is an ability for us to do some price competition. We also look at importing some fuel that there are cost savings there. So between all these factors, yes, we have been able to bring some savings on the fuel cost line. Okay. Thank you. I have some follow-up, but I'll join later. Thank you very much and all the best. Thank you. Thank you. The next question is from the line of Prashant Kotari from Pictep. Please go ahead. Could be, if you can Mr. Kotari, maybe request you to speak up a bit loud as your voice is a bit feeble. Yes. Hi. This question is again around the thought of kind of having more owned aircraft rather than on sale and leaseback. Do you have any more details to share in terms of how many such aircrafts you want to have, by what time? And do you have any thoughts on dividends as to how much they could get cut down by? Hi, Prashant, it's Rohit. We don't have anything more on that than what we said earlier. I think we expect to directionally start going down the path of owning more aircraft. So we're not going to suddenly switch from 100% leased to 100% owned. We're going to do a mix as we go forward. We're going to evaluate the opportunities as we go forward. We also have an issue, I think I mentioned that we will take into account the implications of the new GST law. There are some implications the way the law is currently written that has a little bit of a penalty on owning aircraft. We'll have to sort of see how that plays out and what clarifications we get on that. So there are a lot of factors that we have to take into account as we make the decision. As far as the dividends are concerned, I think as we've always mentioned, our dividend policy is sort of done on an annual basis based on the situation at the time that our Board looks at all these factors. And at the time when the annual dividend is looked at, the Board will make a decision on how much cash we want to put into aircraft acquisition. So that's something that will develop over time and we'll obviously keep you updated. And is this something that you can kind of start doing for the deliveries which we'll receive in the next few months, few quarters? Or is it something which will happen only in like 1 or 2 years later? It could happen sooner, as I said, subject to us sort of getting an understanding of the GST implications and other factors, but it could happen. It certainly doesn't have to wait another year or so for it to happen. Okay. Thank you. Thank you. The next question is from Sonal Gupta from UBS Securities. Please go ahead. Hi. Just on the I mean, in the conference call that was done, there was also that irrespective of Air India, you will also continue to your own low cost international expansion strategy. So any more details or updates on that? Hi, this is Aditya. Yes, I mean, that's correct. As our founders had highlighted on the call earlier this month, we are looking at long haul international flying as a great very and a very compelling potential opportunity ahead of us. And that will be with or without Air India. But anything more is it's just too early for us to provide any more information on that. I think, Rohit, I think if as you as we as our founders said on the call, if it's without Air India, certainly the process will take longer. It's not easy to get the slots. It will be a much slower process, but we but there's no change in our thinking in terms of it's something that we'd like to do with or without Air India. Okay. And just a clarification on the I mean, you said you're receiving some compensation from Pratt and Whitney. So where would that show up? Will that show up in the revenue line item? Or is it gets adjusted in other expenses? Where does that really go? I think while we said we do receive certain compensation from Pratt and Whitney, the nature of the compensation and the arrangements are confidential. And so we will not be able to shed any further light on it. Okay, okay. Thank you. Thank you. Next question is from Anjumand Dev from ICICI Securities. Please go ahead. Yes, hi, thanks for the opportunity. Regarding this ASK distribution, we are right now applying around 13% of our ASK in international segment. So what is the target international share for FY 2018? So Anshooman, we don't have a target share per se for our short haul international operation. The international the A320 international operation is just a function of whatever markets we see are viable markets. So we manage our overall A320 operation by looking at where we see the good opportunities, where we see markets, market opportunities and we deploy capacity accordingly. We definitely don't have any target mix. It's just an outcome of our route network deployment strategy that ends up at the current rate of 13%. Right. So, Azim, I wanted to understand whether the entire process of optimization and increasing it from like 9% to 13%, has that been an effect in our higher yield performance better yield performance that we've seen in the quarter? No. We don't attribute anything to do with the international to the higher yields. It's entirely due to, as I mentioned on the call, the revenue management optimization that we believe we've executed much better and that we executed sub optimally previously. Right. And one more last question is like could you I didn't find the incentive number this quarter. So would you be able to share it? We are you'll notice that there are a couple of changes in the way our accounts are prepared as we sort of looked at the format of what the right disclosure is for our quarterly report. So we stopped presenting the segments as domestic and international segments because we as I just explained, it's not really relevant, it's just one operation. We've also dropped the footnote on the deferred incentives because we believe the aircraft and engine rentals line item represents the true cost structure of our leases. So we're not reporting that on our quarterly financials anymore. Okay. Thanks a lot. Thank you. Thank you. The next question is from Pulkit Singhal from Motilal Oswal Asset Management. Please go ahead. Yes. Hi. Thanks for taking my question and congrats on the great set of numbers. Thanks, Puket. Just we were actually as shareholders, we were always attracted to the Indigo specific model of having 0 CapEx. And to that extent, the return on capital seemed to be very high. Now I just wanted to try to understand, I mean, there seems to be a very clear departure towards ownership of aircraft, which possibly could be profit accretive in the interest rate rising scenario. But from a return on capital perspective, it doesn't probably make much of sense to us. So could you help us understand what was the reason for the departure from your philosophy of not owning aircraft? Yes, sure. I think, so Pulkit, firstly, it's important to understand that we're not changing our strategy on the dimensions that you talked about. Our strategy on leasing aircraft was primarily because of the obsolescence risk, the technological obsolescence risk that we saw with the A320 CEO when we knew that there was a new generation technology airplane coming around the corner. That happened to be the A320neo. In the case of Boeing, the 737 MAX. Now that there's new technology airplanes out there, it's going to take many, many years before the next generation comes out. And so our view on the short term sale and leaseback model was because it was we wanted to protect against the technological obsolescence risk. Now with the A320neo, we don't see that. And so that's the primary reason for us talking about owning aircraft in the future. Now when you talk about owning an aircraft or operating an aircraft over a longer period of time, you'll see this amongst airlines around the world. You tend to find that owning an aircraft over a longer period is more cost effective than leasing an aircraft. So that's why we think it's profit accretive. But even when you talk about return on capital, it depends on what you're putting as the denominator on capital. So the denominator on capital, if you just put a balance sheet debt, most analysts and investors who look at airlines look at the capitalized value of lease debt. So it's just a so that denominator would not really be very different. You'd have instead of capitalized value of operating leases, you have actual on balance sheet debt associated with leases. So we don't believe that is a change at all. And that's why you see a lot of people around the world do it. And so as I said, our primary reason is about the technological option has this risk. And you don't see a new technology coming, say, in the next 10 years? I mean, basically, you've taken that view that, that risk does not exist going forward? That's correct. That's correct. Okay. And for the dividend aspect, because I mean, our understanding was okay, as long as the company is making a lot of profits and therefore the dividends will keep flowing. Now with money being utilized for buying aircraft, would there be a scenario where you could say, okay, hey, we made profits, but sorry, we can't give dividends this year because we're using the cash for purchasing balance sheet for purchasing aircraft? So Puket, we in earlier on the call, I talked about that being one of the factors that the Board will take into account in terms of potential uses of cash. It will all be done with the aim of what we believe will create long term shareholder value. So if we believe that using cash to purchase aircraft will create long term shareholder value, that's when we make a decision on that trade off. So we'll make that with that lens. But beyond that, I can't really speculate any further. The next question is from the line of Amy Truesdale from Jupiter Asset Management. Please go ahead. Hi there. Thanks for taking my question. I just have a brief follow-up on the sort of compensation from manufacturers for delayed aircraft deliveries and engine problems. I know that I appreciate that you can't sort of give any numbers or anything, but I'm just more wondering about the accounting policy. How do you kind of account for those receipts? I think as sorry, Amy, as I said earlier, we are not going to be in a position to disclose the confidential nature of the arrangements we have in Kraken with me. Obviously, accounting policy will depend on the specific type of transaction that occurs. And depending on a particular type of transaction, it will follow a different accounting treatment. And so giving accounting treatment won't shed light on it unless I walk through the actual transaction that we have between us and Pat and Whitney, which we're not in a position to do. Sure. Is it possible to kind of give a sort of general example of how it might work? I'm sorry, it's not possible. Okay, thanks. Thank you. Thank you. The next question is from the line of Suraj Chirra from IISL. Please go ahead. Hi, this is Joseph from IISL. I had a couple of questions. One was, you mentioned that the 2% year on year improvement in yield is also a result of you having given out low affairs compared to competition in June quarter of last year. And you also indicated that this might not indicate a trend going ahead. But what I wanted to check with you was how long did you continue with that discounted fare, if I can call it that, last year? Was it just for 1 quarter? Or did it extend all the way to the festive season? So I think let me just step back and explain again what we said. Really at the in the if you go back to the June quarter last year, we did not form optimally. We were not matching up competitors' fares. And as a result, we left money on the table. On the June quarter call that we had last year, we signaled that we're going to change that going forward. And since then, we've been very consistently making sure that we're not undercut in the marketplace. So we're being competitive price competitive in the marketplace. There will always be periods of time where someone has a lower fare than you because you've already sold out all your low fare buckets in a particular flight. So just by looking at a particular flight and as an example, you have people with one airline with a higher fare than the other. But we've been price competitive ever since we declared that change in direction. And I think you'll start to see that when you look at our results this quarter, I mean load factors up 4.7%. Sure. So you're indicating that the lower fares that you had in the June 2016 quarter was restricted to that quarter and did not continue in September, December, etcetera? No, that's actually not what I said. I think what I said was in the June quarter last year, we did not match. We were actually higher than some of our competition. After the June quarter, starting sometime in July August, we started getting much more disciplined about being price competitive. Okay, okay. And we've been price competitive ever since. Okay, got it, got it. All right. The second thing I wanted to understand was the shift in ownership versus leasing strategy that you hinted at. Could you give us an indication as to what percentage of upcoming deliveries would be owned versus leased, some indicator, it is just to get a sense of how to build the capital allocation going ahead? Unfortunately, we're not in a position to do that just yet. We wanted to signal this so you're all aware of upcoming plans. But there's a lot of moving parts. Certainly, the GST law is one of them that we have to sort of examine as we look through our options. And so we'll give updated guidance as we have more information as we give more information, but I can't give any more light on this unfortunately. All right. And the last question that I had was in relation to the compensation potential compensation from Pratt and Whitney. Did you indicate that some amount has already come in, in 1Q? Or maybe I would have missed that? Or is it that compensation is expected in the upcoming quarters? We did not comment on that specifically, and we're not going to give much more information on that topic. All right. Okay. Thank you. Thank you. The next question is from Rakesh Tranjanwala from RARE Enterprises. Please go ahead. Good afternoon. Congrats, Tranjan, on a good performance. Rakesh, what I wanted to know is you are taking permission from shareholders to dilute equity. That means obviously some part of the 75% being the 100% will happen by fish offering rather than by the promoters. Hello? Yes. Hi, Rakesh. It's Rohit. So yes, that is correct. We have taken a shareholder resolution that we'll be putting out as part of our annual AGM. We'll have that request. Is it going to be entirely face issue, but some part will be of the same? We have not finalized that. So it's certainly, that has the flexibility to do both. We will likely do some combination of the 2, but we've not finalized. And what category will you be doing it? We have not finalized that. Right. And you are one of the efficiencies I'm told was the low maintenance cost. Is that I mean, you are are getting a lot of discount because you are buying larger number of aircraft. So the owner lease is not going to affect your maintenance expense or the price at which you buy the aircraft. Am I right? That's correct. That's correct. Absolutely. I think our maintenance cost is primarily due to the fact that we were able to negotiate these long term maintenance agreements at the time we ordered the planes. And obviously, that combined with I mean, really, really, that's the reason and that should that doesn't get affected when you want to lease the plan. And do you want to restrict your growth to you explained why I want to restrict your growth to 20%. But don't you think there will be a better sizing generally better sizing power to all airlines? Because if you grow at 20% and the market also grows at 20%, no freight capacity will come in. So I don't think the other airlines Yes. So I think on the capacity growth front, we see a huge opportunity in terms of continued growth in demand in the Indian market. And we are focused on that long term growth. Of course, you can optimize profitability in the short term by squeezing capacity and raising fares. But that game doesn't last very long and that doesn't create long term value. So we believe our capacity plan is the right way create long term value, and it's profitable growth. Yes, you can squeeze profitability in the short term by playing with capacity, but we don't think that that's the right strategy. No, percent, then you have 40% of the market share. So that if you grow at 40 means 2% less capacity will come to the market. I don't see you are doing it in order to squeeze prices, but will that not be an actual consequence? Yes. I mean, Rakesh ji, I mean, as you know, this market behaves in strange ways depending on what competitors do. We know what we are doing. And I think any more speculation on that would be gazing into the crystal ball for us. Okay. Thank you. Congratulations on a good performance. I hope it continues. Thank you. Thank you. The next question is from Praveen Shah from Edelweiss. Please go ahead. Yes. Thank you for taking my question, sir. My question related to the Indian Standard 116, which is going to bound to show the all aircraft leases on the balance sheet by 2019 onwards. Will that impact on the financials and how that's actually? Sure. That the new accounting standard regarding capitalizing operating leases is something that will as if it comes into effect, we'll obviously adopt and comply with. So it creates some work to restate to state the accounts a different way. But from a practical aspect, there's no real change. I mean, for decades, anyone who followed airlines, whether it's equity analysts, lenders, debt analysts, have always taken off balance sheet leases and capitalized them and sort of created an adjusted debt number. So now instead of having an adjusted net debt number, that debt is actually on the books. So from a practical standpoint, it doesn't change anything. So as the accounting standard comes about, we'll comply with it, but we don't see any real issue with it. So just to follow-up, if we have to show all the leasing liability then after? That's correct. And so that will be on the balance sheet rather than someone estimating it as a Yes, got it. Estimating it as a adjusted debt number. So it's a bit more. Thank you, sir. Thank you. Thank you. The next question is from Ashish Shah from IDFC Securities. Please go ahead. Yes. Good evening, sir. Just a question on the impact of GST. It's been about a month since we've seen the GST getting implemented. Has it adversely impacted us in any way in terms of the overall flow through of revenues and costs? So overall, under the GST under the new GST regime, the GST on economy plus travel is 5% compared to the earlier 6% under the service tax regime. So it's slightly positive. However, there are still some unresolved issues and clarifications that we need and they're primarily in the areas related to the import of aircraft and aircraft parts. And this relates to what the airlines get are entitled to credit, input credit for the GST paid on these and whether it's input credit for a good or a service. So there are some things that are still a little problematic for us that are still that we're working with the government. We're hoping that it will that we'll get the clarification so that this wouldn't be an impact. So that is the only issue that's out there. But the overall sort of tax on us is 5% into a 6%, so that's positive. But some of these things would impact P and L or it would more be a balance sheet item? And as in if you were to be importing any parts and if there is a negative impact because of GST, would that have a bearing in terms of your higher asset in the balance sheet or it means a P and L hit? It could be both. But for the moment, there is an exception that if you're leasing the if you're importing a part that's either an aircraft or a part that's leased, then you don't suffer that penalty. You pay GST on the lease rentals and you get input credit against those lease payments or the GST paid on the lease rentals. So for the moment, I think the industry will work through with that exemption, but so time will tell. Sure. So and I understand that you've said that you cannot give away more on the incentives or the compensation rather that you're receiving from Pratt and Whitney. But my just point is that when I look at the revenue or the yield, can I safely assume that it is reflective of the true nature of the basic business of ticketing and other things? Or that could include any component of that? I'm not going to well, of course, if you look at our passenger revenue, which we report in the in our press release. It doesn't it obviously is just passenger ticket revenue. But beyond that, I'm not going to comment. Sure, sir. Thank you. Thank you. Thank you. Next question is from Vishal Rampuriya from HDFC Securities. Please go ahead. Hi. I have a few questions to ask. Mr. Rampuriya, may we request you to take the phone off speaker, sir. Hello? Is it fine now? Yes, please go ahead. Yes, sir. On the sale leaseback, you mentioned that Rohit, you mentioned that one of the reasons why we're moving into some more of own aircraft is because we want to use aircraft for say 10 years. So why can't we use the same kind of model in for 10 years? Is there a constraint in terms of that we can't go for 10 years under the sealing leaseback model? You can absolutely do 10 year sale on leasebacks. But ultimately, the and by owning to longer term, it may be longer than 10 years, by the way. So you can absolutely do longer sale and leasebacks. But what you'll find is typically when you're operating the aircraft over that period, owning the aircraft tends to have a lower ownership cost than a lease. It's as simple as that. So of course, there are options. And again, we're not saying we're going to go to 100% owned right away. We're going to do a we're going to start doing a mix of owned and leased. But we believe that owned will be able to get us a more optimal cost structure. Okay. So, Arad, you also mentioned about this we have to meet this public shielding now. And you mentioned on one of the question that you may do both OFS plus new issue of shares. So given that we have so much of cash, what was the need to do new issuances, primary issue shares? Obviously, if we issue primary proceeds, we will declare a use of proceeds at the time. But I think I gave you some hint of sort of where it could be it could go into depending on sort of our position in terms of aircraft ownership. And in case we go for more of own model only, how much gearing do you think we can go up to? How much leverage we can take? I actually didn't understand that question. I'm saying in case we go for our own aircraft, how much leverage you think we can take in our books? So firstly, that's the question in terms of leverage, when lenders look at the leverage question on airlines, they look at total debt. They look at a figure that I call adjusted debt or that they call adjusted debt, which includes your capitalized their own estimate of a capitalized value of your operating leases plus your on balance sheet debt. So from that sense, this won't actually change this won't change that leverage number whether you put it on balance sheet or whether it's part of your actual debt or whether it's part of your adjusted debt. It won't change your the leverage metric that people look at, which is your adjusted leverage. Okay. And one just one thing to reconfirm this entire saving on fuel. So fuel cost per ASK was lower in this quarter. Is it completely because of news, more higher mix of news in terms of fleet? I think I explained on an earlier question that it's a combination of a few factors. So one was the more ASKs being flown by Nios, which are 15% more fuel efficient. But also the fact that we have been able to get some price competition at different airports and get some price reductions as well as selective imports at certain stations where we've been able to optimize costs. So we've done a number of different things. Fuel is 40% of our cost structure, and we look at opportunity to save it all the time. And I think that's it's a combination of those factors that allowed us to have our fuel cost reduced or fuel cost sort of optimized based on that. Understood. Thank you. Thank you. Thank you. The next question is from the line of Kunal Larkhand from AXIS Capital. Please go ahead. Hi, good evening. Earlier in the call, you mentioned about that it will take at least a year for Platten Whitney to resolve the reliability issues related to the VEONs. My question is that it's almost been a year, more than a year actually since we took the first aircraft on board and since we've been facing this issue. I just wanted to understand what will be your contingency plan, say, 1 year down the line if those reliability issues still continue? Hi, this is Aditya. So the contingency plan is what we have in place even today, which is basically that we would then go and look at other aircraft sources, used aircraft to augment our capacity. We continue to work with Pratt and Whitney. And as I said, we have confidence that they are going to come through on what they have promised to us. And if there's anything that changes, we will, of course, come and update you. But at the moment, we're just focused on getting the spare engines on-site so that we have enough planes up in the air. Sure, sure. And secondly, just wanted to understand in terms of newer deliveries that we can expect in the subsequent quarters for this year. Is it going to be in line with what we have seen in Q1, like 3 per quarter? Or is there a risk that it could be lower than that? No. So we have already said that there are these delays in the deliveries of the Neos and the capacity guidance that Rohit just provided for the year takes into account that those details that we are anticipating. All right. All right. All right. Good luck. Thanks. Thank you. Thank you. The next question is from the line of Rahul Bagaria from Lucky Investment Managers. Please go ahead. Thank you for taking my question. Sir, you're actually touched upon this topic a little while before. I'm just asking it in a different way. Your 20% ASKM CAGR target or thing for the next 3 years, Is there something that you can also tell us on how this will break up? Will the international part ASMs grow faster or something like that? So I think as I said earlier, we don't look at sort of the A320 international operation very differently from the A320 domestic operation. So today, it's been ranging from 10% to 12%. It's 13% right now. So yes, we added a few more. So directionally, that number has gone up a little bit. But as we look over the long term, it will be a combination of all it will be a combination of all markets. So I don't see a material change in that ratio, but it could change depending on where we see the opportunities. Okay. Yes, that's about it, sir. Thank you. Thank you. Thank you very much. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments. Over to you. So this is all that we had for you today. Thank you all for joining us on this call, and we look forward to speaking with you again. Thank you. Thank you very much, members of management. Ladies and gentlemen, on behalf of Indigo, that concludes today's conference call. Thank you all for joining us, and you may now disconnect your lines.