InterGlobe Aviation Limited Q4 FY22 Earnings Conference Call Insights

Key highlights from InterGlobe Aviation Limited (INDIGO) Q4 FY22 Earnings Concall

Management Update:

• INDIGO said it swung from a profitable 3Q22 to a loss-making 4Q22 because of about 15% higher fuel prices and on 11% lower capacity due to Omicron and a lower RASK of 2.9%.

• In 1Q23, INDIGO expects the capacity to rebound at almost 2.5 times the capacity deployed in 1Q22.

Q&A Highlights:

• Binay Singh from Morgan Stanley asked about the forex loss being much larger than anticipated. Gaurav Negi CFO said that the forex impact has been around INR600 crores, which is largely because the rupee had weakened approx. 2 points between Dec. and Mar. So a large chunk of the forex impact is mark-to-market.

• Deepika Mundra of JP Morgan asked about yield and how much of the delta would be potentially from the reopening of international flights. Gaurav Negi CFO replied that international profitability has been stronger than domestic and it always is.

• Deepika Mundra of JP Morgan also asked about the international versus domestic capacity increase INDIGO is planning for FY23. Ronojoy Dutta CEO said only long term trajectory can be given. Short-term, there is a lot of volatility. Overall, pre-COVID, INDIGO’s capacity was 25% of its system. The projection for five years from now, international will be about 40% of its system.

• Deepika Mundra of JP Morgan enquired about the code-share agreements, how do they pan out in terms of profit dynamics vs. flights run singularly by IndiGo. Ronojoy Dutta CEO replied that the key to making money on codeshare is flow rate agreements. So INDIGO has a good position in the marketplace, and therefore are able to negotiate quite attractive pro rates.

• Mitul Shah with Reliance Securities asked about the impact on the traffic side with a sharp price hike on the ticket side. Ronojoy Dutta CEO said that it’s a balancing game. INDIGO added that there will be load factor pressure as it increase prices.

• Mitul Shah with Reliance Securities also asked that after this capacity utilization and capacity increase for FY23 if it’s close to pre-COVID level or even higher. Ronojoy Dutta CEO clarified that INDIGO is already higher than pre-COVID levels. It’s going to be close to 13-17% higher.

• Chintan Sheth from Sameeksha Capital asked about INDIGO’s take on yield and how it will pan out. Ronojoy Dutta CEO said that the industry has been behaving quite rationally. INDIGO expects that the rational behavior will continue and wouldn’t see any crazy price wars or anything like that.

• Chintan Sheth from Sameeksha Capital asked about the run rate of employee cost going forward. Ronojoy Dutta CEO answered that on employee costs, INDIGO has some snapback in wages and it’s not over yet. So rates will go up as far as productivity goes. Absolute fares also one could expect them to go up in an inflationary environment.

• Arvind Sharma from Citi asked about any number for FY23 in terms of fleet expansion. Ronojoy Dutta CEO said that the reason the capacity is going up is because INDIGO has such a large number of A321s coming. INDIGO’s overall fleet count won’t change much, but the capacity will go up because of higher base.