InterGlobe Aviation Limited (INDIGO) Q2 FY23 Earnings Concall Transcript

InterGlobe Aviation Limited (NSE:INDIGO) Q2 FY23 Earnings Concall dated Nov. 04, 2022

Corporate Participants:

Richa Chhabra — Investor Relations

Pieter Elbers — Chief Executive Officer

Gaurav Negi — Chief Financial Officer

Sanjay Kumar — Chief Strategy & Revenue Officer

Analysts:

Binay Singh — Morgan Stanley — Analyst

Lokesh Garg — Credit Suisse — Analyst

Ashish Shah — Centrum Broking — Analyst

Pulkit Patni — Goldman Sachs — Analyst

Venkatesh Balasubramaniam — Axis Capital — Analyst

Deepika Mundra — JP Morgan — Analyst

Vipul Garg — Kotak Mahindra Bank — Analyst

Ashish Kumar — HSBC — Analyst

Krupa Shanker — Spark Capital — Analyst

Mitul Shah — Reliance Securities — Analyst

Aditya Mongia — Kotak Securities — Analyst

Presentation:

Operator

Good evening, ladies and gentlemen. And welcome to IndiGo’s Conference Call to Discuss the Second Quarter of Fiscal Year 2023 Financial Results. My name is Linda and I will be your coordinator. At this time, the participants are in a listen-only mode. A question-and-answer session will follow today’s management discussion. As a reminder today’s conference call is being recorded. I would now like to turn the call over to your moderator Ms. Richa Chhabra from the Investor Relations team of IndiGo. Over to you, ma’am.

Richa Chhabra — Investor Relations

Good evening, everyone and thank you for joining us for the second quarter fiscal year 2023 earnings call. We are pleased to have Pieter Elbers with us, who has taken over as our CEO. And he will take you through our performance for the quarter ended September 2022. Further we have our Chief Financial Officer, Gaurav Negi; our Chief Operating Officer, Wolfgang Prock-Schauer; our Chief Strategy and Revenue Officer, Sanjay Kumar; and our Chief Programs Officer and Head of Investor Relations, Kiran Kumar Koteshwar with us to discuss the financial performance and are available for the Q&A session.

Please note that today’s discussion may contain certain statements on our business or financials which may be construed as forward-looking. Our actual results may be materially different from these forward-looking statements. The information provided on this call is as of today’s date and we undertake no obligation to update the information subsequently. We will upload the transcript of prepared remarks by day end. The transcript of the Q&A session will be uploaded subsequently.

With this, let me hand over the call to Pieter Elbers.

Pieter Elbers — Chief Executive Officer

Thank you, Richa. Good evening, ladies and gentlemen and thank you for joining the call. It’s my pleasure to be amongst you to announce the financial results for the second quarter of fiscal year 2023. My name is Pieter Elbers and two months back as per September, I had the pleasure of joining IndiGo as the new CEO. For the past 30 years I’ve worked at KLM Royal Dutch Airlines of which the last eight years as a CEO, and I am super enthusiastic and excited actually to have moved to India and delighted to become part of the next-stage of this incredible journey of IndiGo further fulfilling vision of what the airline can do and will be for both our customers and India.

For the quarter-ending in September ’22, we reported a loss of INR3.8 billion, excluding foreign-exchange loss as compared to a loss of INR14.7 billion for the same quarter last year. And compared to a profit of INR3.6 billion for the quarter-ending in June ’22. Including the foreign-exchange loss of INR12 billion the net loss for the September quarter aggregate to some INR15.8 billion. For the quarter-ending September ’22, which is the seasonally weakest quarter explaining the results of ’20 of the second quarter as compared to the first-quarter our capacity deployed was slightly higher than in the quarter-ending in June ’22.

During this quarter our international operation have increased by over 20% as compared to previous quarter. Even at this higher capacity we were able to maintain yields above INR5 at the load factor around 79%. While historically we have experienced unit revenue reductions of around 5%, sorry, of around 10% to 15% in the second quarter as compared to seasonally stronger first-quarter. In this second quarter 2023, the sequential reduction was much lower by about 2.6%. This is reflective of the continued pricing discipline in the market combined with our revenue management practices. The depreciation of the rupee and the higher fuel prices continue to be the major headwinds to our profitability and remains concern. During this quarter cash increased by 1.3% to INR5.50 in September ’22 quarter as compared to the June ’22 quarter, primarily due to an increase of fuel cost and I will let Gaurav to discuss the cost elements in detail in his section. We can take to recover and have employed more than pre-COVID capacity. This has allowed us at IndiGo to make the best use of the opportunity presented by the robust demand in the market.

International air travel has demonstrated a strong recovery and we believe that this will last while domestic demand continues to rise in the upcoming festive and winter season. We have strengthened our international network by introducing new flights delinquencies, international routes and added Denmark as our 100th destination. Further to our ambitions of enhancing connectivity for our passengers we have signed new Codeshare Agreement with Virgin Atlantic. This will allow us to access new markets from London Heathrow Airport to India. On our cargo operations, volumes have been increasing owing to our sheer network presence and we remain optimistic. Near belly capacity will be further augmented with you in-production of the first averaged 321 freighter. And, we’re also expecting second switch aircraft to be operational by December.

This dedicated freighter operations adds a new dimension to our existing cargo operations and offers new product shipment to our customers. These aircraft are operating leases and are similar to our existing Airbus A320 family. This not only gives an added advantage on our cost but also enables us unlikely to service markets like China Vietnam, Middle-East and certain sea-ice countries uniquely certain. One of the keys after effects of the pandemic in the aviation industry other supply-chain disruptions in aircraft manufacturing as subsequent shortage of spare engines worldwide. This has affected our operations due to the grounding of aircrafts and has impacted our ability to fully deploy capacity, productivity.

However, we are looking at various options to mitigate the shortfall in our capacity deployment suggest landed deleverage exploring reintroduction of aircraft into the fleet and adding capacity on an ACMI basis. We are now operating more than 60, 100 daily flights and that requires an enormous operational discipline and innovation and now going-forward our emphasis will be on three priorities. First one, reassure key pillars of our service, on-time performance, affordable fares and grew prices and as free service. Let me add here number four an unparalleled network coverage for our customers.

The second pillar being developed and align our internal structures people and processes in-line with the size of our operation, customer-base and future ambitions. And last but certainly not least, create the future and in the coming years we will build-on our strong foundation with more international aspirations. We then go remain in a strong position due to our consistent product delivery, low-cost structure and sheer network presence. We are enabling our travel to all large medium choice and even smaller cities across communities throughout India and going-forward we will continue to develop connectivity even more.

In-line with our future growth ambitions when continuously evaluating and improving the measures to safeguard the climate and the environments, maintaining responsibility and transparency solutions with our stakeholders and actively engaging in numerous social initiatives. In-line with our commitment to sustainable flying recently IndiGo became a signatory and the Clean Skies for Tomorrow, India Coalition. A campaign spearheaded by the World Economic Forum. Along with this we have published our second recently report flying responsibly. As we progress in this agenda we are constantly looking for feedback from our investors and our stakeholders.

And now with pleasure let me hand over the call to Gaurav to discuss in detail the financial performance. Thank you.

Gaurav Negi — Chief Financial Officer

Thank you, Pieter, and good evening, everyone. For the September 2022 quarter we reported a net loss of INR15.8 billion compared to a net loss of INR10.6 billion for the quarter ended June 2022, we reported an EBITDAR of INR2.3 billion with an EBITDA margin of 1.8% compared to an EBITDAR of INR7.2 billion with an EBITDA margin of 5.6% for the quarter ended June 2022. The reduction in EBITDAR in the current quarter as compared to the June quarter. It’s primarily driven by increase in fuel cost, restoration of salaries and marginal reduction in revenue. For a seasonally weak quarter we produced strong unit revenues resulting in a steady revenue performance.

Our RASK sequentially reduced marginally by 2.6% to INR4.57 driven by a decrease in our yields by 3.1% to INR5.07 and a marginal reduction in load factors. Our cash for the September quarter was INR5.15 as compared to INR5.08 in the June quarter. Fuel CASK increased by 3.9% as compared to June quarter to INR2.26 due to increase in average fuel cost. As compared to the June quarter while they are a reduction in foreign-exchange losses, it was largely offset by increase in other line, items leading to flattish CASK excluding fuel of rupees for the September quarter. We continue to remain healthy, maintain a healthy free-cash and have good visibility in terms of our financing initiatives.

We ended the September quarter with a free-cash of INR82.4 billion a net decrease of 0.7% as compared to the June quarter. On a total cash as of 30th September, 2022, INR196.6 billion a net increase of 3.1%. We ended the quarter with capitalized operating lease liability of INR361.3 billion and total debt including the capitalized operating lease liability of INR400 billion. Our right-of-use asset at the quarter-end were INR22.9 billion. If you look at our combined results for the six months ended September 2022, operationally that is excluding the foreign-exchange loss we are close to breakeven as compared to a loss of INR42.8 billion for the six months ended September 2021, this indicates a strong recovery in travel and we expect this trend to continue in the third-quarter.

On the capacity side sequentially for the third-quarter the capacity will increase marginally, however on a year-on year basis it will increase by around 25%. Also, Q3 being a key festive and holiday seasons. We are witnessing a good momentum in our demand parameters, an uptick in the revenue metric. At this point we are carefully balancing the yields and load to maximize the overall revenue. Operationally we are continuously focusing on strengthening our customer-base cost fleet, network processes and employee, talent pool to cater to the enormous opportunities that lie ahead, while fuel and Forex continue to pose headwinds. We are reasonably confident that we will return to operational profitability in the third-quarter.

With this let me hand it back to Richa.

Richa Chhabra — Investor Relations

Thank you, Pieter, and Gaurav. To answer as many questions as possible. I would like to request that each participant limit themselves to one question and one brief follow-up question if needed. And with that we’re ready for the Q&A.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Ladies and gentlemen we will wait for a moment while the question queue assembles. The first question is from the line of Binay Singh from Morgan Stanley, please go-ahead.

Binay Singh — Morgan Stanley — Analyst

Hi, team, thanks for the opportunity and congratulations on good set of numbers. And also, will proceed about you’re doing on the sustainability side. Just two questions, first is on yield and second on capacity one game down, could you break it up a little bit more. How is international doing in terms of revenues in-quarter one to quarter two and so then yield, how many this IndiGo flying at. There is no competition and that to an extent on getting pricing power and further any commentary on the third-quarter yield.

And the second one on capacity is that all if you annualize the capacity guidance for December quarter that we’ve given. This will be an all-time high-capacity for IndiGo. In that context, how to look at capacity growth in FY ’24 over FY ’23. Thanks, on these two questions.

Pieter Elbers — Chief Executive Officer

Let me start by answering. This is Pieter. Let me start by answering on the capacity in an over your question on some of new developments to one of my colleagues. If we look to the capacity clearly this is the second consecutive quarter that we are back to a capacity level, which is basically higher than the pre-COVID levels and we expect to continue that development and indeed have for the next quarter another rises in capacity. As I mentioned in my introduction words, we are faced with some of the global supply-chain issues, which we are trying to find solutions to mitigate that, but our objective clearly is to continue our path of capacity developments and have assured quarter with a higher number. As you have seen in our press release, we welcomed onboard the passenger number this quarter of INR19.7 million in this quarter we expect to further develop that and that means by the total year will continue to develop our passenger numbers quarter-over-quarter in-line with our expected capacity growth.

I’ll ask Sanjay Kumar to give feedback on your question on the revenue development.

Sanjay Kumar — Chief Strategy & Revenue Officer

Thank you. Thank you, Pieter. On the revenue side, I think we are seeing a very strong demand in the marketplace especially coming out-of-the peaks in time and also a strong recovery of the corporate business. So all these three factors are really developing in a very strong revenue performance going-forward and we continue to see that we will have to maintain further in the yield and RASK going-forward. It’s difficult for us to kind of [indecipherable]. Thank you.

Binay Singh — Morgan Stanley — Analyst

Thanks, team, and I’ll come back for follow-up questions.

Operator

Thank you. Our next question is from the line of Lokesh Garg from Credit Suisse. Please go-ahead.

Lokesh Garg — Credit Suisse — Analyst

Hi, sir, good evening. Basically, my question also pertains to capacity. Basically, there are several dimensions of that. One is that you said not sort of letting go of IndiGo planes. Then there is obviously some plans to lease claims as we are sort of reading interests. So what does that that you are planning in terms of end fleet by FY ’24 or FY ’25 or in-town CASK capacity that you plan to offer in FY ’24 in terms of international and domestic mix. And then you are saying that there is shortage with manufacturers and with Indian also, so there is something which is grounded as well apart from things not coming at the same pace from manufacturers as you might have expected, so could you sort of put together all these dimensions with some outlook for ’24 either in terms of secured in terms of end fleet.

Pieter Elbers — Chief Executive Officer

I think, today we’re elucidating on the ’23 numbers and not yet only ’24 numbers. On the ’23 numbers we have given the capacity guidance earlier this year in the range of plus 13% to plus 17% as compared to the period were prior pre-COVID. We maintain that very same capacity guidance for this year plus 13% to plus 17% as compared to pre-COVID.

Lokesh Garg — Credit Suisse — Analyst

Sure, but there was some severance subjective elements I touch, could you sort of put them together as to how should we see this picture evolving. Even if you finally got that’s the guidance.

Pieter Elbers — Chief Executive Officer

I’m not sure if I understand your question. Could you repeat that, please?

Lokesh Garg — Credit Suisse — Analyst

If you have another thing is, there are several elements of this capacity planning, which is related to all planes, wide-body leasing, shortage of Indians in the system, so could you put at least some of the subjective elements in a little bit more detail for us to understand how you’re thinking about these things.

Pieter Elbers — Chief Executive Officer

Well, I think you’ve mentioned in the list of elements we were working on some of the re deleverage. It’s a lot of work-in progress, that’s why we are not making any breakdown of the precise numbers. We have indeed working-on a proposal also to have some wet lease that’s work-in progress, some of be continuation but we are not providing a breakdown of the precise numbers as to come to that the shirting to 17% capacity guidance for this year.

Lokesh Garg — Credit Suisse — Analyst

Okay. And could you share a little bit more on international ambitions also as you touched in the opening part of your speech, what would that entail does that mean more destinations more occupancy than what percentage of flying currently in international, you may ask terms and how will that evolve, if possible. Thanks.

Pieter Elbers — Chief Executive Officer

Today we do have some 25% of our flying is international. You’ve seen some regions openings. I had the pleasure of myself of being in the Mumbai Ras Al Khaimah opening, that’s one of them. We had the announcement for the Mumbai. We stumble expansion with a new fleet coming in. We do expect the coming years to have a higher number some of the markets are still close or relatively close such as China but other markets which are opened like the Middle-East, Southeast Asia. You see a progressive return of our capacity and indeed today it’s around 25% and a number which will go up in the years to come.

Lokesh Garg — Credit Suisse — Analyst

Sure, thanks.

Operator

Thank you. Our next question is from the line of Ashish Shah from Centrum Broking, please go-ahead.

Ashish Shah — Centrum Broking — Analyst

Yes, thank you for the opportunity. Sir, I have a question which is related to the asset utilization, so one in the peak times earlier we have seen early aircraft utilization going up to maybe 13 hours, credit 0.5 to 13 hours given our current route network and complexity. We believe in the years to come we could reach to that number or a number of around 10, which is there currently is this the right number to go by.

Pieter Elbers — Chief Executive Officer

Well, there’s different ways to look at the aircraft utilization and, of course, IndiGo was in a very unique position with aircraft coming in and aircraft coming out so there’s always some. I would say aircraft in transition and do we take them into consideration or not but let me share from my point-of-view coming from a different airline in the different part of the world the actual fleet utilization of IndiGo is a very efficient way our fleet utilization. And with COVID behind us, we’re stepping up our efforts in today with the fleet were happening we are operating that 1600 flights and I don’t think we’re giving any sort of new guidance on fleet utilization today but we’re using yet assets to the mix of our ability.

Ashish Shah — Centrum Broking — Analyst

Great. So the second point is on the cargo business so we are adding. Cargo freighters and we’re looking-forward to that this so any kind of growth that you could guide us on what should we look-forward to the cargo business in the years to come.

Gaurav Negi — Chief Financial Officer

Again, it’s a little too. I mean, we’ve just started into the freighter side we will not be giving any guidances but the belly cargo has done well for us. And we’ve seen incremental growth on that particular side of the story but as far as straight as we are concerned. It’s too early for us to give any guidances.

Ashish Shah — Centrum Broking — Analyst

Sure, and just a last quick one from my side. After the fair regulations were taken out could you just highlight how was the behavior of the change in the fares which happened during the quarter because it happened sometime during this quarter, so any qualitative view or how did fares behave in the market after the caps and floors so taken-up.

Gaurav Negi — Chief Financial Officer

So. I think we have seen that there have not been impact. I mean there was lot of apprehension that once the fare bands are out-of-the system, there will be dilution in the marketplace. Fortunately, we have not seen that happening and you would have seen our quarter two yields which are only about 3% down compared to quarter one, so it’s fair to say that sales are holding up, yields are holding up. Thank you.

Ashish Shah — Centrum Broking — Analyst

Thank you, sir, that’s all from my side. Thank you.

Operator

Thank you. Our next question is from the line of Pulkit Patni from Goldman Sachs, please go-ahead.

Pulkit Patni — Goldman Sachs — Analyst

Sir, thanks for taking my questions. Sir, first question is on lease liability. The increase in lease liability is pretty significant. I’m guessing that’s because of the new fleet that you have got in return of the ceos and can you give us a sense going-forward while the neos are going to be cost-effective, they’ll come at a higher lease cost. Any sort of guidance on what we should assume in terms of lease liability per plane or anything like that, which helps us understand that a little better.

Gaurav Negi — Chief Financial Officer

So Pulkit, I can’t give you specifics but you’re right the increase is largely on account of the new set of planes coming in and the older ones going out. At best the guidance that, I can give you is that we’ve added 21 new set of planes in the first-half of this year. So with that you can draw your extrapolations but that’s the best I can tell you. These are largely on account of 21 new planes that have come and then along with that we’ve got some incremental impact of the foreign-exchange, which is embedded in these liabilities. Because the FX has been going higher and that’s also being incorporated into the lease liability number that you see.

Pulkit Patni — Goldman Sachs — Analyst

Okay, fair point. My second question is in your recent negotiations, given how interest rates are moving globally. How should one look at the lease cost for the new fleet that is going to come in. Is it something that we’ve already negotiated so it should not go up or do we expect lease costs to go up in-line with how interest rates are moving globally.

Gaurav Negi — Chief Financial Officer

So, large part of the fleet that we currently have is on a fixed-rate, so there is not going to be any impact because of the change that you’re seeing in the interest-rate environment. Any new leases that we are entering into we are assessing them whether they got be fixed-rate or we need to do a lot so but large part of our 99.9% of our fleet is on a fixed fixed-rate basis. So there is no change that you’ll see in that.

Pulkit Patni — Goldman Sachs — Analyst

Okay. That’s helpful, sir. Thank you.

Operator

Thank you. Our next question is from the line of Venkatesh Balasubramaniam from Axis Capital. Please go-ahead.

Venkatesh Balasubramaniam — Axis Capital — Analyst

Yes, I had a very-very simple question in the terms that if you see over the last six to nine months it’s almost been like a Honeymoon period for IndiGo when it comes to competition, so you had the likes of Spice Jet Tuzun real bad double. You had Go which is also not doing too well because their financials are also not very good. So you have exploited that, you’ve done extremely well increase your market-share. But the fact of the matter is all these things are not trickling down to numbers if you look at your EBITDA margins both the first-quarter number second quarter numbers are weak. Weak both first-quarter and second quarter, massive losses, so it almost seems like whatever benefits you hired in terms of gaining market-share has got completely wiped off by the fact that one the rupee has depreciated and kept on depreciating.

And secondly ATF prices in India doesn’t seem to be falling at the same pace that crude is falling. So is there any thought process at a strategic level from the management that in order to take a relook at your historical policy of not hedging crude oil prices. Is there a necessity to look at, should you be looking at — you should be perhaps thinking about hedging crude oil prices or this linkage between Brent crude prices falling and it is not getting it is not getting directly link. So if you could throw some color on that and is there any way to hedge the depreciating rupee. See because historically if you see over the last 10, 15 years it’s almost like the rupee depreciates against the US dollar at least three-four percent every year. So it’s like you are in a very un NBS kind of opposition position longer-term. So any thought process on how the USD – INR thing risk can be hedged or something on the crude oil prices is there is there a possibility of looking at hedging.

Gaurav Negi — Chief Financial Officer

You kind of summarized it well. I think in the last six months while we are very well-placed in terms of the capacity that we’ve shown in. Fuel and FX has definitely been a headwind that we have kind of faced. As a result, you’ll see what the results are. If you exclude Forex you will see some positive story in the operational kind of a performance. When it comes to hedging candidly speaking, we do analyze so it’s not something that we have ignored. We do look at it but there is a cost of hedging also. So when you look at the short-term hedging does look very attractive from an outcome standpoint but it does have an implication in terms of volatility, because if things are too volatile one can actually get hit with hedging cost, which are disproportionately larger especially given the volatility that is that both in terms of fuel and to some extent on the FX side also.

If you look at a longer window, so we’ve analyzed this if you look at a longer kind of a pattern over the 10 to 20 years. Whether you hedge or don’t hedge depending on the cost of hedge, it kind of neutralizes. So where we are today from a fuel standpoint. We are looking at that aspect I would say, similarly on the FX side but some of the internal assessments that we’ve done is not leading to us going into the market and placing hedge as a instrument to secure our position because the cost of hedges themselves are coming to be expensive for us.

Venkatesh Balasubramaniam — Axis Capital — Analyst

Okay. Understood. Yes, just a follow-up please. Can you kind of explain what exactly is happening. I mean we have some idea but if you could give a ground level kind of a analysis about why crude the fall in crude oil prices is not having a commensurate fall in ATF prices in India. So if you could give some explanation to that.

Gaurav Negi — Chief Financial Officer

Let it’s a very good question candidly, sir, it’s large. It’ll take a long-time to answer that but what I’ll give you on a positive front. The Ministry of Civil Aviation and the Ministry of Petroleum and Natural Gas has sat together on this particular subject along with the airlines and the oil marketing companies. The way the pricing of ATF was being done is undergoing a change as we speak. It’s starting to happen in first of October. We are seeing trends of that. There is now a lot more transparency that is coming-in in terms of how the prices of ATF are getting determined in India vis-a-vis the brand because Brent is not the right reference point. The new reference point that is being linked to is more pack which is the mean of added Gulf, so already a changed because of advocacy from the Airlines has already started to happen. There is probably not one-to-one correlation between the two because there’s refining cost that is imposed by the oil marketing companies but over a period of time with more kind of transparency coming in this space with. ATF being linked to more pack; you’ll probably get a better picture but more to come on this I would say. But what the efforts are on both from the airline side and I say airlines it’s all the airline companies put together working with the oil marketing companies.

Venkatesh Balasubramaniam — Axis Capital — Analyst

Is the ATF price in India any way linked to Singapore jet fuel prices because what I noticed is even though crude is falling the jet fuel prices premium over the crude oil prices, which historically used to be let’s say $5 or $6 per barrel, or $12 per barrel has gone to almost $30 per barrel and the Indian ATF prices seems to be following the Singapore jet fuel prices, so is there a linkage between the Singapore jet fuel prices and ATF prices in India.

Gaurav Negi — Chief Financial Officer

There is a correlation between Inkjet and the ATF in India but I’ll not say it’s one is to one correlation so there are elements to it but it’s a good proxy. I would say but what you’ll probably hear is going-forward the pricing is going to be more not to the same it’s going to be more to Inkjet, the more bad pricing.

Venkatesh Balasubramaniam — Axis Capital — Analyst

Okay. Thank you and I hope you have a better second-half when it comes to fuel prices. All the very best.

Gaurav Negi — Chief Financial Officer

Thank you.

Operator

Thank you. Our next question is from the line of Deepika Mundra from JP Morgan, please go-ahead.

Deepika Mundra — JP Morgan — Analyst

Hi, good evening and thanks for taking my questions. I’m — I got disconnected so I just wanted to check if you’ve discussed your recent news flow-on the wide-body strategies.

Gaurav Negi — Chief Financial Officer

We touched a little in terms of some of the efforts that we had we are taking in order to expand on a capacity front but…

Deepika Mundra — JP Morgan — Analyst

But okay, sir, if I can just there is a bit further on that is this a long-term plan or is it just like you know a stop gap and how do you think the operations as well as profitability is going to be on some of these widebodies as compared to the narrow-bodies and I’m assuming again this will this be single class or dual-class for IndiGo.

Pieter Elbers — Chief Executive Officer

Let me try to fill you in and indeed some of these elements who came earlier this evening. We’re seeing a very rapid market recovery. If you see on a global level, markets are recovering but the market in India recovering even quicker and even faster recently. So first of all we see a very quick a market recovery in India and a very robust demand.

Secondly, IndiGo we would like to serve our customers and therefore you have seen that our capacity deployment is slightly higher today than it was prior to COVID in order to accommodate that demand. So the previous question was speaking about the honeymoon in India. I wouldn’t called it like that what we do see though is that there is a very robust demand and we in a good position to accommodate that demand. However, some recent challenges in the supply-chain, which is a global issue. Those challenges are forcing us to look at different ways and means in order to make sure that we have the capacity to operate. One of the things we have been doing is extending some of the niches, postponing some of the re deleverage and another element which is under discussion. Today we are still in the final stages of clarifying that is a possible wet lease operation. Today we’re not providing any further details because we are in the process of finalizing that. We’re not providing any further details about clusters, aircraft types and so on but it’s clearly with the objective to deal with the shortage on the on the supply-chain on the one-hand side and yet making sure that we are having the capacity to deal with that demand that’s the key driver behind this.

Deepika Mundra — JP Morgan — Analyst

Right. And if I could just follow-up with that, how long do you think the supply-side challenges are likely to persist and with that if you continue extending leases could you talk about a slightly more medium-term outlook on maintenance costs on the aircraft.

Pieter Elbers — Chief Executive Officer

Well, when you speak about the supply-chain challenges. I would actually refer to some of the OEMs, they’re probably in a better position to answer that question than we are. We’re at the very end-of-the line and depending on the supply-chain issues by the OEMs. What we take into consideration and that’s precisely why we’re extending some of these leases and we leverage that it’s not soft tomorrow, it will take some time than what time precisely again. I think you should be another Investor Relations go for that but for us we keep in mind that, it will take some time. That’s why our earlier repeated our capacity guidance for this year in the range of plus 13 to plus 17 compared to pre-COVID. We’re not giving in any capacity guidance for next year yet. We still would like to sort of finalize where we are ending up this year.

I think it’s a bit premature to come into expectations about maintenance cost going-forward. Again, we’re dealing with the situation now we’re taking all the steps to remain as I mentioned in my introductory words who remain. And to keep our low-cost basis and with that we move forward.

Deepika Mundra — JP Morgan — Analyst

Got it, sir. Thank you so much.

Operator

Thank you. Our next question is from the line of Vipul Garg from Kotak Mahindra Bank, please go-ahead.

Vipul Garg — Kotak Mahindra Bank — Analyst

Hello. Sir, thanks for taking my question and my query is that do the number of planes same in Q2 this year and last year but there is a substantial change in the finance cost, so is this due to lease rentals getting revised due to increasing rates so some of the things.

Gaurav Negi — Chief Financial Officer

No. Again, it’s going to be largely driven by Forex related impacts that we’re seeing. We have seen the Forex going up significantly so that’s what the driver for us.

Vipul Garg — Kotak Mahindra Bank — Analyst

And, sir, how is the repricing of interested business what they get retailed.

Gaurav Negi — Chief Financial Officer

Sorry, I missed that question repeat again.

Vipul Garg — Kotak Mahindra Bank — Analyst

Sir, actually of that at what frequency the interest-rate basis for you.

Gaurav Negi — Chief Financial Officer

Like I mentioned in the earlier question that was raised. These are all fixed costs for us, so there is no reset on the interest-rate side the change that is happening is only related to that.

Vipul Garg — Kotak Mahindra Bank — Analyst

Okay. I think.

Operator

Thank you. Our next question is from the line of Ashish Kumar from HSBC, please go-ahead.

Ashish Kumar — HSBC — Analyst

Hi, so I have two questions please. First of all, on capacity demand yield, of course, you highlighted that that storm and they are holding well. I mean, yes, of course we are holding well but then that spike. It was melting badly go was sort of again making a bit. I thought I was in the phosphate and potash this funding to restructure, but then going ahead it is a lot of capacity coming in you yourself said that because you see the demand and you are taking the plane, you’re holding the plays back but then Tata aggressively and but then Tata has already spoken about aggressive strategy, so how do you see, and of course, in terms of the bond. I mean on a good thereby saying, okay, I’m going to see my golf and practice that gives 100,000 passengers maximum for the industry but the industry is still trading at about 375,000, 380,000 passengers every day, although it came down a bit in-between. But in the busy quarters it is touching about 375,000 so the demand is actually not growing beyond that and getting more capacity coming in next year so how do you see the demand versus supply versus NIL situation going next year.

And then second question in particular to Pieter. So Pieter you on the floor so what will be your strategy would you have said we the aligns to in this was existing strategy or do you have some minor or major tweaks in terms of cargo being in terms of overall growth plan, fleet type, mix wide-body, narrowbody but more importantly growth in domestic versus international sites. Thank you.

Pieter Elbers — Chief Executive Officer

Thank you, let me start with that last question to me and then I’ll give the first question to one of my colleagues. In my introduction which I tried to emphasize what’s going to be the priorities going-forward. Let me take a little step-back with IndiGo has done in the past 60 years is impressive by any standards basically from nothing to 279 aircraft operating today in a highly competitive markets spending in-network of 100 destinations. Again, here the first priority would be to build-on that strength of IndiGo, so the first priority I mentioned issue build-on the strength with impressive network of 74 domestic destinations, 26 internationals with an on-time performance with affordable fashion with hassle-free and grocery service, so that’s the first part of the strategy.

The second, I think it’s fair to say that during COVID a lot of changes were made. We need to get back to an operating rhythm to the shopping 1,600 flights per day IndiGo today in terms of daily departures with 69 slides is the second-largest airline in the world measured in number of daily departures. So I think that’s an important element to take into account and how we organize ourselves and how we structure the organization. Then the share pillar of that strategy is indeed focusing on a more international profile. Today the total presence and you mentioned the share of IndiGo on the domestic side, which is significant with the share on the international side is much less. So some of the new route openings we have done and I mentioned the example of Mumbai to Ras Al Khaimah.

I think are underlining the importance of further building on that international network. So it’s a bit of a long answer but I would say, three important elements are one, built on the strength of IndiGo which is there historically and to make sure that we continue to build-on that. Two, strengthen the internal teams and organizational structure we’re having matching the size of the company has to 7th largest airline in the world in terms of daily departures and three, built on our international presence for debt cargo element with developing our international network equally important. I think this was your Aviation question, I did that. I’ll give a difficult one on capacity demand and yield to Gaurav.

Gaurav Negi — Chief Financial Officer

Again, on the capacity and the demand-side while the demand has kind played around candidly speaking you would have heard on October 9th we had the biggest number while it wasn’t part of the quarter that we are talking, but on October 9th there was a substantial increase in the passenger travel. That was close to INR4 lakh like that was communicated by the minister themselves so from that standpoint we are seeing demand coming back. For us we’ve seen a incremental demand in the sense that we’ve already reached pre-COVID level, so this is the second quarter and the role where the demand that we’re seeing for IndiGo has been ahead of what it was for the pre COVID levels. So we are not seeing any kind of a softness for ourselves. Yes, the industry is still playing catch-up to the pre COVID levels. It’s a similar story that we’re seeing on the international markets also as demand comes back for the others and the industry at least from a IndiGo standpoint we are not seeing any softness and we continue to see Q3 to be positive for us and hopefully going into Q4 in see a similar trend subject to obviously the way the fuel and the FX is going to be because that will become part of the consideration in terms of where the yields the land.

Ashish Kumar — HSBC — Analyst

Okay, thanks. I’ll be in the queue back.

Operator

Thank you. Our next question is from the line of Krupa Shanker NJ from Spark Capital, please go-ahead.

Krupa Shanker — Spark Capital — Analyst

All right. Good evening and thank you for the opportunity. I have couple of questions. First relating to the employee costs. I mean we realize that the retention this is the key challenge in this environment. Is are we expected to see further. So division in costs over the medium-term just for retention and that would that perhaps offset difficult price collection comes through with that offset. That benefit and yields will remain elevated is one thing which I wanted to check.

Gaurav Negi — Chief Financial Officer

So on that specific one, I think the last retraction that is happening, what happened was put into October so it’s out beyond the quarter so what we’re talking schedule but finally attraction to bring it back to the pre-COVID levels. Has already happened. So this is the steady-state that we are today in and you’re right, our focus now is going to be on pushing up capacity so on a unit-level. This summer we’ll now move based on where the capacity settles and Q3 again going to be incremental and likewise the we’re looking-forward to Q4 to be incremental also to achieve what Pieter just mentioned the 13% to 17% capacity increase. So on a unit-level it’s going to stabilize at this level, factoring in the October 15 revision also. We do not foresee any further increase in this.

Krupa Shanker — Spark Capital — Analyst

Thank you, that’s it. And second question was on cargo operations. Wanted to check this you indicate that they want to add to freighter aircrafts. Are been intending is second aircraft right in because booking, are you intending to add more freighter consciously operations.

Gaurav Negi — Chief Financial Officer

We — the second one is likely to arrive in November-December timeframe for us so we’ve only received one. We do have two others in the pipeline which are, which will make it in total four but the other two are due for some time. I would say, beginning of next financial year.

Krupa Shanker — Spark Capital — Analyst

So these operations to be predominantly focused on international side of things, and not on domestic explained the second.

Gaurav Negi — Chief Financial Officer

Yes, largely you’re correct, we are focusing largely on the international side but did not miss out on any opportunity that may be that domestically also so at least for the first few months we are looking international and then we’ll see if that opportunity set domestically also relevant for us. Yes, largely you’re correct, we are focusing largely on the international side but did not miss out on any opportunity that may be that domestically also so at least for the first few months we are looking international and then we’ll see if that opportunity set domestically also relevant for us.

Krupa Shanker — Spark Capital — Analyst

Thank you. That’s good. Thanks, and best wishes

Operator

Thank you. We’ll take our next question from Mitul Shah from Reliance Securities, please go-ahead.

Mitul Shah — Reliance Securities — Analyst

So, thank you for the opportunity. Sir, I know that you replied on yield and trained on traffic but, sir, I have question related to October that is of particularly Diwali vacation. How has been the passenger behavior change pre-COVID level is currently up such a high-interest in the fare and in terms of like any color on behaviors in terms of window booking or beyond to 10 days any trend there.

Gaurav Negi — Chief Financial Officer

I think we have achieved the pre-COVID level as far as advanced booking patterns are concerned so we are exactly more or less the same kind of advanced booking patterns which we usually have pre-COVID level. I mean, almost. 25% over to happen 30 days out and that is the same trend we are looking at in the current quarter. As far as the October numbers are concerned, I mean what we can only make a comment on is on the yield side. Our yields will be slightly on the higher side compared to quarter one so we are kind of quite hopeful that with the currencies festivities around that and also beginning of the corporate traffic in in a much more demand compared to the pre-COVID level. I think we are seeing all side of business going up in a big way. Thank you.

Mitul Shah — Reliance Securities — Analyst

Thanks, sir, second question again on a long-term strategy related to this. It was Forex is what people asked earlier also here it seems to be in order for Norway now few months it can be maybe medium-term near-to-medium term trend of rupee further depreciated. So what we can do so in terms of not only ATS but crores we have a sizable exposure on Forex side, direct or indirect and follow-up to that sir can you give a ballpark number on the assets and liability side in terms of dollar-denominated and dollar.

Gaurav Negi — Chief Financial Officer

So on the FX side again. It’s difficult to do a ball gazing over here. The rupee has depreciated significantly versus last year. So it’s like more than 10%. Like someone also one of the participants had raised the point that typically erosion is usually a three point every year so 10% depreciation has already happened. Now most of our obligations are long-term in nature, so no one can predict whether we’ll see a similar trend to keep happening on the rupee side for a depreciation of that magnitude. So if you’ll see the historical trends the average over a 20-year period has been around 2.7 to 3, So there are moments that have come where the depreciation has been significant which we experiencing currently but then there is a level of stabilization also that one experience. So factoring those things.

Currently we do not expect the rupee to depreciate significantly again the jury is still yet to be out on that but we are not expecting rupee to depreciate significantly. We are talking to our various banking relationship partners also to analyze that trend. If a similar trend is coming where there’s going to be significant depreciation will look into hedging as an option but at the moment there are kind of conflicting yields that are coming where the rupee will settle down. On a long-term basis because our obligations are again long-term, we do not at least see significant erosion as far as FX is concerned. Short-term there are as we’ve already seen what’s happening over the last 12 months.

Mitul Shah — Reliance Securities — Analyst

Sort of bifurcation on this nearly 40,000 on a debt side and 20,000 on a cash-on-cash basis equivalent in terms of the domestic as well as US-denominated.

Gaurav Negi — Chief Financial Officer

So a large part of our liability, you’ll see is GAAP operating lease liability those are all foreign denominated liabilities and exposure. Against the INR20 million we’ve got a restricted cash which is largely foreign denominated reported in foreign currency. Those are obligation related to that’s the breakup and mix.

Mitul Shah — Reliance Securities — Analyst

Thanks, sir.

Gaurav Negi — Chief Financial Officer

And then there are some related obligation that will see aircraft maintenance obligations so all the stuff that is related to aircraft this usually large part is all FX foreign-exchange denominated.

Mitul Shah — Reliance Securities — Analyst

Okay. Thank you, sir, and all the best.

Gaurav Negi — Chief Financial Officer

Thank you.

Operator

Thank you. Our next question is from the line of Aditya Mongia from Kotak Securities, please go-ahead.

Aditya Mongia — Kotak Securities — Analyst

Good evening, everyone and thanks for the opportunity. I wanted to kind of focus more on consumer behavior and whether there is a possibility of price or increasing yields from the other the airline is roughly for probably six to seven months. I’ve seen this behavior probably being peak out and 1Q and 3Q and 2Q. The question that I have the effect, of course, broadly seen the most in the big the best thing is that when you can see in from here on cost for us to be period. Does that kind of talk about this a lot more now.

Pieter Elbers — Chief Executive Officer

I’m not sure if I wish I understand your question. Is your question focused whether we have reached the peak of the yields, is that a question?

Aditya Mongia — Kotak Securities — Analyst

If not in from my sense is that competition is benign. And the consumer is still real possible decide where you just go from there. And IndiGo has seen his drop in Q-on-Q even the volumes have been broadly flat. The question is. Can yields further go up from tier the customer be willing to pay more or should we be thinking about the tariff situation if the fuel cost was to go up liquidity, probably won’t go up from here.

Pieter Elbers — Chief Executive Officer

Okay, well, I’ll ask Sanjay to give a bit more flavor to that but I think if some of the previous questions had already came up that yield at the end-of-the day it’s always a mixture of what routes are we flying? What’s the mixture of domestic and international? What’s the seasonality effect? What other specific routes? Where we’re expanding? So there’s there is a mixture but I think it’s good that Sanjay maybe you can give a bit of flavor to the consumer in the market and I think one of the previous question was about the demand around the value in the so that Sanjay give a bit more flavor to the consumer behavior.

Sanjay Kumar — Chief Strategy & Revenue Officer

So I think we have seen that there is a strong recovery from all segment of the marketplace. Now couple of segments, which were not kind of seeing the traction. I think we have started seeing the traction the international tourist arrivals into the country which was missing for last two years. Club with that lot of corporates which were kind of earlier we there my travel as part of their overall policies, I kind of stopped completely. They’re started doing thereby back-in the business so we are seeing a very strong demand on the corporate side as well along with the international tourist is that.

I will that is one thing second thing is the fourth in order to due to the seasonal effect and effect of the holiday we are going to see much more demand in the marketplace, which will definitely help the industry to push up the yield as a whole especially in the coming month until about Feb month of so we are quite optimistic about the environment overall and we are seeing it means that the segment, new set of customers continue to fly. the airline industry as a whole. So we are quite optimistic about this bank. Thank you.

Gaurav Negi — Chief Financial Officer

Yes, and I think that’s basically speaking to the point that all the initiatives we’ve been taking opening up new routes, focus on internationalization, having some of the corporates coming back-in the market that those speech that we have been very active in terms of managing the yield and making sure that the yields are holding up. And in my introduction, I said the decline of the yield in Q2 versus Q1 was below 3%. Well, if you would look historically that decline is much higher. So I think that speaks to the FX, which had been done and the efforts which have been undertaken to be very yield active and making sure that we dampen the seasonality effects with a whole range of actions.

Aditya Mongia — Kotak Securities — Analyst

Thank you for the color that was the only question from my side. All the very best to you.

Gaurav Negi — Chief Financial Officer

Thank you.

Operator

Thank you. Our next question is from the line of Binay Singh from Morgan Stanley, please go-ahead.

Binay Singh — Morgan Stanley — Analyst

I think just a follow-on question on operating leverage. In the past you’ve talked about our utilization per day as one driver of leverage for the business and we’ve talked about that rising from around 10, 11 hours per day-to around 13. Could you give us an update as to what was your utilization rate in the second quarter have you sort of gone back to normal levels out.

Gaurav Negi — Chief Financial Officer

We would not want to share that right now with you. So all we can say is we are the utilized fleet utilization levels have been higher for us and they continue to improve as we focus on putting more capacity so we don’t want to give any specific numbers.

Binay Singh — Morgan Stanley — Analyst

Yes, the idea was to understand if there is any operating leverage less than the business are not but that’s fine, thanks.

Gaurav Negi — Chief Financial Officer

I can tell you there is more leverage left and we’ll continue to push because. But we don’t want to give any specific.

Pieter Elbers — Chief Executive Officer

Maybe just give a bit more flavor on that the moment you start to reinstate flights and you see what we’re doing by opening up new destinations reinstating flights there some intermediate steps to be taken. So IndiGo was a smooth-running machine prior to COVID then COVID came and all the network has to be adjusted and then the flights had to be rescheduled to a certain way. If we now see the speed and the comparison our capacity in this quarter compared to the capacity of last year. It’s plus 75%, so that says something about the enormous speeds of recovering and moving back-in capacity. It’s as we said earlier, slightly higher than Q2. With that some challenges and utilization are coming clearly it’s our objective and our ambition to bring it back to the levels we had before and it will continue to be a competitive advantage for IndiGo in terms of fleet utilization.

Operator

Thank you. Our next question is from the line of Pulkit Patni from Goldman Sachs, please go-ahead.

Pulkit Patni — Goldman Sachs — Analyst

Thank you for the follow-up and this question is specifically for Pieter. Pieter, as you said IndiGo was a very smooth is a very smooth-running machine. As you come in at the top of this airline what are your top two or three priorities in terms of strategy?

Pieter Elbers — Chief Executive Officer

Yes, I — Let me sort of repeat what I mentioned earlier. One is building almost the strength which has been the historical strength of IndiGo. Affordable fair hassle-free service and the on-time performance and here we really see that combined with an unparalleled network, so that’s really the key pillar that was the strength of IndiGo towards COVID then we had to deal with the COVID periods a period and we’re building that back. And as I repeated earlier into new 100 flights a day in an environment what we are operating both domestic and international that’s impressive by any standard. So priority one, getting back to the strength of IndiGo. Number two, develop an internal structure and people and so on which is matching the size of our operation Priority number three is to further build-on it and further broaden our horizon including further scope on the internationalization of which cargo is a part of the business strategy.

Pulkit Patni — Goldman Sachs — Analyst

Sure. I mean I wanted a little more specific. But yes, I think the international part is something that we hear it’s going to be the focus.

Pieter Elbers — Chief Executive Officer

Again, it’s one of the three pillars and I think we’re in a position that we can do a couple of things at the same time. We should build or what’s your original strength of IndiGo and that’s what we see every day. The fact that the market is recovering and not fully recovered but IndiGo is doing today already more than we did prior to COVID having more destinations coming more customers. And making sure that we able to accommodate all these customers in on-time performance. I think that’s a very important element and then, yes, also the further international development comes to this. And maybe to add to the words of Sanjay the COVID has sort of stopped a lot of international travel, not only from India to other parts of the world but also incoming. We see that traffic coming back now so some of the partnerships we’re having an in my introduction, I mentioned the partnership with Virgin but we do have more with Qatar and Turkish in Air France-KLM and indeed now very recently Virgin. We see numbers of foreigners coming in connecting on our network and making sure that that is part of our strategy going-forward.

Operator

[Operator Closing Remarks]