InterGlobe Aviation Limited Q4 FY23 Earnings Conference Call Insights

Key highlights from InterGlobe Aviation Limited (INDIGO) Q4 FY23 Earnings Concall

Management Update:

• [00:16:36] INDIGO expects high mid-teens growth in 1Q24 vs. 1Q23 and aims to achieve north of mid-teens growth in FY24 vs. FY23.

Q&A Highlights:

• [00:18:24] Binay Singh from Morgan Stanley asked about the profitability per fleet of international vs. domestic. Peter Elbers CEO said the international operations tend to have lower costs and higher revenues than domestic operations due to longer flights and better average levels. However, specific routes may vary in performance.

• [00:19:28] Binay Singh at Morgan Stanley enquired on the percentage of grounded fleet and whether the increase in other operating income is offset by higher costs due to the fleet being grounded. Gaurav Negi CFO replied that in addition to other income, the company generates revenue from finance income, investments, VGF for regional routes, and compensation from OEMs, all of which contribute to the overall revenue classification.

• [00:21:37] Deepak Krishnan with Macquarie asked if there’s any measures being taken to accelerate fleet addition and increase deployment to gain incremental market share in domestic and international markets. Peter Elbers CEO replied that the company has consistently met its predictions despite supply chain challenges and forecasts high capacity for FY24 while working to mitigate supply chain issues.

• [00:23:19] Deepak Krishnan with Macquarie asked that considering the indicated lease extensions, the supplementary and maintenance cost for ASK is higher in 3Q23 at INR0.77 and whether this elevated maintenance expense will continue or if it will return to the usual level of INR 0.7. Gaurav Negi CFO said the maintenance expense is expected to be range-bound between the previous level of INR 0.7 and the current unit cost, considering factors such as escalations, inflation, and FX, resulting in a range-bound cost.

• [00:24:08] Mitul Shah at Reliance Securities asked how INDIGO is placed in terms of engine supply over 3Q and 4Q. Peter Elbers CEO said the number of planes not operational due to supply chain challenges is relatively stable on a daily basis, and the overall fleet size of over 300 planes should be considered in combination with the mitigating measures taken to address the situation. Directionally it’s stable.

• [00:27:32] Arvind Sharma from Citi asked about the yield trends in 1Q24, if yields will continue to be strong YoY. Gaurav Negi CFO said that despite capacity constraints in the market, the company is observing improved yields and strong load factors, resulting in favorable performance on the yield side for 1Q.

• [00:27:44]  Arvind Sharma from Citi queried that considering the current competitive and industry landscape, are there opportunities to lease out aircraft that are currently in India but not in use. Peter Elbers CEO the damp lease operation, driven by supply chain challenges and the partnership with Turkish Airlines, has shown positive developments in terms of healthy loads and improved connectivity, but it is still too early to evaluate its financial impact.

• [00:30:47] Deepika Mundra from JPMorgan enquired what portion of the lease cost hardening has already affected Indigo’s P&L, the expected impact on lease yield going forward. Peter Elbers CEO said INDIGO is not significantly impacted by lease cost hardening as most of its leases are fixed-rate. INDIGO expect only a marginal increase in lease rentals due to rising interest rates.

• [00:33:05] Deepika Mundra from JPMorgan asked that of the 15% plus growth targeted for next year, how much of it is likely to come from damp leases or other extension-related measures. Gaurav Negi CFO replied that the company took measures such as lease extensions and damp leases to compensate for grounding. These extensions and damp leases will contribute a percentage to the company.

• [00:40:16] Krupashankar NJ at Avendus Spark enquired if INDIGO will bid for additional slots domestically with competitors scaling down. Peter Elbers CEO said that on slots it’s too early to comment. At INDIGO, the company’s focus is on ensuring sufficient capacity for Indian consumers who wish to travel domestically.

• [00:40:43] Krupashankar NJ at Avendus Spark asked about the corporate traffic currently and future trends. Peter Elbers CEO said that the corporate market in India is showing positive growth, driven by a strong domestic economy, and while it’s challenging to differentiate between business and leisure travelers, INDIGO is observing a healthy increase in corporate travel, mainly on key and popular routes.

• [00:44:30] Venkatesh Balasubramaniam from Axis asked about the number of employees at and of FY23 and employee cost as a percentage of ASK. Gaurav Negi CFO said INDIGO’s employee base closed the year at around 32,000, and the employee salary cost as a percentage of ASK is expected to remain stable, with potential increments starting from FY24.