InterGlobe Aviation Limited Q3 FY22 Earnings Conference Call Insights

Key highlights from InterGlobe Aviation Limited (INDIGO) Q3 FY22 Earnings Concall

Management Update:

• INDIGO said the decline in COVID cases and removal of capacity restrictions resulted in buoyant traffic numbers. The company added capacity to take advantage of the ongoing recovery, which culminate into a profitable quarter.

Q&A Highlights:

• Binay Singh from Morgan Stanley asked about capacity utilization. Ronojoy Dutt CEO said the company’s utilization is at about 10.7 or so.  The company added that it can easily go up to 13-13.5 hrs of utilization and there is more headroom left in increasing capacity. However, it said this needs international relaxation of restrictions and once it’s open, then 13-13.5 is reachable.

• Binay Singh from Morgan Stanley also asked about advantage of more capacity on unit costs. Ronojoy Dutt CEO answered that most of company’s costs are variable, like fuel, employees and landing cost etc. While fixed costs are lease, IT, digital, and network etc., which is a small portion overall. Therefore, INDIGO needs a fair amount of capacity to bring the unit costs down, assuming that employee costs are variable, which is not.

• Pulkit Patni from Goldman Sachs asks about the company’s international business.  Ronojoy Dutt CEO answered that International is restricted on total amount of departures but INDIGO is buoyant on the traffic numbers. The margins and yields are better internationally. Middle East is positive for INDIGO since bubble flights are being allowed now. Domestic revenues exceeded pre-COVID levels, while International was down, mainly due to capacity.

• Pulkit Patni from Goldman Sachs also asked about employee cost and if the numbers could look a lot higher going forward to retain due to competition. Ronojoy Dutt CEO replied that 2019 is probably a good year to look at employee cost since 2021 and 2022 had anomalies of pilot training costs. Therefore, INDIGO’s goal is to try and get back to 2019 levels with all the restoration of pay and so forth. Currently the company is way below that.

• Chintan Sheth from Sameeksha Capital enquired about the capacity at FY23, assuming no COVID wave. Ronojoy Dutt CEO said that for FY23 the growth will be muted. However, YoY there will be some change as INDIGO brings the utilization up. In terms of fleet count, INDIGO added, the company is not growing much.

• Achal Kumar with HSBC asked about the company’s highest yield in the last 7-8 years and the reason for it. Ronojoy Dutt CEO said the company is optimistic about the yield environment and it has pockets of strengths that are not going to go away. INDIGO added that people want to travel as soon as capacity is added. INDIGO also said that it’s in a high tax, high fuel environment and only thing it can do to manage that is through higher yields.

• Rajesh Rawat from HDFC Bank asked about the deliberation done for improvement in the cargo business, with some planes converted to cargo. Ronojoy Dutt CEO answered that there has been a transformation in the business condition. The company is very bullish on the cargo strategy and is going to go with its four freighters and expects this to become a good business for the company.

• Rajesh Rawat from HDFC Bank also enquired about the QIP plan and any other measures to improve liquidity. Jiten Chopra CFO replied that in terms of overall cash, INDIGO is pretty much comfortable. The company keeps watching this space for any changes that are happening. And at this stage, INDIGO feels it doesn’t need further liquidity as it has sufficient in the bag in terms of financing ability.

• Iqbal Khan with Edelweiss asked about the cargo revenue for 3Q compared to Y-on-Y and Q-on-Q. Ronojoy Dutt CEO said that in 3Q, the cargo revenue could not grow as the company pulled airplanes out from cargo, from 11 to 3. However, cargo didn’t shrink.

• Iqbal Khan with Edelweiss also asked about corporate travel. Sanjay Kumar said that on the corporate travel, the company saw recovery of almost 70% of the pre-COVID level. But with the Omicron third wave, INDIGO started seeing the drop in the business and it came down to about 25% of the pre-COVID level in the first half of the January month.  However, INDIGO is seeing some recovery after middle of January and hopes to get to the similar kind of growth in next few weeks’ time going forward.