InterGlobe Aviation Limited analyst Q&A

The first question is from the line of Binay Singh from Morgan Stanley.

Just picking up from the opening remarks when you talk about mid -teens the yield increase or revenue per passenger increase. Are you able to fully pass on the cost pressures with that? If you could comment both on the international side and domestic side? And also, a little bit about how are the utilization rates when you said 3% to 4% growth, what is the breakup of domestic and international? So that's it. Thanks.

Binay, as you're aware, the fuel prices have gone up significantly. So practically, the Singjet went up by more than 100 points. While there has been an intervention and support that has been passed on both from the government as well as from the oil marketing companies, where the increase on the fuel has been to the tune of 25% to 30%. On the international side, the fuel continues to be on a much higher kind of scale at market prices. We did introduce a fuel charge to pass on some of those costs related to the increase that has happened. On the domestic side, we have managed to recover t o a large part, the increased cost that is there, which is, like I mentioned, lower than what the market is. And equally, on the international side, we've tried to pass on a large part of the fuel increase, but not in its entirety have been, we've been able to pass on the fuel charge. So, one is balancing out both in terms of what the fuel charge and the base price needs to be, along with the load factors that the revenue management teams are focused on. So, the objective is to see how much of the cost can be recovered through this increased revenue, but we've not been able to completely kind of offset the increased fuel environment that we are in. April was a tougher month, but what we've seen is at least for May, things are relatively better in terms of the load factors. On the utilization side, yes, the utilization has been impacted because we had to cut a lot of our capacity going into the Middle East. So, because of that, like was mentioned, close to 160 flights got impacted both for the Middle East as well as for Europe. That was largely around 18% of our capacity. While we did try to redeploy most of our capacity into the domestic routes, given that this is a season largely for domestic, but we do see pressure on the utilization also, which is what is reflected in the overall growth that we are expecting for Q1 2027. The mix tends to move around. On an average, it used to be 70% domestic, 30% used to be international. But given Q1 is a more domestic heavy kind of a play given the seasonality, the ratio is going to be more skewed on the higher side towards domestic and less on the international and any which way. International, largely the Middle East is something that we are still in the ramp phase. We are ramping back up again. The 160 flights that we had, especially with the war coming through, we had to cancel a large part of that. But today, that capacity is probably back to 2/3 of what we were. So, utilization is lower, more capacity being deployed towards the domestic and ramp back up again in the Middle East, especially as we prepare for the Q2 season, which tends to be bigger on the Middle Eastern side than on the domestic side.

Thanks for that. Any rough number where are the utilization rates on international now, like domestic data we get, just on international?

So, the cash utilization on a stand -alone basis is going to be good for us. So , load factors, again, so we are trying to optimize PRASK, like I said. So , the objective is to increase fares given the fuel environment that we are. So , we are trying to increase that. They were low, as I mentioned, especially with the crisis that was being faced, especially in March and then April. May, things are improving right now. I can't give you a firm number in terms of load factors stand -alone for international.

Next question is from the line of Arvind Sharma from Citi.

You commented that mid-teen growth in unit revenue in the first quarter. That makes a fairly high number. So purely in qualitative terms, where do you think the demand is, how elastic it is because a mid-teen number would be a very high PRASK yield in 1Q? So, do you think it starts impacting or when does it start impacting the absolute demand?

So, when you look at PRASK, Arvind, you've got to remember what happened in Q1 of last year also because we were severely impacted by the events that played out, especially in May. So till April, the quarter was pretty strong. We had the Pahalgam attack and then it followed. So the May quarter of last year, May month was extremely weak. So that was the time when we were probably having a very low both load factors as well as the revenue environment. So when you do factor that into the base, this mid-teen increase is something which is seeming to be high. But on a base effect basis, it's not that significant. Couple that with also the fuel increases that have happened. So in a way, it's positive for us that the overall yields have gone up as well as the PRASK is going up, but the base effect is low and the cost increases that we have in the month of both April and May are significant.

Got it. And the impact on demand, if any?

May is coming out to be stronger. So again, with the base. April was soft because we were still in the ramp phase. May is coming out to be positive. And as a result, that's why you have the PRASK at mid-teens level, which is a combination of both the yield as well as the load factor. So the demand is good for the month of May.

Got it. Thanks. And my second question would be on fleet strategy. Yes, over the near term, the fleet tends to be a little less flexible. But are you seeing any change in the delivery schedules given the demand or change in flights that you're going to take?

We are looking at the capacity that we need to kind of put into production and operations. Our immediate attempt is to first kind of phase out the damp leases because those are the ones which was mentioned in the opening remarks also tend to be more expen sive, both in terms of the cost because there's an inherent kind of markup that is there. Plus some of them are not the most latest technology as a result, tend to consume a lot more fuel. So that's the first kind of a space that we are kind of addressing. We will return most of our damp leases, something similar that we had done last year also given a softer Q2 that we envisioned within the cycles that we have. Then we are also looking at some of our older technology fleets that we have, which is the CO. So we'll look at it given the fuel environment that we are in. These aircraft tend to consume a lot of fuel. So we'll be looking at those. So that's our approach right now. There is no shift as far as deliveries are concerned related to our order book. But our first attempt is going to be to address it both in a manner of returning the damp leases and then looking at if there are any kind of older technology aircraft that may not need to be utilized as much. So and then we'll keep monitoring how the fuel environment works because it's anyone's guess in terms of how long this particular situation in the Middle East is going to last and then what the tail effect of that is going to be. So we're going to keep, we 'll be a little more dynamic as far as our fleet planning is concerned.

Next question is from the line of Amyn Pirani from JPMorgan.

A 2 -part question on your CASK ex fuel ex FX. So in 4Q, if I look at the line items, which comprise your ex-fuel costs, given the disruptions, given the currency depreciation, it seems that the cost inflation was quite well managed, if I look at lines like employee airport fees and even the supplementary rentals. So, any mitigating factors that you have already deployed and any color on the cost management? And the second part would be, like you have been giving guidance last year, any guidance for the CASK ex fuel ex FX trends for the quarter or for the year, whatever you're comfortable providing?

Yes, you're right, we've kind of tried to manage the cost dimension, but a large part of the cost will also have an underlying FX impact, which will start flowing through because what we absorbed in Q4 was a mark -to-market impact to begin with. So , the rupee depreciated. Going forward, that will also start playing into the CASK ex fuel ex forex. Equally, the utilization aspects also that got discussed because the longer this conflict continues and the lesser the deployment of our capacity is going to be, that also has a denominator effect because the ASKs are not going to be as much to defray the fixed cost related to that. While we've kind of seen a headwind CASK ex fuel ex forex, which is somewhere, we had guided it's going to be somewhere in the mid-single digit, at least for the coming quarters and depending on how things play out in terms of our utilization levels also, we foresee that it's going to be in mid- to high single digits is what our anticipation is right now. But just bear with us because there's so much volatility right now across the environment that most of these kind of directional kind of views that we are sharing can change significantly depending on how long this kind of continues. We are making every measure that is there to see where we can tighten. Like I said, we are also kind of reducing fleet that is not the most efficient fleet. We are looking at those spaces. Obviously, cost is a focus area always and even more so in this particular environment for us.

And just you had provided a sensitivity of INR900 crores for every USD -INR depreciation. Can you provide the latest sensitivity? Or is this still the same?

Directionally, it's still the same. The good part is we had mentioned that we have started to do hedging to limit some of this exposure. Our overall net exposure in dollar terms somewhere comes out to be around INR10 billion. We've done a hedging of around INR1.3 billion. So, give or take, we're still in that INR900 trajectory right now for every rupee movement on the mark-to-market side. So , anything on the balance sheet, we've got a $1 movement or INR1 movement to dollar tends to translate into INR900 crores. And that's what you would have seen in the Q4 performance also. The impact of FX is somewhere around INR4,800 crores.

Next question is from the line of Achal Kumar from HSBC.

I have 2. The first one is on the yield going back to your comments on the mid -teens. So I just want to understand if you could please give color in terms of how much of it is coming because of fuel surcharge and how much is the underlying increase in the fares and because of that, the yield is going. Can you please give a bit of color on that?

So Achal, what I gave was the PRASK guidance of mid -teens. So it has both the yield and the load factor. So that's the balancing act that the teams are working. So it's more a PRASK guidance. A large part is obviously going to be fuel related because the f uel charge or the fuel c ost that we need to kind of because the cost levels have anyways gone up. So while the mid-teens will look quite positive. But bear in mind, the cost levels of -- or the impact of fuel and the FX that we now need to absorb also is also equally significant. And that's why I mentioned that we are not able to absorb the entirety of the cost increases that are there. So this is on a branch level. We'll keep balancing between the yield and the load factors to try to optimize this.

Right. Second question was on the cost side. And on the cost, one part of it is about the salary cost. So because we thought we are going to hire more pilots because the new FDTL norms and the salary cost could go up actually, and we can see the Q4 salary cost is actually lower than Q3. How is happening? And any plans on the fuel hedging, please?

On the fuel hedging, that's under again, given the environment already the fuel has run up significantly. There's obviously thinking that is going around in terms of developing similar to what we've developed on the currency side, but it's in early stages given that the fuel has already run up significantly. So, we will be putting our minds to start looking at whether fuel hedging is another option or given that we already have a significant fuel -efficient fleet that we already operate as well as operationally to the extent we can minimize the fuel consumption, that will be the longest area of focus for us. But given what we've experienced in the last 3 months now, that's going to be something that we'll probably start exploring. So not done yet, but something which is in its early kind of internal deliberations.

Next question is from the line of Aditya Mongia from Kotak Securities.

My first question was more from the perspective of the pricing strategy of the company. I think in light of the fuel and the cost increase that is there, will the pricing be determined more by that or the extent of demand disruption that may end up happening? I think the underlying question over here is somewhere do you want to set a certain price point and the way costs are going to be passed through independent of demand disruption? Or will it be fairly sensitive to what demand disruption can happen?

Aditya, allow me to take this question. This is Rahul. So for us, it is very clear that we need to take fares up to protect ourselves against some of these additional costs that are showing up. And for the moment, what we are discovering is that the fares are sticking. The demand is there. So you obviously have to take the pricing up to the point where you start to see elasticity come in. For the moment, what we are seeing is as we take the fares up, the market is inelastic to these hikes in fares. And we'll just deal with this on a daily basis and see where we go.

Understood. The second question that I had was more on what you elaborated earlier on, I think this was Gaurav on the cash aspect and a fairly large cash position, how it's going to be deployed. There is a cost of aircraft ownership. Could you give us a sense of how much of that aircraft ownership cost can be mitigated over time as you use cash to purchase aircraft?

So Aditya, if you were to think of cash which is sitting in the bank, you know what the returns on that is. It will range between 6.5% to 7.5%, depending which period you look at. So that's the kind of return you get on our cash, which is sitting versus a n aircraft which has a lease rental value, which has a money cost, which is much higher. So there's a natural arbitrage that does exist for one to start deploying the cash to start owning the assets because there's always some money in terms of finances cost that is involved in this. The second dimension, which is also becoming even more meaningful is the FX related. So the sooner you lock in an aircraft and own it, the exposure related to the FX also kind of gets mitigated to some large extent also. So these are 2 dimensions that come into play as far as aircraft ownership is concerned versus using cash or keeping cash within the banks. Now having said that, I did mention in my opening statement, given we are in an aviation industry, it's always prudent to keep at least 20% to 25% of your overall top line as a safety net. That's been our stated strategy that we are sitting on a lot of cash, around 20% to 25%, which is roughly around INR20,000 crores to INR25,000 crores, give or take, is going to be something we'll keep as a safety net. But anything above that, we'll start d eploying towards acquisition of assets, which otherwise would have a much higher money cost to pay than what we will get as returns on those from the banks or the mutual funds that we have.

Next question is from the line of Pramod Kumar from UBS Securities.

Pramod Kumar, can you hear us?

Pramod, can’t hear you.

Pramod, your voice is breaking. Can you hear us?

Yes, I can hear you. Can you hear me?

Yes, now we can.

Now we can.

Yeah, yeah. Sorry. Sorry for that. Just a clarification on the employee cost. I think one of my peers did ask a question as to why the employee cost fell on a quarter -over-quarter basis, just clarify that, that will be very helpful.

Sorry, what's the question, Pramod, I missed that.

The employee cost, Gaurav, the sequential decline in employee cost even with higher hiring and all, what led to that decline on a quarter basis?

Okay. So if you look at quarter-over-quarter sequentially, you're saying that there is some reversal that we've taken related to some accruals we were doing related to leadership payouts, which have been reversed out. That's why you see a kind of a reduction on a sequential basis. Other than that, year-over-year, the cost would be growing in line with the normalized kind of inflation and increases that we have on the salary front.

Fair enough. And second question is on the corporate side, sir, because we've been hearing a lot of statements from companies publicly and privately that they are kind of tightening the belt on expenses, including travel. So -- and corporate travel trend. If you can just ask for any color target, any...

Pramod, sorry we are again losing your audio.

Sorry. Is it any better, sir? Sorry, I'm like -- I'll come back in the queue. Hello?

Sir, were you able to get the question?

It was on the corporate travel. Corporate travel, any changes you're seeing or moderation you're seeing on the corporate bookings?

No. Like I said, May is coming relatively good. I've already given a bit of a guidance in terms of where we're looking at the PRASK/CASK. So we are not seeing any kind of a softness. So I can't differentiate between corporate right now versus what is for leisure and purposes. But overall, May is coming better. April was soft, but May is coming stronger.

Next question is from the line of Krupashankar from Avendus Spark.

My first question is on the international side of things. I just wanted to get a sense around the long- haul, Rahul, for the rest of the year. I do understand there are restrictions at this point. I wanted to get a sense on whether you continue to lease mo re widebodies and continue to cater to new destinations on the international side, the Far East destinations?

This is Rahul again. So when you talk about long haul, what markets are you talking about?

For example, last we started Manchester, Amsterdam, etcetera. So something on those things, probably in the Far East or other geographies?

Yes. I mean in this journey, we will continue to, on a daily basis, optimize the network to suit the current needs. What that will be tomorrow morning, we can't tell you. But the assurance we give you is that we continue to watch this very closely and to ensure that we are running an optimal operation.

Understood. The second question is on the new domestic airports, which are in key metros. Just wanted to get a sense around the incremental capacity deployment in domestic.

Krupashankar, sorry, we lost your audio. Can you hear us? Due to no response, we move on to the next participant. Next question is from the line of Prateek Kumar from Jefferies India.

I have a couple of questions. Firstly, you talked about ex fuel ex forex guidance of mid - to high- single digit. Of course, it's extremely volatile. But is it possible to give something on ASK growth for full year as well? You talked about the first quarter at 3% to 4%.

Not yet, Prateek, we'll have to wait because we are not giving annual guidance right now. We're just giving for Q. So in due course, we'll also come up with that.

Yes, our readiness in terms of FDTL is complete and will remain like that into the future.

Next question is from the line of Ankur Periwal from Axis Capital.

First question on the capacity management, while you alluded towards this, just curious to understand, given the constraints on the international routes, this capacity you mentioned has been deployed on the domestic market. One, if you can highlight whether these are more metro or the non-metro routes? And combining this with your earlier comment that the fuel price increase, at least in the domestic market in the month of May, give and take is largely done in terms of yield matching the increase in the ATF prices. So your thoughts there, please?

So large part of the redeployment is on the domestic side is going to be towards, the metro, especially the new airports that are coming up. We've got both Navi Mumbai as well as now Jewar starting shortly, going to be very important towards that. Plus a large part, at least in the fourth quarter is going to be towards the leisure market in India because this being a seasonally big quarter for travel domestically, these are going to be towards leisure markets. Sorry, I missed the second question that you had.

Sure. Yes. The second part there was your comment on domestic yield largely matching the ATF prices, while on the international, maybe on a route-specific basis, it may vary. But on the domestic side, it's largely matching the increase in ATF prices has been largely passed through?

Yes. Thanks to the fact that the increase on the fuel wasn't as big as we saw in the international side because we did get support from the government as well as the oil marketing companies where the increase was only 25% to 30% vis-a-vis international which was at market where the increase was more than 100%. So that's why we've been able to manage that relatively better, keep our prices, especially for the domestic season, lower. Otherwise, the price increase would have been even higher. So in effect, it's a tag teaming because the airports also helped out in terms of the airport charges being deferred out. So a combination of both the oil marketing companies, the airports, the airlines, all collectively working to make sure that the prices do not significantly increase for the consumer, especially in this period, which is Q1, which is big in domestic.

Next question is from the line of Sabri Hazarika from Emkay Global.

Firstly, one clarification. This PRASK guidance of mid -teens, this includes the fuel surcharge or it excludes that?

It includes. It's all in. And so would the all-in cost for us also. So it includes.

Okay. Now coming to the question in terms of fuel prices, I mean there has been a lot of development. I think Delhi as well as Maharashtra, they have reduced the VAT also significantly on ATF. So do you see that it is probably the peak of the fuel pricing where we are right now, at least right now. And I think they have not passed on, I guess, there has been no pass on of the lower VAT or anything of that sort, right? So do you see fuel prices coming down here on? And from April until now, not too much of clarity is there exactly on what is the real fuel prices for the airline. So can you give some idea on that also? Thank you.

Sabri, this is Rahul. This is work in progress. We are working between the Ministry of Civil Aviation and the Ministry of Petroleum and Natural Gas to come to an agreement into the future. And as soon as we have clarity, we would let you know.

Next question is from the line of Jinesh Joshi from PL Capital.

Sir, my question is on our hedging policy. If I'm not mistaken, our earlier policy was to hedge the cash flows falling during the next 12 months. Now given the excessive volatility in rupee that we have seen of late, are we contemplating any change in strategy over here?

We are enhancing the policy that we had, and I mentioned this the last time also. Our initial going in position to hedge was for the next 12 months, and we had a goal of hedging up to $1 billion. Subsequently, we've increased that to $3 billion. So we intend to hedge up to $3 billion. A large part is going to be $1 billion towards the short -term cash flow hedges for the 12 -month period. And the remainder of the $2 billion is going to be spread over the 2-year to 5-year period. So we've kind of expanded and enhanced our policy. And as a result today, we are at $1.3 billion, and we'll continue to keep scaling this up.

Sir, one last question from my side. In the month of March, our international ASK was down by about 33% due to the Middle East crisis. But I think some of the capacity loss would have also come because we might have canceled some of the flights which probably are going through that route and now maybe the maybe the rerouting would have been in place. So just wanted to get some sense in April and May, how is our international capacity deployment shaping up? I mean is the situation better off than March? I mean if you can throw some color on that?

Yes. So immediately, like was mentioned, we have close to 160 daily frequencies that we were running, went to the Middle East as well as into Europe. So once the crisis happened, which was February 28, a large part of this had to be cancelled for obvious reasons because it was a high-risk zone. So 160 flights got cancelled for a couple of days. After that, slowly, we started to ramp up. We were in the 20s for a large part of March that we were operating. As things stand today, there is a high degree of normalcy that has started to come in into the Middle East. We've started operations approximately two-third of that 160 that we had are no w operating, and we intend to kind of scale back to full capacity by the end of June, which incidentally then rolls into a peak period, which is for the Middle East in Q2. So that's the way things have shaped up. February, we had to cancel. Slowly, we started to ramp up. We are back to 2/3, and then we intend to take full kind of capacity by the end of June. And this this all subject to the risk assessment that we do both internally as well as with various partners that we have.

The next question is from the line of Karan Khanna from AMBIT Capital.

Firstly, with William Walsh set to take over as CEO in August '26, could you comment on key strategic priorities that are being handed over? And given Mr. Walsh's extensive experience with full-service global carriers, should we anticipate any further shift in IndiGo's hybrid model?

Well, this is Rahul. I'm going to talk about what strategic responsibilities we're going to hand over to him, we are going to hand over the business to him. He is going to be the CEO and he'll run the shop in its entirety.

In terms of given his experience as running several shops with full-service global carriers, is there going to be a change in business strategy? Or will it still be more hybrid focused?

So let me answer that in 2 parts. What is very clear for IndiGo is the fact that our single -aisle program with the 320s and the 21s is going to be always central to the future of this company. That's the very heart of this business. Now we're adding some mutation to it with the XLRs, with possibly the 350s into the future. And that will be a hybrid model, and it's something that Willie is well experienced with. I mean he did that at Aer Lingus. So , we'll continue to build that strategy of starting to create an international footprint while we completely hermetically protect our short-haul business with our 320, 21 fleet.

Recently seen Air India take a much more aggressive stance on cutting capacity, slashing nearly 22% of the domestic flights and cutting deep into the international network to combat high ATF prices. Given that IndiGo's domestic curtailment is far milder and you are still inducting one plane per week, what is your stance on Air India's capacity cuts? Are you looking at this as a tactical opportunity to aggressively capture the space passenger base?

Well, we are not at liberty to answer questions on behalf of Air India. All I can say is that IndiGo, we will do what is right for us. We will continue to watch the space and our capacity and continue to optimize our operations on a daily basis.

Thank you very much. Ladies and gentlemen, that will be the last question for today. On behalf of IndiGo, that concludes today's conference. Thank you all for joining us, and you may now disconnect your lines. Thank you.

This transcript has been edited for readability and is not a verbatim record of the call. The financial information presented in this transcript is reported on a consolidated basis.