InterGlobe Aviation Ltd (INDIGO) Q3 FY22 Earnings Concall Transcript

InterGlobe Aviation Limited (NSE: INDIGO) Q3 FY22 Earnings Concall dated Feb. 04, 2022

Corporate Participants:

Richa Chhabra — Investor Relations

Ronojoy Dutta — Whole Time Director and Chief Executive Officer

Mr. Jiten Chopra — Chief Financial Officer

Mr. Sanjay Kumar — Chief Strategy and Revenue Officer 

Wolfgang Prock-Schauer — President and Chief Operating Officer

Analysts:

Binay Singh — Morgan Stanley — Analyst

Pulkit Patni — Goldman Sachs — Analyst

Arvind Sharma — Citi — Analyst

Chintan Sheth — Sameeksha Capital — Analyst

Achal Kumar — HSBC — Analyst

Ansuman Deb — ICICI Securities — Analyst

Rajesh Rawat — HDFC Bank — Analyst

Mitul Shah — Reliance Securities — Analyst

Iqbal Khan — Edelweiss — Analyst

Mohit Adnani — CRISIL — Analyst

Nikunj Mandowara — UBS Securities — Analyst

Ashish Shah — Centrum Broking — Analyst

Vipul Garg — Kotak Mahindra — Analyst

Krupashankar — Spark Capital — Analyst

Aditya Mongia — Kotak Securities — Analyst

Presentation:

Operator

Good evening, ladies and gentlemen, and welcome to IndiGo’s conference call to discuss the third quarter of fiscal year 2020 financial results. My name is Aman, and I’ll be your coordinator. [Operator Instructions] [Operator Instructions]

I would now like to turn the conference to your moderator, Ms. Richa Chhabra from the Investor Relations team of IndiGo. Thank you, and over to you, ma’am.

Richa Chhabra — Investor Relations

Good evening, everyone, and thank you for joining us for the third quarter of fiscal year 2022 earnings call. We hope that you and your families are safe and in good health. We have with us our Chief Executive Officer, Ronojoy Dutta; and our Chief Financial Officer, Jiten Chopra, to take you through our performance for the quarter. Wolfgang Prock-Schauer, our Chief Operating Officer; Sanjay Kumar, our Chief Strategy and Revenue Officer; and Kiran Koteshwar, our Head of Investor Relations and Sustainability are also with us and are available for the Q&A session.

Before we begin, 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. A transcript of today’s call will also be archived on our website. We will upload the transcript of today’s prepared remarks by the end. The transcript of the Q&A session will be uploaded subsequently.

With this, let me hand over the call to Rono Dutta.

Ronojoy Dutta — Whole Time Director and Chief Executive Officer

Thank you, Richa. Good evening, everyone, and thank you for joining the call. Hope all of you are safe and doing well. We released our third quarter fiscal 2022 results today, and I’m pleased to announce a net profit of INR1.3 billion for the quarter ending December ’21 as compared to a net loss of INR14.4 billion for quarter ending September ’21 and a net loss of INR6.2 billion for the quarter ending December ’20. Decline in COVID cases and removal of capacity restrictions resulted in buoyant traffic numbers.

We were encouraged to see how rapidly the domestic traffic reverted to pre-COVID levels during the quarter. We added capacity to take advantage of the ongoing recovery, and we are pleased to see our efforts culminate into a profitable quarter. First, I would like to take you through the key highlights of the December quarter and then provide some insights on the impact of the new COVID variant on our performance in the current quarter.

Within the quarter, October was a relatively weak month, but we saw strong momentum building to November and December. During the latter part of December, revenue started declining because of Omicron. If this had not been the case, we would have reported even better performance. Overall, we achieved strong pricing levels and high load factors of about 80% during the quarter. While international capacity is still restricted, traffic showed particular strength.

With the gradual addition of bubble flights, international capacity deployed grew by almost 80% quarter-over-quarter and bookings grew by 95%. System-wide, we deployed approximately 45% more capacity sequentially, reaching to about 88% of our pre-COVID capacity for the quarter and about 97% of our pre-COVID capacity in the month of December. Our load factors have increased to 79.7% in the December quarter compared to 71.1% in the September quarter.

Yields have increased by 5.2%. These drivers led to a RASK improvement of 13.5% sequentially to INR4.09. Higher yields and higher capacity deployment have resulted in a sequential revenue growth of 63.5%. Moving to the cost side. We reported a CASK of INR4.03, which is 10.7% lower sequentially in spite of increased fuel cost. Higher capacity deployment has helped reduce our unit cost. Fuel continues to be a significant headwind.

And as a result, the fuel CASK went up by almost 13% on a sequential basis. In line with our fleet modernization program, we continue to replace the CEOs with Neos. During the December quarter, we inducted 18 fuel-efficient Neos and returned 16 CEOs. We remain firmly on the path of returning most of our CEOs by the end of December 2022. Towards our long-term goal of enhancing our global footprint, we also signed a codeshare agreement with Air France-KLM, our fourth arrangement with an international carrier.

This is a 2-way codeshare agreement and will help us increase connectivity and gain access to new markets. We are confident that such partnerships will remove — will improve IndiGo’s reach to new markets and customers once the international operations normalize. Before we talk about current market condition, I would like to pause and thank all our employees for providing exceptional service to our customers during the difficult calendar year.

In 10 out of 12 months during calendar year 2021, IndiGo was positioned as number one in on-time performance as a result of our employees’ efforts. Now let me talk about the current market condition. In response to increase in COVID cases, we have reduced our operations to stay in line with declining demand. We are expecting that the capacity deployed in the fourth quarter of fiscal 2022 will be reduced by approximately 10% to 15% as compared to the third quarter of fiscal year 2022. We think that load factors for the fourth quarter could possibly be weaker than the third quarter.

We are clearly in a volatile environment and we are reviewing our bookings and capacity deployed on a daily basis. Unfortunately, we are experiencing a bit of an unpredictable environment with traffic recovering and declining lockstep with the COVID cases. While we are going to see declining revenues for the fourth quarter, the experience of other countries leads us to believe that we’re likely to see a recovery take place again in the first quarter next year.

In summary, we are particularly pleased that we are able to report a profit for the quarter for the following four reasons: first, it demonstrates that the fundamentals of aviation in India remain strong, and once we’re able to put the pandemic behind us, we should be able to return rapidly to a path of profitable growth. Two, it validates our core belief that higher employee engagement results in higher levels of customer service, which in turn manifests itself in better revenue performance.

Whether it is group fares or charters or individual bookings, we are positioning ourselves as the preferred airline because of our superior service. Three, international revenues continue to be very robust and this augurs well for our future growth. And finally, four, the essence of our business model with its emphasis on cost leadership and reliability has served us well even in this uncertain time. We are looking forward to the next financial year with optimism and with a steely resolve to make sure better times are ahead for all of us.

With this, let me hand over the call to our CFO, Nitin Chopra.

Mr. Jiten Chopra — Chief Financial Officer

Thank you, Rono, and good evening, everyone. I hope that all of you are keeping safe and healthy. For the quarter ended December 2021, we reported a net profit of INR1.3 billion compared to a net loss of INR14.4 billion for the quarter ended September ’21. We reported an EBITDAR of INR20 billion compared to an EBITDAR of INR3.4 billion in the quarter ended September ’21. In the December ended quarter, we operated at 88% of our pre-COVID capacity.

This higher capacity deployment has helped us to further improve our performance metrics. Some of the key measures of the reported quarter are as follows: our RASK increased by 13.5%, driven by sequential increase in load factor by 8.6 points and in yields by 5.2% to INR4.4 sequentially. As we deployed 45.2% additional capacity, our CASK ex-fuel reduced by 19.9% sequentially to INR2.6. We still have substantial headroom for absorbing our fixed cost by increasing — by increased international and domestic operations.

Our fuel CASK increased by 13.2% sequentially, driven by increase in ATF prices. The update on our cash position is as follows. We ended the December quarter with a free cash of INR78.1 billion, net increase of INR14.6 billion as compared to September end. Our total cash as of 31st December ’21 was INR173.2 billion. We continue to monitor ever-changing market conditions and will respond in an appropriate manner whenever necessary. We are thankful to our employees who have kept up their spirits during the difficult days.

In line with the better performance in third quarter, we have rolled back certain employee cost measures. On the other key balance sheet numbers, we ended the quarter with capitalized operating lease liability of INR307.6 billion and total debt including the capitalized operating lease liability of INR351.5 billion. Our ROU assets at the quarter end was INR202.8 billion. The key to overcoming current pandemic condition is largely in maintaining our cost leadership position. We are striving each day to improve on cost metrics and looking to add innovative ways to further capitalize on this trend.

With this, let me hand it back to Richa.

Richa Chhabra — Investor Relations

Thank you, Rono and Jiten. 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 are ready for the Q&A.

Questions and Answers:

Operator

Thank you very much. Ladies and gentlemen, we will now begin the question-and-answer session [Operator Instructions] 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. I just wanted to understand the operating leverage point that you highlighted a bit better. So firstly, when we look at the ASKM for the quarter, like given your fleet size how much more can it be from the current level? Just to understand that what is the utilization rate of the fleet. The second is when you talk about operating leverage, outside of lease rentals, which are the other line items where you would call out, that in a normalized year that you could see a big operating leverage? Thanks.

Ronojoy Dutta — Whole Time Director and Chief Executive Officer

Okay. So on the capacity, as we said that in our release, utilization is at about 10.7% or so. We can easily go up to 13, 13.5 hours of utilization. So there’s still a lot of headroom left in terms of increasing our capacity. However, it also requires international relaxation of restrictions. It’s tough to get to 12, 13 hours just domestic only because we’re only using it during the day basically. So international needs to open and then we’ll be at 13.7 hours. In relation to what is the advantage of more capacity on unit costs.

Most of our costs, as you probably know, are really variable, fuel, employees, I would say, landing cost, etc, etc. So the fixed costs are in what? They are in lease. There are in a lot of IT, digital. It’s on the network. Those sort of costs are mostly fixed. But it’s a very small portion overall. So we need a fair amount of capacity to really bring the unit cost down. But that’s assuming that the employee costs are variable. When in reality, they’re not. Some are variable. So you’re right, most of the costs are variable at the end of it.

Binay Singh — Morgan Stanley — Analyst

And just a follow-on question on fuel per ASKM. Assuming fuel prices remain where they are, we’ll see two trends. One is that the share of Neo in the fleet will go up, which is positive for fuel per ASKM. But at the same time, will it be fair to assume that you may not be utilizing your CEO fleet fully today. So if you actually utilize the whole fleet, we may not really see much change in fuel per ASKM versus what — where we are today even if the entire fleet moves to NEO. So any comments on that?

Ronojoy Dutta — Whole Time Director and Chief Executive Officer

Yes. So I — clearly the switch from Neo to CEO is a big, big driver. And really, all the CEOs will be gone by the end of the calendar year 2022. Now as to what does fuel consumption and what are the drivers. Engines are one big driver. Along with that, the way we operate the airplane is a big driver as well. Our flight operations has been very, very active in making sure that they fly differently, if you will, in a package of ways. One is shorter routes.

One is — as you know, most of the consumption happens in descent and trying to manage all those procedures helps a lot. So the flight operations people are very active in reducing fuel burn as well. And finally, I would say we also have good purchasing power. So we do tend to pay a slightly lower rate than the rest of the industry we think in terms of fuel price. So all three of those are factors which explain our fuel consumption. But I would have to say you’re right. Over the last three, four years, one of IndiGo’s best performance has been the way it has reduced fuel cost per ASKM.

Binay Singh — Morgan Stanley — Analyst

Great. Thanks, team. I’ll come back in the queue.

Operator

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

Pulkit Patni — Goldman Sachs — Analyst

Yes. Thanks a lot for taking my questions. Rono, two questions. Firstly, if you could just touch upon the international bit a little bit more. I mean given the fact that we don’t get too much data since these are mostly bubble flights, could you just talk about where we are in terms of capacity? Or any numbers you could share? In the current scheme of things, how is the international business, what size are we operating today? That will be my question number one.

Ronojoy Dutta — Whole Time Director and Chief Executive Officer

Okay. So international is quite restricted on total amount of departures, but quite buoyant on the traffic numbers, again, because the margins are much better international, the yields are better internationally. And now where are we flying? Bubble flights are being allowed mostly to the Middle East. So Dubai, all of UAE, Doha, Kuwait, recently Saudi Arabia opened up, which is a positive for us. So we are constantly in touch with the government looking for more international relaxation. And our domestic revenues exceeded pre-COVID levels.

But international is the part in terms of overall revenues that brought us down. But again, it’s full of capacity, not because of the market conditions. Market conditions actually are very attractive. And I have to say that we see a couple of trends which are very encouraging for the future. As you know, domestically, we have been growing and we’ve grown particularly in the smaller cities and we see a lot of revenue spend there. So that says as we keep growing and keep growing in the smaller cities, that should have more tailwind.

At the same time, international is performing better than it did before the COVID in terms of absolute yields and margins and so forth, although capacity is restricted. Now as capacity opens up, we don’t expect to get such high yields. Clearly, those two things will work in reverse directions. But overall, international is very attractive to us right now. So I see those two as being tailwinds for us as we grow forward in smaller cities and international growth.

Pulkit Patni — Goldman Sachs — Analyst

Sure. No, actually, international yields actually came as a surprise to us as well. My second question is on employee costs. You spoke about rolling back some of the cost-cutting measures. But at the same time, we are seeing this increased competition coming into the market. Is there a possibility that this number could look a lot higher in future for you to retain. Plus, is there also a possibility that some of the sort of cuts that were taken place during peak COVID periods could be actually given to employees now as a onetime or something like that? Just wanted to get a sense on the employee cost and how should we model that going into the next 12 to 18 months?

Ronojoy Dutta — Whole Time Director and Chief Executive Officer

So let me see if I can answer you. If you look at our employee cost per ASK, you will see a rising trend from 2019, 2020, 2021. And that rising trend, as I think we’ve talked in earlier calls, was a large part driven by pilot training. In that period, we had to induct a lot of pilots. We went out and got, I think, 270 expat pilots. We got a lot of jet pilots who were 737 qualified. We had to convert them into A320 pilots. So all of the training bubble really pushed up our employee cost. So the way we look at it internally is that 2019 is probably a good year and 2020 and 2021 the more anomalies because of this training bubble that we faced.

And our goal is to try and get back to 2019 levels with all the restoration of pay and so forth. That’s the number we’re targeting that we like to be roughly there. And in terms of restoring pay, actually, we’ve already started doing quite a few in quite a few areas, not universally and not everywhere. But we started to gradually roll back, and we fully expect that we’ll be rolling back gradually. We won’t do anything in a rush. But we will be — as our profitability improves, we will be rolling back. But when we stabilize, I do believe we’ll stabilize at 2019 level. Right now, we are way below that, of course.

Pulkit Patni — Goldman Sachs — Analyst

Great. Great. That’s helpful. Thank you so much.

Operator

Thank you. Our next question is from the line of Arvind Sharma from Citi. Please go ahead.

Arvind Sharma — Citi — Analyst

Hi. Good evening, friends. Thanks for taking my question. Sir, just a — just your views on the competitive landscape and its impact on pricing. If we see right now, 15-day window prices are very high, but immediately on the 16th day they fall sharply. So what do you expect? Do you expect this trend to continue? Or do you see a change here from the perspective of the competitive landscape? That would be it.

Ronojoy Dutta — Whole Time Director and Chief Executive Officer

So the competitive landscape. Clearly, there’s a lot of change happening. Akasa is supposed to be flying from May, I believe, is what they’ve announced. The Tata AirAsia or Air India, they’re going through some sort of consolidation. So we do see a lot of change. I have to say, to a large part, we focus on ourselves and not so much on the competition. I mean — so when we look at what we are doing and what is our strategy, our strategy is to run a world-class airline. And as we’ve demonstrated over and over again in 2022 — 2021 calendar year, 10 out of 12 months we were number one And when we were not number one, we were probably number two.

Worldwide, we are one of the top five most punctual airlines in the world. Our customer service — I have to tell you, we go carefully through our customer complaints. I find that a great source of information in terms of how actually are we doing. And a large majority of the e-mails, at least I get, are all about complementing our service. And the negatives are declining fast. So in all of that, if you run a great quality airline — our brand name is getting stronger. If you keep your costs under control — yes, I mean I will see all the rest of it as noise in the system.

Someone comes in, someone goes out, someone has capacity. But the key focus is what are we doing. We control our costs. We make sure we’ve done a great customer service. And I have to say, employees are a very big part of our strength. It will be impossible to deliver good customer service, it will be impossible to go through the COVID period — with everything that we’ve thrown at the employees. We have been changing schedules almost on a weekly basis, whereas before our schedule was to go out for eight weeks and be stable.

We are rostering, they’re rostering again, and then we’re telling people to stay back late and allocate capacity in different ways. And through all of that, our employees have held fast and they’ve done a really superior job. So you have good employee culture, you do good customer service, yes, I think you can weather any storm. Specific to your yields, what’s going to happen? I think the yield environment is generally fairly good, I would say, given everything that’s happened. And I think it’s because people have a lot of pent-up demand to travel.

I’ll take Male as an example. Pre-COVID we do Bombay-Male and Bangalore-Male and we struggle to fill those planes. And then as soon as Male opened up, it’s like my God. You can do Chennai, Bangalore, Hyderabad, Delhi nonstop and do well to Male. So there’s all of this pent-up demand. And I say the same thing for the hill stations around India, whether it’s Dehradun or Bagdogra people want to travel. So I think the yield is — I don’t see it declining from here. I think it will hold up pretty well is my best guess.

Arvind Sharma — Citi — Analyst

Sir, just a follow-up and thanks so much for the details on the yield. Beyond — I was just referring to the 15-day window because we see a very, very sharp fall immediately after that 15 days support. I think it’s a regulatory support. Do you think that could stay? Or do you believe there could be a change there wherein you could be more nimble in pricing even in the 15-day window?

Ronojoy Dutta — Whole Time Director and Chief Executive Officer

So I’ll ask Sanjay to elaborate on this.

Mr. Sanjay Kumar — Chief Strategy and Revenue Officer

So good afternoon. We’ve seen a decline of the fare outside 15 days window primarily due to the reduced demand, which kind of started coming in the last week of December and then has continued till about third week of January. And as the demand is now reversing back to a better number, a better booking trend, I think this pricing 15 days out will also get automatically connected. It’s just a question of demand and supply, I guess.

Ronojoy Dutta — Whole Time Director and Chief Executive Officer

And just to pick up on his January versus February. So I think we can describe the revenue in two waves. One is a big wave down. So up till December 15, we were fully strong. Then December to — December 15 — and again, that’s captured in this quarter, the last 15 days — to January 15, we saw a big wave drop. However, as Sanjay was alluding, from January 15 to February 5 or 6, we are seeing a small wave up, not a big wave up, but a small wave but. So in a way, we feel like, okay, the worst has come and gone. Maybe things are slowly getting better. It’s not rebounding, but slowly getting better. At least we can say for sure, it’s not getting worse.

Arvind Sharma — Citi — Analyst

Thank you so much, sir.

Operator

Thank you. Our next question is from the line of Chintan Sheth from Sameeksha Capital. Please go ahead.

Chintan Sheth — Sameeksha Capital — Analyst

Thank you for the opportunity. Am I audible?

Ronojoy Dutta — Whole Time Director and Chief Executive Officer

Yes, you are.

Chintan Sheth — Sameeksha Capital — Analyst

Yes. So congrats for the — turning profitable for the quarter. On the — you did mention that next quarters we are looking at a slightly lower capacity. But broadly if you can guide us where we can be post this — all the replacement of old CEOs to Neos? What can be the capacity, say, end of 2023, obviously, assuming that no COVID will come back to hit us again? So too early if you can guide — directionally…

Unidentified Speaker —

For 2023.

Chintan Sheth — Sameeksha Capital — Analyst

Yes, not fiscal — yes, fiscal year 2023 or 2024 maybe if you will. Whatever works for you directionally.

Ronojoy Dutta — Whole Time Director and Chief Executive Officer

So capacity-wise, again, we’ve said that for the next year our growth will be muted. Year-over-year, we’ll see some change, of course, because we’ve not been — first of all, we’ll bring the utilization up. If you go from 10.7 to 13 hours, that’s a big amount of growth. In terms of fleet count, we’re not growing much. But in the year — in 2024, fiscal year 2024, we’ll start seeing rapid growth. So I think we’ve given aircraft deliveries in earnings release, right? So those deliveries should tell you what’s happening. But behind all that is the increase in utilization that will increase. And also Sanjay reminds me that the 321 capacity also helps, because that’s the growing part of the fleet.

Chintan Sheth — Sameeksha Capital — Analyst

Okay. Correct. But you don’t want to put any number to it?

Ronojoy Dutta — Whole Time Director and Chief Executive Officer

Not yet. I think by next quarter, we will start giving those numbers.

Chintan Sheth — Sameeksha Capital — Analyst

Sure. Okay. Okay. All right. Thank you.

Operator

Thank you. Next question is from the line of Achal Kumar from HSBC. Please go ahead.

Achal Kumar — HSBC — Analyst

Yeah. Hi. Good evening. [Indecipherable] And so I had a couple of questions. First of all, on the yield. So you have reported a very, very strong yield and that’s highest ever in the last seven, eight years. So is it because of your networking? Is it because of the government fare capping? Is it because of the international? So what exactly is going on and how do you see once the things normalizes?

And also, of course, all the airlines have been complaining about the fare capping, which has been hurting. But now, of course, with the higher fuel price, that might have been reversed, now probably that is helping. So how do you see once the government removes the capping? Do you think the fares will start coming back? So if you could please help understand the yield in the background?

Ronojoy Dutta — Whole Time Director and Chief Executive Officer

Look, I’m quite optimistic about the yield environment. And as I said, we have pockets of strengths which are not going to go away. I talked about this pent-up demand. This pent-up demand — people want to travel. People want to — as soon as you add capacity anywhere and if there are no restrictions of the state governments and there’s no big Omicron or Delta wave hitting the news media, our numbers just bounce up hard and they bounce up very fast.

And they bounce up at a good yield. So I think people have slowly fallen in love with travel, if you will. They’re used to the slightly higher prices. As I’ve said tirelessly many, many times, India has some of the lowest fares in the world. So they can — the only thing they can do is go up. So I’m quite optimistic about the yield situation. And the government has been helpful on this 15-day thing. And again, every time the fuel goes up, we do talk to the government about, “Hey, what can we do?”

Because really, our problem is that we are in a high-fuel environment, in a high tax environment. So the only thing we can do to manage that is through higher yields. I also have to say that, look, it helps a lot to be the airline of choice. I know I — frankly, it’s like — I’ll take charters as an example. What tends to happen is a group will say, “I want to do this charter. Can you beat this price?” So can you at least match this price. So we are the last resort, if you will. They’ll shop around. They’ll go to three different airlines.

And finally, they’ll come to us and they’ll say, “Hey, how about this price?” And so it’s a good position to be in. I think we see that in group fares also. And individuals also write to us saying, “Hey, you are my airline.” I mean “I’d like to prefer to fly you.” So we can’t charge a higher price, of course, but we can at least — in terms of the mix — people will always tend to gravitate to us, IndiGo, and that helps us a lot.

And I go back to this connection between employee, culture, customer service. I mean they are all three very closely interrelated. And because we’ve got ourselves in a good position with the employees and we’re providing good customer service, that’s why I’m sort of optimistic about the competitive picture. And broadly speaking, I’m optimistic about the impact in the country in general because of this desire to travel that is there.

Achal Kumar — HSBC — Analyst

Right. Fair enough. Taking the last question forward on the competitive landscape. Of course, you have your own strategy and you care about yourself. But then recently, I think Akasa clearly said that they are going to sort of focus on the smaller cities, where you are sort of increasing your presence, as you said, and those are quite profitable for you. And now Akasa is sort of trying to invade in your areas. Of course, they have said that they’ll be focused on Tier three cities.

And of course, competitions do impact the yield and then a low capacity is coming. So how do you see the — I mean, of course, you said your strategy. But how do you see the strategy changing in case, of course, the new airlines start invading and they start focusing on the Tier three cities. And we all know that India is still underdeveloped market when it comes to the air traffic and — because the focus is still on the metro to metro. And you know that nonmetros probably they don’t have so much of demand to manage such a big capacity. So how do you see the overall situation?

Ronojoy Dutta — Whole Time Director and Chief Executive Officer

Look, there will always be competition, right? In every industry there’s competition. And you can’t say, “Oh my God, there’s going to be competition.” Yes, okay, there’s competition. That’s something we live with and it’s probably good for the industry. The question is: how good is your implementation? I think IndiGo has proved over and over again that they’re great at implementing.

So airline A might say, “Oh, I’ll do ultra low cost.” Airline B will say, “Oh, I’ll go full service.” Airlines C will say, “I will match IndiGo on everything.” Yes, yes, yes. Yes, yes. But the proof of the pudding is in the implementation. I mean, who has implemented well on execution and employees and employee culture? I mean, those things don’t just happen by accident. Wolfgang, go ahead.

Wolfgang Prock-Schauer — President and Chief Operating Officer

Yeah. So what I want to mention is we have also the right fleet to implement our strategy. We have the ATR. Then we have the A320 and we have the A321. So we are very flexible in growing — serving all the markets from Tier 2, Tier three up to the metro to metro and also international. So this is a huge advantage we are seeing compared to other — some competitors who have limited — surely — only because of the fleet also naturally, because we have the size and scale. They can play around with the different fleet sizes also. It’s a very aspect implemented. Because you have to see this as one in total, which network you decide.

Ronojoy Dutta — Whole Time Director and Chief Executive Officer

And Achal, if you said – let’s look at the quarter that we just reported, October, November, December. We know October was a weak month. We know after December 15, we had Omicron. And yet, IndiGo produced a profit. Why? I mean what is the one single reason why we produced a good profit? I would say execution, and it was execution by the employees. We just kept changing our schedule almost on a weekly basis. We just made sure that we were on time, made sure we had good service. And based on good execution, we made money. And that’s all we are going to focus on. And if others can execute well, they’ll make money too.

Operator

Thank you. Mr. Kumar, request you to join the queue for any follow-up as other participants are waiting for their turn. Thank you. The next question is from the line of Ansuman Deb from ICICI Securities. Please go ahead.

Ansuman Deb — ICICI Securities — Analyst

Yeah. Thanks for the opportunity. So my question is regarding on – again, on the yields part. So we having crossed the INR four per ASK kind of — is a benchmark kind of a thing because even when Jet Airways went out, I think it was not this high. I just wanted to understand one thing in the sense that, a, there is a pent-up demand, but if in case international would have been flying in Q3, what could have been the yield?

If you could just give some kind of color on that? And sustainability of beyond INR four yield. In the sense like if you think from the pent-up demand one quarter, two quarter, three quarter phenomena. After that, if your views on the sustainable yields above INR4.2 or something — like if you could give any color on it?

Ronojoy Dutta — Whole Time Director and Chief Executive Officer

Yes. So let’s take international – well, let’s do a little bit of domestic first also. See – I mean you had a virtuous cycle. When we’re going into small cities, we’re not just getting that point-to-point traffic. We’re getting a lot of connecting traffic. So that’s not going to go away, and it’s a connecting traffic that is almost unique, let’s say. So I’ll just use an example of — I’m making this up — from Imphal to Coimbatore. I mean how many airlines can you take and how many airlines will give you the choice of the morning flight, afternoon flight, evening flights, etc. And that creates unique opportunities for us to capture good yield.

Now that’s domestic and I’m just saying that’s not going away. And Hyderabad is a wonderful example of that, frankly. I mean, airlines look for that sweet spot, when you say, “Oh, I’ll fly to city A, my hub.” And it doesn’t matter what time of day I come in, it doesn’t matter where I come from, I’ll get connecting traffic. And Chicago luckily — I mean not luckily. Chicago happens to be one of those, which you call an omni hub. You just bring it in any time, it’s connecting to somewhere.

So Hyderabad is like that for us now. It doesn’t matter where you come from. I mean, before we used to sort of agonize over: “Should we do Surat to Bangalore? Oh my god, will it make money?” Now Surat to Hyderabad, just put it in, man, and we make money. So we have this sort of huge structure that we’ve now built, which allows us to grow. And domestically structure means — that no one else can. Okay.

Now let’s move to your international question. Clearly, when we opened Kuwait, when we opened Saudi Arabia, we got more than normal yield because there’s a lot of pent-up demand. But those markets have been flying now for a couple of months. Kuwait has been up for about three months. Yes, the yield has come down a little, but not a lot. And we are beginning to see two-way traffic. As we add more capacity, we do expect the yields will come down.

But at the same time, the unit cost will come down, too, because of bringing the aircraft utilization up from seven — or 10.7 to 13 and so forth. So there will be a trade-off between yields and cost – unit cost as we add capacity. And I think it will work in our favor. And you said INR4.07 is sort of a high watermark. I believe we could see the numbers again and again. Not every quarter. Clearly now, January is a weak month for us because of Omicron. But I believe we’ll keep hitting those numbers pretty regularly from now.

Ansuman Deb — ICICI Securities — Analyst

Great. That’s really wonderful too. Thank you.

Operator

Thank you. Our next question is from the line of Rajesh Rawat from HDFC Bank. Please go ahead.

Rajesh Rawat — HDFC Bank — Analyst

Thank you for taking my question. So in the last quarter, we have done deliberation for improvement in the cargo business also. Some of the planes were converted to cargo. And then some of the belly spaces allocated to cargo also. So how – where are we on that strategy? And how is it yielding benefits to us? Just a sense on that. Secondly, what is the plan for QIP, which we have initially planned? And any other measures to improve liquidity? So that’s it from my side.

Ronojoy Dutta — Whole Time Director and Chief Executive Officer

So cargo and I’ll ask Jiten to talk about liquidity. So cargo. Cargo, we – look, cargo, there has been a transformation in the business conditions and it’s driven by two different factors. One is regulation. So the government doesn’t allow airlines like that – I think Cathay, Air Korean, they used to do into Chennai, Chennai to Bombay, Bombay to Dubai. And the government said, “No, no, no, you can’t do all that, the shipment within India and so forth.” So Cathay, as you know, has reduced its capacity many times.

At the same time, the export-import business, as you know, is booming, right? India’s exports are booming, India’s imports are booming. So a lot more trade happening. Then there’s supply disruption. Containerships are not available. Oh my God, ports are congested. Airplanes are flying above all that. So cargo business, in general, has seen a transformation.

On top of that, we have high export countries right next to us, Bangladesh, Vietnam. And they’re looking for capacity to ship out to Europe or whatever and India is a great transshipment point. So this is a sort of macro long-term picture. Cargo has become more sort of fertile ground for us. Near term — in the worst of the passenger crisis, we did cargo 11 planes and said, see what you can do with it. As passenger demand has grown, we pulled those airplanes back.

And right now, cargo only has three airplanes and then two more — three airplanes for freighters and two more planes which we call cabinet cargo. So we’ve taken out seats and put nets and we’re carrying the cargo in them. However, we’re still limited and the biggest limitation is the size of the door. So it takes a long time to load. It takes a long time to unload. You can only put in certain sized packages, whatever. As the freighters come in, we can catch some of them. So yes, we are very bullish on the cargo strategy. We are going to go with our four freighters. And we’re optimistic it will become a good business for us.

Mr. Jiten Chopra — Chief Financial Officer

Yes. So I’ll take the liquidity part question. So if you see our quarter end number, we are reporting cash — free cash of INR78.1 billion, which is about INR15 billion more than what we reported in September. So in terms of our overall cash, we are pretty much comfortable. As we always do, we’ll keep watching this space for any changes which are happening. And at this stage, we feel we don’t need further liquidity because we have sufficient in the bag in terms of our financing ability also. So that’s where we are. And we’ll keep monitoring this space as things pan out.

Ronojoy Dutta — Whole Time Director and Chief Executive Officer

And generally — I mean just to put a top line face to it — cash flow is improving and our liquidity position is improving.

Rajesh Rawat — HDFC Bank — Analyst

Thank you very much for taking my question.

Operator

Thank you. Our next question is from the line of Mitul Shah from Reliance Securities. Please go ahead.

Mitul Shah — Reliance Securities — Analyst

Thank you for giving me this opportunity. And congratulations for a very strong performance in this challenging environment, sir. So I have a question on consumer sentiment in terms of — the first and second wave there was a severe negativity. This time despite number of cases being high, even railway travel we are seeing waiting period. So barring apart this government restriction, what you people are experiencing in terms of passengers want to travel? Or if sudden these restrictions goes away, what would be the likely situation?

Ronojoy Dutta — Whole Time Director and Chief Executive Officer

So as I said, through December 15, our domestic traffic numbers were higher than pre-COVID. International was lower because of capacity restrictions, nothing else. From — up to December 15, we were very strong. From December 15, we kept going down all the way every day until January 15. So every day the trend is lower, lower, lower and it’s like, “Oh my God.” Okay. January 15, we sort of bottomed. From January 15 to February five or so, we’ve seen a slow buildup again.

We haven’t gone back to any of those higher levels, but we stopped dropping for sure and we’re seeing a slow buildup again. And this all says that — look, people just watch the COVID numbers, the experience, whatever they do with their families, their friends, etc. And as soon as the numbers come down, they’re eager to travel. So what do I expect? As soon as Omicron numbers subside — I think December was a great month. I think March, April we will again be back up. And this is all assuming Omicron fades away.

Mitul Shah — Reliance Securities — Analyst

Thank you, sir. Second question. Again, as you already replied on competitive landscape, but just want to check in terms of pricing discipline, what we are finding despite this slowdown situation, lower utilization, yields are much stronger. So do you see this to sustain? Or how the competitive scenario different compared to the historical situation?

Ronojoy Dutta — Whole Time Director and Chief Executive Officer

Look, everyone wants to manage the cash and build up the cash balance, right? I mean — as they say, nothing focuses your mind so much as the cash situation. And I think every airline’s mind is very focused on the cash situation right now. That being the case, people are not going to be foolish in terms of yields. Fuel prices are up. Our capacity is not being fully utilized. We have to manage our yield. So we do our stuff. People do this stuff. But everyone is sensible. Everyone is in a way self-serving. Everyone is professional. So that is the competitive side.

As I said, there is the underlying fundamentals of the industry where people are willing to travel at a higher price. People need to travel more. There’s more migration happening. More factories are opening up in places. Labor is in the Northeast. The demand is in the Southwest. So yes, there is a certain buoyancy to the traffic. Along with that, as we’ve seen, people want to travel for tourism purposes well.

So there are a lot of good fundamentals here of industrial growth, migrant labor families. Before it was like: “Oh, we live in one state and get all of families here.” No. Now families are spread up all across India. So people need to travel. So those fundamentals will work in our favor. As we know, India has one of the lowest propensity to travel in the world. India has some of the lowest fares in the world. And there’s only one way to go and that is up.

Operator

Thank you, Mr. Shah, request to join the queue for any follow-up. Our next question is from the line of Iqbal Khan from Edelweiss. Please go ahead.

Iqbal Khan — Edelweiss — Analyst

Hi, sir. Firstly, congratulation for this result. Just one question I have, a follow-up question. You spoke about the cargo part. So during the quarter — could you please quantify that how much is the cargo revenue for this quarter versus Y-on-Y and Q-on-Q basis? And secondly, if you can throw light on the corporate travel. How they have been doing in this quarter and what is the current status of that?

Ronojoy Dutta — Whole Time Director and Chief Executive Officer

So cargo — in the quarter itself, as I said, the cargo revenue could not grow because we pull airplanes out from cargo. So we had 11 planes. We said, “Sorry, sorry, Cargo, we need it for passengers.” We went down to three. Cargo still grew, by the way. It didn’t shrink. But we pulled a lot of capacity out. On the business, I’ll give it to Sanjay.

Mr. Sanjay Kumar — Chief Strategy and Revenue Officer

So on the corporate travel, we saw the recovery of the almost 70% of the pre-COVID level or the corporate data travel in the month of December. But with the Omicron third wave, we 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. But again, as Rono mentioned, that we are seeing a somewhat recovery after middle of January and we are seeing some better numbers coming in. We hope that we’ll get to the similar kind of growth very soon in next few weeks’ time going forward.

Iqbal Khan — Edelweiss — Analyst

All right. And sir, just one bookkeeping question. If you can just give us the number of passengers for this quarter and the capacity utilization of the international fleet?

Mr. Jiten Chopra — Chief Financial Officer

So for these details if you can connect with our IR team, they will provide these separately.

Operator

Thank you. Our next question is from the line of Mohit Adnani from CRISIL. Please go ahead.

Mohit Adnani — CRISIL — Analyst

Yes. Thank you for letting me chance to ask the question. I want to understand that now with the global situation with airlines improving, are you seeing a [Technical Issues] So we have signed leases for the long-term. So the new Neos that are being inducted, are you seeing an increase in the lease cost? And secondly, if the leases are going up, are you also improving — I mean is the SLB income also going to go up because since the demand has been increasing and A320 and 321 family is the one which has always seen a lot of demand, so are you expecting higher SLB income from them?

Ronojoy Dutta — Whole Time Director and Chief Executive Officer

So we keep watching all our lease rates and our SLB income and so forth. And we are not really seeing any change. I mean we keep asking that question every week, like, “Okay, what’s happened to the latest one?” They seem pretty much in line. So there could be some turbulence later, but right now it’s pretty stable.

Mohit Adnani — CRISIL — Analyst

Okay. Thank you. And just a follow-up. Now that the four IndiGo — I mean, you’re taking four passenger to freighter conversion. Are you lining up any more cargo-only planes or freighters? Is IndiGo looking at that currently?

Ronojoy Dutta — Whole Time Director and Chief Executive Officer

We constantly keep looking at it. Our cargo plans are evolving, if you will. Right now, we made a commitment to 4. But we keep studying the market to see what the right number is.

Mohit Adnani — CRISIL — Analyst

Thank you very much.

Operator

Thank you. Next question is from Nikunj Mandowara from UBS Securities. Please go ahead.

Nikunj Mandowara — UBS Securities — Analyst

Yes. Hi. Thank you for opportunity. Sir, I just wanted to understand our delivery schedule for the remaining ATRs, which I believe 15 are left and about the possibility of inducting new ATRs or other smaller aircraft? And what can be the potential time lines? Considering that we are having growth in Tier one and three cities, wont’ we need many more of these aircraft over the medium term?

Ronojoy Dutta — Whole Time Director and Chief Executive Officer

I’ll let Wolfgang take that question.

Wolfgang Prock-Schauer — President and Chief Operating Officer

Yes. So we are not commenting in detail on the deliveries of the ATRs, but we get something like a number of more ATRs in the next year. But we also have lease expiries. And we’re just starting our discussion, evaluating if we should extend some leased ATRs, which would increase our fleet. Or we should allow the fleet to stay stable. And the market is — right now, we’re assessing it. So we have all flexibilities: growing or staying stable. So that — this is just a work-in-progress right now.

Nikunj Mandowara — UBS Securities — Analyst

Okay. Thank you.

Ronojoy Dutta — Whole Time Director and Chief Executive Officer

I would just say that if — I’ll speak for myself personally here. If there’s — one thing that has surprised me in the current environment is the strength in the small cities. I’ve been like, whoa, this is good.

Operator

Thank you. Next question is from Ashish Shah from Centrum Broking. Please go ahead.

Ashish Shah — Centrum Broking — Analyst

Yes. Thank you for the opportunity and good evening, everyone. Just one question. Like we talked about the cost structure on the employee side, ideally where we would want to be, at the 2019 level. Can we give an indication on the maintenance cost aspect as well? Obviously, today the number is inflated because of the global denominator. But would we want to be at like INR0.50 or thereabouts? Or you think that this is going to be higher?

Mr. Jiten Chopra — Chief Financial Officer

So in terms of the outlook, first of all, foremost, we should keep in mind that the number — we cannot give a number like that, because we are still returning the CEO. So we still have some time before we can actually stabilize. That’s point one. Having said that, we also need to keep in mind the fact overall there is an escalation which we need to include in our — which is included in our contract. There is the currency fluctuations.

So all put together, I would say they would be — it would not be the numbers which you are looking at, okay? That is not going to be the number. But our focus is that we remain within the range where we are comfortable, and that’s what we will look at. But again, as I say, till these deliveries are happening, we are watching this space very closely. And once we get settled, then we’ll be able to give a better guide.

Ronojoy Dutta — Whole Time Director and Chief Executive Officer

I just want to temper the discussion a little bit, though, with what’s happening with the oil prices. I mean I recall a year ago, we were looking at $45 a barrel. Now we’re looking at $89. Some people are talking about $125. So oil really is a bit of a perplexing problem for us.

Mr. Jiten Chopra — Chief Financial Officer

Great. Thanks. Thank you. That’s it from my side.

Operator

Thank you. Next question is from Vipul Garg from Kotak Mahindra. Please go ahead.

Vipul Garg — Kotak Mahindra — Analyst

Hello?

Ronojoy Dutta — Whole Time Director and Chief Executive Officer

Yes.

Vipul Garg — Kotak Mahindra — Analyst

Sir, thanks for taking the question. So first of all, congratulations for breaking even and putting a profit. Secondly, observation is that there is a sharp dip in the CASK ex-fuel. So what is the reason for that?

Ronojoy Dutta — Whole Time Director and Chief Executive Officer

CASK ex-fuel. One — the biggest one is the capacity. We went from 7.7 hours to 10.7 hours. So that clearly helps CASK a lot. After that, it’s just every area with better cost management. As I said, execution, execution, execution. But — I mean, the biggest driver was the capacity. And that’s why — we’ve only gone from 7.7 to 10.7. We can go to 13.5 very easily, and that’s our plan. But we need the international markets to open. And when it does — people were talking about: oh, but won’t the yields go down? Yes, it will, but we think the CASK will also go down.

Vipul Garg — Kotak Mahindra — Analyst

But sir, in the past also when the capacity was being fully utilized, at that time also the number was something about 2.97. So are there some cuts in the, say, expenses like employee expense, etc?

Ronojoy Dutta — Whole Time Director and Chief Executive Officer

So look, we had a cost bubble buildup in the year 2020 and 2021. I mean — and we talked about it at an earnings call. What was there? There were all the CEOs. The CEOs were driving us nuts. I mean those engines were expenses. There were maintenance problems. So that maintenance cost in 2019, 2020 was a bubble related to the CEOs, which are now going away.

Equally, as I said, there were a lot of — we were running short of pilots. We were growing fast. We were getting expat pilots. We were getting Jet Airway pilots. And the training bubble hurt us a lot. So what we’re seeing is sort of a return to normalcy, if you will, on both pilot cost and maintenance costs, and that is helping us as well.

Vipul Garg — Kotak Mahindra — Analyst

Okay. So same would be continuing in future also?

Ronojoy Dutta — Whole Time Director and Chief Executive Officer

Yes.

Vipul Garg — Kotak Mahindra — Analyst

And sir, secondly, how much of the free cash is being contributed by the advanced booking which company has received?

Mr. Jiten Chopra — Chief Financial Officer

See, advanced booking is part of our free cash generally, and we don’t normally call out a separate number for it. But it does contribute a part of — a portion of it, I would say. And not as a percentage, I would not like to call that out. But, yes, this is an important financing which we get always. And as the bookings keep building up, our free cash also goes up as well.

Operator

Thank you. Our next question is from the line of Krupashankar from Spark Capital. Please go ahead.

Krupashankar — Spark Capital — Analyst

Yes. Thank you for the opportunity. Just one question from my side. If I look at an absolute number basis, the supplementary rentals have gone up quite substantially. In fact, substantially higher than the historical levels in FY 2020 itself. So any guidance on how perhaps it will shape up on absolute — would it hover around 18 billion or so if we maintain our capacities at current levels? And perhaps an increase from a 10.7 to 13.5, it will go up further. Any color on that, please?

Mr. Jiten Chopra — Chief Financial Officer

So supplementary rental has an element of variable and this period obviously has seen significant departures, and therefore, our supplementary rentals have gone up from that perspective. The fixed cost — again, as I said earlier, fixed cost is dependent on — some of it is fixed, which will remain. And then there is this CEOs, which are — when we are redelivering, we are incurring some costs.

So to give a particular number is difficult. But as I said, we are — we would like to maintain this number, current number or maybe a few basis points plus and minus from here. That is the objective and that’s where we want to stick to. But, yes, this will all depend on how — when we are able to fully deliver our CEOs by end of this calendar, then we will have a better handle on this number, I believe.

Krupashankar — Spark Capital — Analyst

Thank you. That’s very helpful. That’s it for me.

Operator

Thank you. The next question is from Aditya Mongia from Kotak Securities. Please go ahead.

Aditya Mongia — Kotak Securities — Analyst

Thanks for the opportunity. I had a couple of questions. The first one that I had was in context of your RASK minus CASK, that sort of split that you make. As you move forward, do you see versus, let’s say, competition, benefiting more from better yields that you can get or further reduction in cost? And by yields, I mean — you said that you had three kinds of aircrafts. You can do metro to metro. You can do small cities. You can do international. I’m just trying to get a sense, can you leverage that a lot more? Or are there cost benefits incrementally that will help you more than the yield improvements that you would see?

Ronojoy Dutta — Whole Time Director and Chief Executive Officer

So IndiGo has always been laser-focused on cost control. And I think on a global basis, we are one of the lowest-cost airlines in the world. And we want to stay there. So costs are down and they’ll stay down and we’ll manage our cost to be among the lowest. So the opportunity for further cost reduction. After you’re always — already among the lowest in the world, it has to become even better on cost. You just have to maintain your position, if you will. But we see lots of availability for improving our PBT margins. That’s what we should be focused on, on the revenue side. So where is our focus? Our focus is on maintaining our cost leadership and then improving on our revenue performance.

Aditya Mongia — Kotak Securities — Analyst

Got that. The second thing I wanted to ask you was that you talked about the utilization levels being — improving from 7.7 to 10.7 and they can improve further. Assuming that international goes nowhere and you kind of come back to 100% domestic capacity levels or slightly higher, how much more improvement can happen from the perspective of this 10.7 mark also?

Ronojoy Dutta — Whole Time Director and Chief Executive Officer

Well, I think the sort of premise of, if international goes nowhere, why should international go nowhere? I mean, international is gradually opening up. All the countries are saying, hey, if you are vaccinated, why do you have all these restrictions? So international is opening up and will continue to open up. So — I mean, I don’t want to create a false premise of what if it doesn’t happen. No, it is happening and it will happen.

And that’s where the biggest opportunity is. Domestic, you’re sort of limited by the hours in a day. You don’t want to be flying — you can do a few flights at midnight, but everyone wants to travel at 6 AM and come home by 10 PM at the latest, etc. So trying to improve domestic capacity, utilization is going to be tougher. International is easy, of course, because it’s all night flying, you just take the plane and keep going. And international, I think, we have to assume that things are getting — going to improve, because they already are.

Aditya Mongia — Kotak Securities — Analyst

Yes. Got that. Thanks a lot. Those were my question.

Ronojoy Dutta — Whole Time Director and Chief Executive Officer

Thank you.

Operator

[Operator Closing Remarks]