InterGlobe Aviation Limited (INDIGO) Q1 2027 Earnings Call Transcript

Ladies and gentlemen, good evening, and welcome to Indigo's conference call to discuss the first quarter of fiscal year 2027 financial results. My name is Sagar, 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, Head of Investor Relations at Indigo. Over to you.

Good evening, everyone, and thank you for joining us for the first quarter of fiscal year 2027 earnings call. We have with us our Managing Director, Mr. Rahul Bhardia, and our Chief Financial Officer, Mr. Gaurav Negi, 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 in. The transcript of the Q&A session will be uploaded subsequently. With this, let me hand over the call to Mr. Rahul Bhatia.

Good evening, everyone, and thank you for joining us on this call. Today, we announced our first quarter of the financial year 2027 results. This quarter, we reported a loss of around 2 billion rupees. The aviation industry, and in particular, the Indian aviation industry, continues to operate in an environment That is promising yet demanding. In the near term, what is very clear is that fuel costs remain elevated and we continue to operate in a very volatile environment. This makes disciplined execution even more important, protecting the business in the near term while staying responsive to fast-changing market conditions. The quarter was marked by a constructive pricing environment and our ability to pass through a part of the elevated fuel and operating cost pressure in a disciplined manner. While the quarter saw a sharp increase in costs, the revenue improvement needs to be assessed together with the movement in fuel and other costs. At the same time, it is equally important that we do not let short-term volatility cloud the long-term opportunity. Indian aviation remains one of the most compelling structural growth stories in the world. India is still a severely under-penetrated aviation market. Rising incomes, greater mobility, a young population, expanding aspirations, and continued investment in aviation infrastructure all point in the same direction. To reflect on this, it is also a moment to reflect on Indigo's journey. We began in 2006. Air travel in India could be more accessible, reliable, and consistent. Over the last 20 years, this belief has translated into meaningful impact, connecting more and more cities, from heartlands to metros to international markets, serving millions of passengers, and making air travel a practical choice for a wider sector of India. We have signed an MOU with CFM International for over 1,000 LEAP 1A engines for our future aircraft deliveries. This MOU also supports the development of an engine MRO and long-term material services. It is a clear step towards gaining structural strength, investing ahead of growth, and building the platform Indigo needs as we scale into a larger and more global airline. That same long-term thinking also shapes how we view the network and fleet choices. The domestic and short-haul business will remain the heart of Indigo, with our single-aisle program, anchored by the Airbus A320 and A321 family aircraft, being central to the future of the airline. Alongside this core, international expansion and product evolution will be important parts of Indigo's next phase. This expansion is about building a footprint in a disciplined and fit-for-purpose manner. Kindly, now let me hand over the call to Gaurav to discuss this.

Thank you, Rahul, and good evening, everyone. Let me start with sharing the operating context that we experienced during the quarter, which is important to understand the financial performance for Q1, FY27. The quarter was shaped by three broad factors impacting the outcome. One, measured capacity deployment driven by geopolitical situations in the Middle East and optimization of our schedule as we transition into a seasonally weaker period starting 15th June onwards. Number two, pricing actions as a countermeasure to offset the pressure on economic performance and outcomes. The revenue environment improved meaningfully on a year-over-year basis supported by pricing actions. Now, first moving on to the financial performance for Q1 FY27, we reported a total income of 256 billion rupees, a growth of around 19% year-over-year, with a yield growth of 21.3% and a load factor reduction of 1.3%. Despite a volatile environment, passenger demand held up as we served 31.3 million passengers, a growth of 1% year over year. In terms of profitability, EBITDA came in at 38.3 billion rupees at a margin of 15.6 compared to an EBITDA of 57.4 billion rupees and a margin of 28% for the same period last year. For the quarter, we reported a net loss of Rs. 2.4 billion compared to a profit of Rs. 21.8 billion in the same quarter last year. Excluding the impact of currency movement, we reported a net loss of Rs. 56 million compared to a net profit of Rs. 23 billion during the same period last year. The June quarter's capacity growth came in at 3% on a year-over-year basis, broadly in line with our guidance. Capacity deployment during the quarter remained impacted by geopolitical developments, particularly airspace-related constraints and disruption in certain international corridors. As the quarter progressed, we adjusted capacity with customer demand in mind. We moved capacity to markets where demand was holding up better and took measured action on routes affected by disruption. This helped us stay responsive to changing travel patterns while keeping the network aligned with customer needs. Moving to the demand and revenue, the quarter demonstrated the strength of an underlying demand base and the benefit of a more disciplined pricing environment. While demand conditions were not uniform across the market, The month of April, the demand and load factors reflected the combined impact of disruption, constrained customer sentiments in certain markets, and network recalibration. May was a standout month for Indian aviation, the best month even for the domestic industry, reflecting healthy recovery. For Indigo, it was a landmark month as we carried over 10 million domestic passengers, our highest ever, underscoring the strength of our network, our execution, and the trust of the customer, which continued to be placed on us. June remained constructive from a revenue environment perspective, with yields holding up well even as part of the international network, continued to be managed selectively. International capacity is largely recovered during the month, supporting an uptick in revenue. Driven by the disciplined pricing actions and demand supply dynamics, the passenger unit revenue came in at 5.03 rupees, which is 19% higher on a year-over-year basis. This is slightly better than our guidance, as June sustained the positive revenue momentum. The yield came in at 6.04 rupees, which is around 21% higher compared to the same period last year, and a load factor of 83%, which is 1.3 points lower as compared to the same period last year. On the cost side, fuel remained the largest source of pressure during the quarter. Global fuel markets continued to be influenced by developments in the Middle East, resulting in significant volatility. While average vent prices were up by around 50% year-over-year, elevated crack spreads drove benchmark Singapore jet fuel prices higher by nearly 120%. We saw a timely intervention by the government, which was followed by our partners from the oil marketing companies, to limit and moderate the prices of domestic ATF during the months of April, May, and first eight days of June. This support enabled us to continue to operate largely as per our planned schedule and also pass on the benefits to the domestic passengers in the form of lower fuel charge. Despite these measures, our fuel gas increased by around 80% year over year. We are also thankful to the airport authorities, airport operators, and the partners for their continued support. Further on a year-over-year basis, cash XFuel XOX came in at Rs. 3.20, around 11% higher year-over-year due to inflated dollar denomate cost due to the depreciation of the Indian rupees by more than 11%. The lower utilization in parts of the quarter leading to a lower ASK base. In this environment, we have stayed focused on cost efficiency and levels within our controls to reduce the impact of margins. We are prioritizing flying our more fuel-efficient aircraft and not operating our older CO aircraft wherever commercially appropriate. We have also tightened our discretionary expenses and deferred increments for senior-level employees. Now, moving to the fleet, we inducted a total of 13 aircrafts from our original order book, which were all inducted through our entity in the Gibbs city. We re-delivered 9 aircrafts from our original order book, and 13 damn-lease aircrafts during the quarter, resulting in a total closing fleet of 432 aircrafts at the quarter end. Let me now turn to the network and key developments during the quarter. During Q1, FI-27, we commenced flights to Jamnagar, reinforcing our commitments to strengthening domestic connectivity while selectively building our international footprint. We also became the first airlines to come on operations from Javer Airport in Noida, further deepening our presence in the NCR airport system and positioning us well for long-term growth in one of India's most important catchment areas. On the product and ancillary initiative, there is an important customer dimension to the industry's evolution. As aviation became more mainstream in India, customers are looking for more choices, more flexibility, and more seamless travel experiences. As the market evolves, customers have different needs across different journeys. Our task is to respond to these needs without losing the essence of Indigo. In the same direction, we introduce light fairs for customers. Traveling without check-in baggage, with flexibility to purchase add-ons. This supports customer choices and revenue diversification while remaining consistent with our simple, efficient, and operating model. We continue to strengthen our loyalty program ecosystem through partnerships that deliver greater value beyond journey itself. A collaboration with Accor. All Loyalty Platform, which recently went live, extends meaningful earning and redemption opportunities across travel and hospitality, enhancing customer engagement and reinforcing Indigo's blue-chip long-term proposition. Further, during the quarter, we also tested CETA's OptiCline, an AI-powered flight optimization solution aimed at improving fuel efficiency. These initiatives reflect our strategy in action, expanding the network in a disciplined manner, giving customers greater choices, and building ancillary revenue streams, and continuing to strengthen the efficiency that sits at the core of Indigo model. Turning now to the balance sheet side and liquidity, we ended the quarter with a total cash of 529 billion, of which free cash was Rs. 390 billion, and restricted cash was Rs. 139 billion. The capitalized operating lease liability stood at Rs. 538 billion. The total debt including capitalized operating lease liability stood at Rs. 815 billion, with the right of use Thank you. In terms of the cash utilization during the quarter, we made deliberate capital allocation towards assets that strengthened the platform for the long term, including the purchases of four engines through the gift city entity and partial payment towards acquisition of land for our unified campus. As we enter the seasonally softer demand period and continue to manage fuel and airspace volatility, we are adopting a prudent and a measured approach to capacity. We are rationalizing capacity by selective boot-level actions and few temporary international suspensions. As a result, we are expecting a flattish capacity growth in Q2 of FY27 compared to the same period last year. In terms of unit packing the revenue of RASC for Q2-FI27, With the current balanced demand supply equation and a higher fare holding up, we are expecting growth of more than 25% compared to this same period last year. Now, in closing, the June quarter reflects the strength of the revenue environment and the depth of the demand base, but also the realities of highly elevated costs. We will continue to manage business with discipline, balancing growth with economics, capacity with demand, and near-term volatility with long-term strategic priorities. Our focus remains on reliability, cost efficiency, balance sheet strength, and long-term shareholder value. With this, let me hand it back to Richard.

Thank you, Rahul 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 are ready for the Q&A.

Thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and one on their touchstone phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Your first question comes from the line of Krupa Shankar and Jay with Aventus. Please go ahead.

Good evening, and thank you for the opportunity. My first question is on the yields, while you have highlighted that the task at least has expected to be high at 25%. What has been the impact that you've seen so far with respect to low factors, and is that one of the key reasons why there is a rationalization exercise with respect to capacity, and that the guidance is lavish? on the relatively lower base on the YY.

The way Q1 panned out for us, we already had at least a 21% increase in the yield. The load factor did not go down significantly. It was just a 1.3% decline on the load factor. As we are looking into Q2, we are seeing that the price discipline is still holding up in the market, and as a result, the yields have been tapering upwards, and that's why the guidance for Q2 is 25% and north of 25%. They're expecting the loads to be flattish. Or slightly down, similar to what it was in Q1, but that's largely driven by the fact that a large part of the capacity has also been reduced, which is typical of this quarter. Even last year, we had tapered down or optimized our capacity given that it's an off-season quarter. So with the decline in the capacity deployment that we've done, we are seeing that the pricing discipline is still holding up. We are able to push our prices, and the loads are also sticking. So that's how we are looking at Q2.

Got it. And the second one is on the, on the, on the, on the, on the, on the, on the, on the, on the, on the, is there a number you want to keep as a, a bottom number or a, a spread number which you would be comfortable with going ahead until which there can be increasing.

The endeavor is always going to be economically viable proposition so that we keep having a healthy spread. But as you're well aware, the kind of environment that we are in right now, the The fuel and the currency have been the biggest drag. So, given how things have shaped up in Q1, we've managed it well. We were hoping that this is behind us because a large part of the conflict was coming to a close. We've recently started to see some flare-up, but our endeavour is always going to be to make sure that there is a healthy spread, and towards that we'll keep working, but the external factors are just too significant, the headwinds are too significant, but... Like we said, we keep testing high levels of yields in order to offset largely the increased levels of cost that we are experiencing. So there's no kind of a target, but we just want it to be a healthy kind of a spread.

Thanks for answering. I'll give back in the queue.

Thank you. The next question comes from the line of Polkett Putney with Goldman Sachs. Please go ahead.

So, thank you for taking my questions. I have a couple. Firstly, any change to your full year guidance given that your second quarter guidance is a flattish one after first quarter also being relatively weak? So, how should I look at your full year ASK guidance? That's question number one. Okay, we are holding to the guidance that we gave at the analyst meet. So it's in single digits. So it was already tapered down. But post-27, we had also given a guidance that we'll be back to early double digits. So given the external factors, we're still holding to the single digit guidance that we were on capacity.

Sure, sure. That's useful. Gaurav, my second question, it's not typically asked, but would you be able to talk about on a rupee basis, what has been the cost of fuel that you have paid in this particular quarter? And I'll tell you the reason why I'm asking this. Has our fuel consumed per ASK changed meaningfully between the last few quarters and this quarter?

That number would be helpful for us to just gauge that.

No, so when you say the only change, the two elements of change in the fuel, one is the rate and the consumption. So there's no change on a per ASK basis as far as the consumption is concerned. The only driver of change has been the rate, and the rates, as you're very well aware, have been going up, and that's been the biggest part of the mitigation that we've been working in Q1.

And for the quarter, what's that rate, if you can talk about?

So again, it's going to be, if you look at the reference point, if you look at March, because the way the pricing for fuel worked out, March was a reference point when in 1st of April, where the support came in both from the government and the oil marketing companies, where they said that the increase in the fuel rates is going to be capped at 25% for the domestic space. So that was defined from 1st April. It worked out in April, it worked out in May, and until the 8th of June, this particular methodology worked out, while the international always was at the market rates, which was where the MOPAC was trending. Post the 9th of June, even for the domestic space, we've got the market rates, the Mopac rates that has kicked in. So it's kind of the way the quarter played out. First April till 8th of June, there was a defined kind of a formula which was supported by the oil marketing companies for all airlines that is going to be referenced to a March pricing that you had, a 25% cap on that, plus you've got taxes on that and excise duties. Post the 9th, the reference then shifted, and it was back to the market rates, which any ways played out for the international space. So all domestic had this. International was always at market rates. This was just for the public sector kind of oil marketing companies. The private, in effect, had their own rates that were in place, which was, again, linked to the market prices that were applicable in March.

Sure.

I'll take this offline because my implied calculation is showing that the effective rate is close to 150 rupees per litre. I'm not sure if that's the right number, so maybe I'll check with you offline to get a better understanding of this.

Sure.

Sure. Thank you. Thank you. The next question comes from the line of Arvind Sharma with Sviti. Please go ahead.

Hi, sir. Good evening. Thank you for taking my question. Kind of continuing on the fuel cost part, if you look at the fuel cask, that is up almost 60% quote-on-quote and 80% YOY. Now, I understand that there was a cap in the fuel cost increase, but there have been multiple releases and test releases by the OMC that fuel price would not be increased. I think, nay, it wasn't. So, even after that, a 63% quarter-on-quarter fuel task increase, what would be the key drivers? Because even after 9th June, if it was a free market for a major part of the quarter, the growth might not have been as much as the numbers kind of reset. If you could show some more light on how the fuel task increase of 63% quarter-on-quarter ties up with the actual fuel that you've paid for.

Since you're doing a quarter-over-quarter comparison, if you look at January, February, and March, so there were three kinds of reference points. The fuel was increasing significantly in March. So it was in the early 80s from a Singjet standpoint. Went to around 82-ish in February, and then there was an increase that happened in March. So March becomes the baseline when you do the quarter comparison, because March became the reference point for April and May and the eight days of June that you had. So you were already at an elevated level of a base on which then there was this formula that was being applied, which is 25% that was being applied for domestic, plus the VAT and the taxes, the excise duty and VAT that you had to apply. So that played out on the domestic front. International Any Which Ways was the same philosophy of pricing that applied prior to the war was getting applied. So the mix of that was the driver of the fuel going up to 63%. Additionally on that, this was only up to 9th of June. Beyond the 9th of June, it was anyway back to the same methodology of pricing, which was Mopac linked. So combination of these two factors. Plus the fact that we had international, which was anyway that market, which was 2x of the reference point that you had because the market, the few prices had gone up by 120% between a March and then April, May, June. International was at 120%. Domestic was being capped at 25% with additional impact of that as well as excise. And the private players that we had were anyway. Pegging their pricing at the market prices. A combination of these three effects is what will give you the 63% that you've kind of seen in the results quarter over quarter, sequentially. So your starting base itself, March was on a higher level compared to January and February. Add to that the elements that I kind of called out is what is driving the 63% increase in the fuel quarter over quarter.

Got it. Thanks so much. And second question would be on the fleet part. So, is it fair to assume that damplees will eventually go to zero? And is there any, given that second quarter would be a flattish capacity growth quarter, is there a rethink on the fleet strategy for the year? Or does it continue as usual, adjusted for the damplees aircraft being given away?

The free strategy is, again, the only tapering that we've done is the older technology COs have been parked given the environment. The fuel levels are extremely high. It doesn't kind of necessitate that we need to be operating those. The damp leases, yes, we've returned most of the damp leases. So we'll again assess the situation as we come into Q3. Q3, there we'll have to probably look at what is the external environment, especially related to Middle East. Has that improved? Has the fuel levels moderated down? And if the demand situation has started to improve and the cost has started to taper downwards, we'll assess that situation to see if we meet surge capacity in the form of damp leases. So, outside of that, our own fleet continues to be, continues to be on plan. That leaves, we'll assess in Q3.

All right, thanks. And if I could just ask for comments on where are you in terms of Middle East capacity? Is it normalized, or how much is the headroom for further normalization, the Middle East, Gaia and 2?

Yeah, end of June, we were actually up to the same close to 90, 95 percentage levels of what capacity we were operating. We were close to 150 prior to the war. Departures that we had on a daily basis. It went down to around 20 and 30 at the peak of the crisis. Over the course of June, then we started to ramp back up again. We were close to again 130 plus. But now we are assessing the situation that's developing over there. Today, probably, it's going to be in the north of 90% capacity that we are operating. But we continue to assess the situation because the crisis is, again, kind of flared up. So that's where we are. But our intention is to keep operating at least till the point it's safe for us to operate at the maximum amount of capacity that we can put.

Thank you so much. That's all from my side.

Thank you. The next question comes from the line of Sabri with MKGlobal. Please go ahead.

Yeah, good evening. So, my question is also on the fuel side. So, the reported number in June was something like 110 or 115 rupees per litre for ATF. So, was that also a cap number or did you account it much higher than that while taking the market date after 9th?

No, so probably I'll try to address it. Pre the war, the fuel was operating somewhere close to 85-90, in terms of ATF. When the war kind of broke out, the fuel prices went up by 120%. So it was touching more. The Singjet also, this is not Brent, but the Singjet and Mopac started to touch close to 180 to 200 because of the 120% increase that happened. So that's where they were operating at. With that base of March that you start taking and you put a kind of a cap, at least on the domestic side, it's 125%, was the cap that was put. On top of that, there is VAT and excise duty that you need to add on to. International operated at 180 plus at that because there was no relief available on the international. So when you blend these two together, you'll get an average rate. It could be somewhere 140 between the international and the domestic space. Now, in this, this is the portion that comes to you from the public sector oil marketing company partners that you have. You also have private players offering you fuel. The private players, not all of them, some of them did, but not all of them, moderate their pricing related to fuel. They continue to operate at the market pricing that was applicable to the international kind of pricing. When you blend these two, You will get the 60%, which is closer to 140 kind of ATS price levels as an average for the quarter Q1. Now, during this period, especially in June, at the fag end of June, the ATS did start to moderate downwards at an aggregate level, but it's again linked to the averages that are there. So it did come down to 110. On a market level, it was probably tapering from 180, 120, it came down to 140, and then it further tapered downwards. So there was a period when the ATF did come down, but now it's again climbed back up. So today, if you were to look at ATF, my guess is it's going to be somewhere around 140 to 150 dollars at an international MOPAC level. So, the fuel has moved us significantly, but when you add these things together, which kind of, they're different drivers to it, a combination of support that came from the oil marketing companies, the additional VAT and excise that you have to add on to it, the fact that there were two periods in this, April to June 8th, and then June 8th to 30th June, plus the private... Supply that comes from private players. A combination of that will give you the 63% increase, which from a base of 90, 85 to 90, that was there in March, when you add on the 60%, it's somewhere close to 140, 150, what I think Fulkit was also mentioning.

Right. So currently also the rate is sort of similar, $90 of Brent and another $50, $60 of single debt margins.

That's right.

Right, and second question is on your capacity. So this whole capacity thing is very significantly connected to the mid-lip scenario, is that right?

No, capacity for Q2 you're talking about, or you're talking about Q1?

No, Q1 also and Q2 that you have given us.

So Q1 was largely Middle East driven because obviously we had a huge amount of cancellation. Q2 is again a prudent call that we typically take, where we taper down our capacity, especially for off-season markets. So we've already given a communication that six of the destinations on the east side also we had moderated down those capacities. We've kind of suspended operations, which will restart back again in October, places like Langkawi, places like Ho Chi Minh City, Hong Kong, Shanghai. So there are two different kind of periods that we have. Q1 was Middle East driven, Q2 is a little towards the east because of the off-season markets.

But that's sequential. IOI could still be having a Middle East impact in Q2, right?

I hope not. Like I said, we are already at 90% right now. I hope the crisis kind of tables out. As far as capacity is concerned, we keep operating as long as it's safe to operate the maximum amount of capacity that we can throw into the Middle East.

Got it. Thank you so much.

Thank you. Your next question comes from the line of Aditya Mongia with Cotec institutional equities. Please go ahead.

Thank you for the opportunity. A couple of questions from my side. The first one is on pricing. As I understand, the company isn't utilizing its entire feed while price points are being upped to about 20% and then higher than 2Q. Is this something? As is the case in 2Q, we had lost your audio in the middle, Aditya, we couldn't hear you in the middle. Should I go ahead with the question now?

Yeah, just repeat because you got cut out in the middle, so we couldn't hear a part of your question. Just repeat.

We'll do so. So, essentially, I'm just trying to get a sense on the pricing strategy, whereas in today, there is an underutilized sleep, but price points are high. Is this something that could sustain even beyond?

And beyond Q2 is going to be the big Q3, which is usually the peak season for us. So we will be bringing back all the capacity that we have. And that was an approach that we had even last year. We had curtailed some of our capacity in Q2 because of the off-season. And then we bring back the entire capacity that we have, along with damp eases. That was at least done last year. We'll again assess the demand supply situation, especially in the context of increased prices that we'll have to kind of play with, given the cost levels are high. So again, something... We obviously close the mortar. We intend to bring more capacity back into the market because the demand is more likely than not to be very high, given that it's going to be a peak Q3 again.

Understood. The second question that I had in mind was more linked to new flows that are happening on the cross-holding between airports and airlines, in fact, being taken out as a provision. I have two parts to the question. How does Indigo think about the threat of a new airline, let's say, airports competing with airlines with their own setup? And B, from a constructive perspective, is there a case wherein, let's say, Indigo would want to partner up with airports, the way it has happened globally, and both of them then can end up benefiting?

This is Rahul. So, you know, we are reading this news as you are. All I can say is that if the news has any merit, one, it has no global precedence because it typically would reflect a massive conflict of interest. And over a period of time, it would actually... The second part of your question is a moot point right now. Like I said, let's see how this whole thing develops and then we can take a considerate view on how to approach things into the call.

Thank you. Your next question comes from the line of Prateek Kumar with Jeff Rees. Please go ahead.

Yeah, hi, good evening, team. My first question is on cost XULX4S, which you can see is 11% during the quarter. Like, I know it's because of lower utilization. Do you still maintain net to high single digit increase guided for this number? Also, can you quantify the record salary increments which were not kind of accounted during this quarter?

On the cost, it is going to be on the higher side of the single digit even to the extent of probably on early double digit because that's what we are experiencing as far as the cost environment and given the lower utilization that has happened. So for the year, we're still going to be on the higher side of the single digit, possibly even lower end of the early double digit ranges. The second part of the question, given the scenario and the environment that we are right now in, There was again a deferment related to increments that were to be given to senior management employees, so that's what we'll assess again in six months' time, what needs to be looked into given the environment that we are right now in. So there was a deferment that we had done for all senior band employees within the company as far as the annual increments were concerned.

But the employee cost is still higher by 11% year-on-year. I mean, still like reasonably higher. So that excludes the management increment and maybe that will be part of the cost in later part of the year, which also accounts for this double-digit items that you're talking about.

That's right. Cost-experiment. Okay. It factors in. It factors all that into account. But year away increases a combination of, obviously, increments that have been done to a certain portion of the team. It is also on account of gratuity. If you remember, we have taken some provisions, the increased levels of gratuity, headcount increases, and so on and so forth. So gratuity has a higher run rate now compared to what it was earlier. So we've taken an exceptional kind of course for that in both Q3 as well as Q4, but the run rate has now started to increase because of that.

My other question is on your capacity growth beyond FY27. I think you, like doing analyst meet, you gave this capacity number of 300 billion by FY50. That implied upwards of mid-teams growth from FY27 onwards, or post-FY27. And you said in your opening remarks, it was like low double digits. Can you discuss this again?

No, if we still hold to the mid-teams, that is going to be from 2007 to 2013. It's going to be early WNCH to mid-teams levels is what we still are holding to.

Sure, thank you. I'll get back to Steve.

Thank you. The next question comes from Archil Kumar with HSBC. Please go ahead.

Yeah, hi. Thanks for taking my question. So, my first question is on the yield versus the fuel and the cost pressure. So, you mentioned that with such a high increase in the fuel, you were able to cover up with some part of it with the yield. Now, you're guiding 20% yield increase. So, until what level of fuel you can still cover up? Do you think you'll be able to cover up the whole fuel price, or is there any sort of a, that with this increase in the yield, you'll still be able to cover up, say, $120 a barrel or whatever. So with this cost of, with this increase in cost also, so if you could give a bit of a color in terms of yield increase versus the cost increase, you know, how should we think about that, please?

If you look at just Q1, Achal, we basically had a yield growth of around more than 20%, 21%, but the cost increase was north of 50%. So that's where the pressure points comes in. When we look at Q2, there's been a moderation as far as capacity is concerned. And we were pushing up the yields north of 25%. As we see the shift that has already started to happen on the fuel side again, because the fuel has tapered down significantly. Now we're seeing that the fuel is, again, the SIGJET has started to, and MOPAC has started to taper upwards as far as the cost. We will again need to keep testing high levels of yields to offset that increased cost. Because beginning of the quarter when we were sitting, end of June, the war was coming to a close. Then suddenly the shift that has started to happen in the Middle East has resulted in increased levels of fuel costs. So we will have to keep testing high levels of yields also just to offset the increased cost. So this is a very dynamic situation. There's nothing that is what we can state that this is it where we will increase the yields and then we'll have to probably be able to offset the cost. The cost levels themselves have started to increase again. So we'll have to test more higher levels of yields. We'll see where this kind of settles depending on the developments that happen in Middle East.

Okay, fine. Fair enough. And my second question is around the sort of the fuel. You got some relaxation from the OMC in April May. In between, there was a news that the company was asking airlines to compensate for that in case you don't sign up for the scheme. If that happens, have you paid as in how much extra burden will come to your P&L in case you need to compensate for the losses once you made in April May, please?

No, not really, because the way we look at it, because when the fuel levels were higher, on the international side, you had to pay market. On the domestic side, the cap that was applied enabled us then to define a fuel charge that was then passed on to the consumer. So, in effect, whatever was the increase, the 25% increase that happened, which was significantly lower than what the market was, and it was a kind of a good support that came from both the government as well as the oil marketing companies, was then passed down to the consumer also, because our fuel charge did not go higher than what was the increased charge that was being passed to us. So, in effect, it was a pass-through that enabled us to keep the fuel, the fare levels low, and yet operate the schedule operations that we had.

Okay, and just to check, is Willi Walsh joining the same first of August as planned?

Sorry, Fulkit, what was the question?

Is Willi still joining on the 1st of August? Have you got all the approvals in place?

Yes, 1st week of August is when Willi is going to be joining the team. And also, just to answer the earlier question, because we've kind of settled the period of April to 8th of June based on the bills that have been also raised by the all-marketing companies on us. As per the formula that was defined, the 25% cap, so we've kind of settled those bills based on what was the agreed position at that time.

So you're not expecting any subburden from April and May?

Like I said, because we ourselves did not put any additional burden on the consumer in order to operate our plant feed. Had the levels of fuel and the charges on us been to the extent of the market prices, we would have taken a different call. But given that support was coming through, we made sure that we passed it on to the consumer.

Thank you. Thank you. The next question comes from Kushagra Bhattar with CWC Advisors. Please go ahead.

Yeah, hi. Thanks for the opportunity. Just two questions. One short-term and one longer-term. The short-term question is, if you can give us some more sense on the RASC minus RASC or the next bridge to call, let's say, for both, let's say, international and the domestic, because the environment has been challenging across, but the factors which played out are slightly different in the first quarter. And I'm assuming the competitive intensity is also quite different in both of these, which would have implications on the pricing or on the yield differently between these two markets, right? So if you can help us understand how the net spread evolved for both international and domestic in this quarter, and then how do you expect it to play out, let's say, for the entire year? Is the gap sort of converging between the two markets or you're not seeing those trends? That's the first question. I have a second question more on the longer term perspective.

Honestly, I'll take the second question because we can't give you guidance on this threat right now. You know how volatile the situation is. When we sat in March before the crisis, we were very optimistic in terms of this year is going to turn out better than the earlier two years, given the first year we had elections, then the following year we had the Pelgram. We were very, very bullish and optimistic related to how the year is going to turn out. Just the very first quarter itself has kind of turned on us. Given the external factors, both the combination of the Middle East crisis and the currency. So, very difficult to give a spread number right now. So, we are not giving any guidance on that.

Okay. No problem. Thanks. The second question is more like on, you know, the... The industry structure, let's say, apart from the relatively new news, which has come out on the airport operators entering the airline sector, but apart from that, and the related question to that is if. You know, the challenges are different, again, for airlines because all of them are at different points of maturity with different balance sheets and different cost structures. So are you seeing or expecting a significant or some sort of a decent amount of industry structure, change in industry structure shaping over the next 20 to 15 months, leading off some competition, which is where the motives. Behind this new news could also be one of the factors. So, if you can share some thoughts there, yeah, that will be helpful because it's just more like a better way where Indian airports can become global hubs or this is more like how the current structure is, which is where the motors behind this new news is coming up.

Anything we say is going to be in the speculative zone because, like what was shared, this is, again, news which is playing out. We'll see where this goes. The reality is, whatever is beneficial for the consumer... There have been certain rules, regulations, which have always kept airport and airlines separate across the globe also. But we'll keep monitoring the states. We'll see how we need to act and react whenever this comes as a formal kind of communication. The rest is all speculation right now.

All right, and just last one, if small one, if I can squeeze in, which is given the way, let's say once the international normalizes, which is already 90%, and if you continue to take fresh planes, let's say from second half onwards, do you expect the international ASK share guidance, which target, which you had shared earlier, kind of prepones and the international ASK share could? sort of go much higher than what you had estimated probably by the end of this decade. Yeah, that's it.

No, we're still holding to that guidance. We have said 40% that we'll be there by 2030. We were well on track in terms of deliveries of both the XLRs, which are largely for international markets, as well as the white bodies that will also start coming in. So we are holding to that 40% guidance. And yes, the international side is going to grow faster because it has a lower base. And we had touched close to 33% of our capacity which had gone to international. And by 2030, it's more likely than not, we'll be somewhere around 40% that we had guided earlier.

Great. Thank you.

Thank you. The next question comes from the line of Jinesh Joshi with Prabhupada Sziladir Capital. Please go ahead.

Sure, sir. Sir, my question is on the extent of effects loss that we have seen in this quarter, which is to the cure of about 82 crores. And given the extent of rupee depreciation, this number appears to be slightly lower in the context of guidance that we had given earlier with respect. Discover increased or what is it?

Mark to market. So the mark to market, the shift was only 10 paisa, quarter end, March to June end. So it was good because at one time it was trending significantly higher. So that 10 paisa translates into the 8 billion, 9 billion that we typically have called out, which is our currency exposure that we have on a US dollar basis. That translates into this 80 crore. So it's largely because where the currency closed at, at a quarter point on June, which became, which actually, It came out to be favorable because it was at one point very adverse, but strengthened during the quarter point of June, and as a result, it translates into an 80 crore, much lower than what we had experienced in the earlier quarters.

Sure. And secondly, on the supplementary rental side, we have seen that cost increased to about 0.8 on a per ASK basis. Some bit of it could be due to rupee depreciation. But is there anything specific that you would want to call out over here? Because the cost is up by about 11%. And this is one area where we have seen the surge be quite higher when I compare with the...

Yeah, when you look at it from a sequential basis also, yes, there is, because in quarter four, we had some releases, because we do a lot of, as part of the supplementary rentals, we make provisions for re-deliveries. When you re-deliver, there is some leftover in terms of you don't spend as much, and as a result, those releases come true. So that's what happened in Q4. As a result, what you get in Q1 is a more normalized kind of arrangement, which will play itself out every quarter. The increase in supplementary rentals, as you rightly mentioned, has been because of currency. These are all dollar denominated, as well as the annual escalation that kicks in. But what you have in Q1 is a normalized kind of setup, which you see quarter over quarter now.

Thank you so much.

Thank you. Thank you. The next question comes from Jainam Shah with Equidius Securities Private Limited. Please go ahead.

Yeah, hi, sir. Thank you for the opportunity. Sir, just one question. What we have seen between FI 22 and 23 while our yield has increased around 13% and 21% during that point in time due to various reasons, and then we have holded up to those yields till now, and recently we are now upwards of 6 OPs. So can we expect that post the normalization of the fuel prices, maybe after a quarter or two or so, can we be able to hold on this thing? What your assessment is or will it be back to the normal given that the competition will be eventually playing out? What's your initial assessment is?

Kevin, it's a good observation because pre-COVID to post-COVID, there was a significant shift that happened on the yield levels. There was a 40% increase that happened. So, post the crisis, there was obviously revenge travel, there was lower capacity that was available in the market that pushed up the prices. Subsequent to that, the growth has been largely volume driven. So a lot of capacity is what we were pumping in and pushing in, while keeping the yields relatively at those levels, which was then being absorbed by the market. We are again experiencing a similar kind of shift where we are in a crisis in terms of the fuel elevated, the currency depreciation. These have elevated the cost levels. We are testing new levels of pricing. As things moderate, because this is going to be a price-led kind of a growth, as things moderate, we will look towards again bringing more volume. That's why the mid-team kind of growth post-27. And we'll look to holding the prices because the cost basis themselves have also kind of increased. Barring the fuel, the normal cost levels have also increased because of their natural inflation. That is very much prevalent. And the currency, which typically does depreciate every year, on an average should depreciate. So the cost base continues to increase. It's an opportunity right now for us to push prices to offset those cost bases. But even after the crisis is over and the fuel moderates, we're hopeful that we'll be able to then start driving volume-driven growth where we are able to push more volumes so that more consumers can avail the services related.

Thank you. The next question comes from Eamon Pirani with JP Morgan. Please go ahead.

Yes, hi. Thanks for the opportunity. Just one more question on fuel. Because, you know, the oil marketing companies, the ATF prices that we used to track has become distorted because of the changes which have happened. Just from a, you know, simple calculation point of view, given whatever fuel price you have seen in the June quarter, which was made up of the fuel cap, and then the removal of the fuel cap and international being at market from the very beginning. And assuming that in 2Q you are moving or you are continuing to be on market prices entirely, how should we think about the 2Q number versus the 1Q number based on whatever you can see in the market right now? Obviously, we still have two more months, but will 2Q be higher than 1Q or will it be similar to 1Q if you can give some broad directional sense?

I wish I could do that. The forward curves related to fuel continue to keep changing. So, obviously, Q1 was significantly high where the Brent also went up. If you look at Brent today, I'm using Brent, it's not the right reference point, but if you look at Brent, it's already north of 90 again. But what happened in Cuba was that the crack went up significantly higher. So while the Brent went up 50%, the cracks were going up even higher. We'll have to see whether demand supply equation works for aviation turbine fuel, because that demand supply then defines what the crack levels and the pricing for MoPAC is going to be. So if you look at the forwards, and we keep tracking the forwards on a regular basis, we've seen an uptick. We've seen an uptick because no one can kind of crystal gaze in terms of where it's going to be. The best reference point is going to be where the forwards related to Mopac or Singjet is moving. We've started to see an uptick. We were hoping when we started Q2. They were all moderating downwards. And that's one of the reasons why no one signed up to the scheme, because the levels had come down lower than the thresholds. But now we again started to see an uptick. So it's anyone's guess, honestly, because the best reference point is going to be the forwards that is available. So far, the forwards were lower than what Q1s were, and as a result, Q1 had to be better than what Q2, sorry, Q2 was supposed to be lower than Q1, but if the war kind of starts And whatever turn this particular thing takes, and the Hormuz Canal, etc., is kind of blocked, we may see similar levels of Q1. Going in, we had anticipated Q2 was going to be better than Q1. Okay, okay.

But you are assuming Q2 to be better than Q1, because I understand that the forwards were coming down. But in Q1, for the last part of the quarter for the domestic business, you also had a cap. Then shouldn't Q2 still have been higher than Q1 because the cap gets removed? I'm just trying to get that calculation correctly, you know.

No, the levels had come down below the cap levels is what I'm saying. The levels were coming down even below the cap levels is what I'm trying to say.

I'll miss you.

Sure.

That would be our last question for today. Ladies and gentlemen, on behalf of Indigo, that concludes today's conference. Thank you all for joining us and Human Autism Connected Alliance.