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Edited Transcript of INDIGO.NSE earnings conference call or presentation 27-Jan-20 11:30am GMT

Q3 2020 Interglobe Aviation Ltd Earnings Call

GURGAON Jan 30, 2020 (Thomson StreetEvents) -- Edited Transcript of Interglobe Aviation Ltd earnings conference call or presentation Monday, January 27, 2020 at 11:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Aditya Pande

InterGlobe Aviation Limited - CFO

* Ankur Goel

InterGlobe Aviation Limited - Associate VP of Treasury & IR

* Ronojoy Dutta

InterGlobe Aviation Limited - CEO & Whole Time Director

* William Boulter

InterGlobe Aviation Limited - Chief Commercial Officer

* Wolfgang Prock-Schauer

InterGlobe Aviation Limited - President & COO

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Conference Call Participants

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* Abhishek Joshi

CGS-CIMB Securities (Singapore) Pte. Ltd. - Analyst

* Achal Kumar

HSBC, Research Division - Analyst

* Aditya S. Makharia

HDFC Securities Limited, Research Division - Analyst

* Ansuman Deb

ICICI Securities Limited, Research Division - Aviation Analyst

* Arvind Sharma

Citigroup Inc, Research Division - Associate

* Ashish Shah

Centrum Broking Limited, Research Division - Analyst of Infrastructure and Airlines

* Ashwani Kumar

Nippon Life India Asset Management Limited - Senior Equity Fund Manager

* Bhavin Ajitkumar Shah

Sameeksha Capital Private Limited - Founder

* Binay Singh

Morgan Stanley, Research Division - Executive Director

* Deepika Mundra

JP Morgan Chase & Co, Research Division - Research Analyst

* Joseph George

IIFL Research - Assistant VP

* Lokesh Garg

Crédit Suisse AG, Research Division - Research Analyst

* Manish Ostwal

Nirmal Bang Securities Pvt. Ltd., Research Division - Senior Research Analyst

* Pulkit Patni

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Ruchit Mehta

SBI Funds Management Private Limited - Analyst & Fund Manager

* Santosh R. Hiredesai

SBICAP Securities Ltd., Research Division - Research Analyst

* Sonal Gupta

UBS Investment Bank, Research Division - Director and Research Analyst

* Varun Ginodia

AMBIT Capital Private Limited, Research Division - Research Analyst

* Vijayant Gupta

Edelweiss Securities Ltd., Research Division - Research Analyst

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Presentation

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Operator [1]

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Good evening, ladies and gentlemen, and welcome to IndiGo's conference call to discuss the third quarter fiscal year 2020 financial results. My name is Aman, and I'll be your coordinator. (Operator Instructions) As a reminder, today's conference call is being recorded.

I would now like to turn the conference over to your moderator, Mr. Ankur Goel, Head of Investor Relations for IndiGo. Thank you, and over to you, sir.

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Ankur Goel, InterGlobe Aviation Limited - Associate VP of Treasury & IR [2]

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Good evening, everyone, and thank you for joining us for the third quarter fiscal year 2020 earnings call. We have with us our Chief Executive Officer, Rono Dutta; and our Chief Financial Officer, Aditya Pande, to take you through our performance for the quarter. Wolfgang Prock-Schauer, our Chief Operating Officer; and Willy Boulter, our Chief Commercial Officer, 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 within an hour. The transcript of the Q&A session will be uploaded subsequently.

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

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [3]

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Good evening, everyone, and thank you for joining us on this call. We released our third quarter fiscal year 2020 financial results today. And I'm pleased to announce a profit after tax of INR 5 billion compared to profit after tax of INR 1.9 billion last year. Our after-tax profit margin was 5%. Overall, we continue to do well on the revenue front while being challenged by some temporary headwinds on the cost front. We are happy with the improvement in revenue performance during the quarter, and we reported a year-over-year RASK growth of 5.6% with December, in particular, being a strong month. We have now had a string of 5% improvement in unit revenues over the last 4 quarters. However, as we move to the seasonally weak fourth quarter, year-over-year improvement in unit revenue will get more challenging because we will be preparing ourselves against a base period when Jet Airways' capacity was beginning to decline.

In terms of strength and weakness in our system, the overall trend in metro-to-metro markets is weak because of the new competition we are facing in these markets. Fortunately, international is a bright spot in our system as both capacity and margins continue to expand simultaneously. Non-metro markets also continue to do well. As part of international expansion, we signed a codeshare agreement with Qatar Airways. This is our second codeshare, and we will continue to evaluate such options to improve our global footprint and generate incremental revenues. I'm pleased with the growth in ancillary revenues. We have reported ancillary revenue growth of 29% against the capacity growth of 19%.

Our cargo uplift grew by 46% on year-over-year basis. IndiGo's domestic cargo market share is above 40%, a sharp increase from the same period last year, when we had only 27% market share. Other ancillary revenue, excluding cargo, has also grown faster than capacity. We are continuously evaluating different ancillary products, which can be offered to our customers to improve their flying experience.

Cost headwinds are a continuing challenge we are working through. The driver here are the maintenance cost of the old CEO engines and the bubble of pilots in training we are experiencing. Aditya will go into more detail on the engine maintenance cost and the pilot training cost. The most effective lever we have to reduce unit costs is to increase aircraft utilization. Aircraft utilization has been held back recently because of pilots in training as well as the numerous engine changes. But come June of 2020, we will be in a position to increase aircraft utilization. Despite the current challenges, we were able to increase aircraft utilization by around 7% sequentially quarter-over-quarter.

On capacity guidance, we expect a year-over-year capacity increase in terms of ASKs of 20% for the fourth quarter and 23% for the full fiscal year. For fiscal year 2021, we anticipate the capacity increase to be around 20%.

Now let me hand over the call to Aditya to discuss the financial performance in further detail.

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Aditya Pande, InterGlobe Aviation Limited - CFO [4]

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Thank you, Rono, and good evening, everyone.

For the quarter ended December 2019, we reported a profit after tax of INR 5 billion, and a profit after-tax margin of 5% compared to a profit after tax of INR 1.9 billion with a profit after-tax margin of 2.3% on a year-over-year basis. We reported an EBITDAR of INR 19.6 billion compared to an EBITDAR of INR 16.7 billion during the same period last year.

We have reported higher profits in the quarter compared to what we had indicated in December because of both better revenue performance in December and lower mark-to-market loss on capitalized operating leases as compared to our previous estimates.

Let me take you through key highlights of our performance during the quarter. Our year-over-year revenue grew faster than our capacity. While the capacity grew by 19.3%, our revenue from operations in the quarter was INR 99.3 billion, an increase of 25.5% on a year-over-year basis. We saw an increase in both our yields and load factors. For the quarter, our yields increased by 1.2% to INR 3.88, while the load factors were up by 2.3 points at 87.6%. As a result, our RASK increased from INR 3.7 in the same period last year to INR 3.91 for the quarter, an increase of 5.6%.

We continue to actively work on lowering the fuel CASK post adjusting for fuel price changes. Our fuel CASK decreased by 17.9% compared to 11.9% decrease in ATF prices on a year-over-year basis. The cost headwinds persist. CASK for the quarter was INR 3.69 compared to INR 3.62 during the same period last year, an increase of 2.1%.

CASK ex fuel was INR 2.4, an increase of 17.5% from the same period last year. Sequentially, we did better with unit cost decreasing from INR 3.85 to INR 3.69. Similar to the last quarter, the increase in cash ex fuel was driven by mark-to-market foreign exchange loss on capitalized operating leases, higher maintenance costs and higher employee costs.

During the quarter, rupee depreciated from INR 70.71 per U.S. dollar to INR 71.3 per U.S. dollar. And as a result, we had a INR 1.3 billion of mark-to-market loss on our capitalized operating leases. Excluding MTM impact on capitalized operating leases, our CASK ex fuel increased by 15%.

As explained during the last earnings call, we continue to see elevated maintenance costs related to reassessment of accrual estimates for heavy maintenance and overhaul cost of our ceo engine. This impacted our CASK ex fuel.

We have booked total supplementary rental and maintenance cost of INR 16.3 billion in the same quarter. Sequentially on a per ASK basis, the cost has remained the same, despite rupee depreciating by around 2% during the quarter. Going forward, on a per ASK basis, at constant currency, we expect that the supplementary rentals and maintenance costs line item to improve from the current levels starting fiscal 2021, despite contractual escalations and capacity additions.

Our employee cost for ASK have increased from INR 0.4 to INR 0.48 compared to the same period last year, driven by pilots in training, impact of Agile and salary hikes. Further, we still have 400 additional pilots undergoing training. And once these pilots are available to fly, we expect an improvement in unit employee costs. We are seeing an improvement in this number. Since last quarter, we had 600 pilots in training.

Fuel CASK is still a good story, and we'll continue to witness improvement in our fuel CASK performance at a faster rate than reduction in ATF prices. This was primarily driven by increase in fuel-efficient neo aircraft as a proportion of our total fleet. Further, increase in international operations have also resulted in a better fuel CASK on account of lower taxes and higher stage length.

Our balance sheet continues to remain strong. Our cash balance at the end of the period was INR 201 billion comprised of INR 94 billion of free cash and INR 107 billion of restricted cash. Our total cash has increased by INR 13 billion during the quarter. The capitalized operating lease liability as on 31st December 2019 was INR 192 billion. Our total debt, including the capitalized operating liability, was INR 216 billion.

With this, let me hand it back to Ankur.

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Ankur Goel, InterGlobe Aviation Limited - Associate VP of Treasury & IR [5]

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Thank you, Rono and Aditya.

(Operator Instructions) And with that, we're ready for the Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Suraj Chheda from IIFL.

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Joseph George, IIFL Research - Assistant VP [2]

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This is Joseph from IIFL. Can you hear me?

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [3]

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Sure. Yes.

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Joseph George, IIFL Research - Assistant VP [4]

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Sure. So I had 3 questions. One was, would it be possible to give the value of right-to-use on the balance sheet at the end of the third quarter? I think you had given the number at the end of the second quarter. If you can give the number for the third quarter, it will be great. That's one. Second was, if you can give some indication on what the growth in international ASKM for next year would be? So overall, you've guided to a 20% kind of a growth. I just wanted to understand what percent of that incremental 20% will go into international, broad sense versus domestic? And third was, you also mentioned that the yield situation was looking challenging because of the Jet bankruptcy in the Y-o-Y base. So are you guiding to a flattish or a decline in year-on-year yield going into the March quarter? Or if you can give some indication there. So 3 questions. Value of right-to-use, international versus domestic growth for next year and third, some guidance on yield.

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [5]

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So international versus domestic. We are moderating ourselves to be sort of 50% of the additional capacity goes domestic, 50% goes international. And we have lots of opportunities in both areas. And we don't want to grow one at the expense of the other. So again, it's a 50-50 split in terms of additional capacity. In year-over-year, what we're projecting for the next quarter, it's a challenging question to which we don't have a precise answer, and I'll tell you why. Just to look at the recent experience, October was quite a disappointing month. December bounced back faster than we expected. Now January, it's continuing to see the December stress. But we know that February and March are typically seasonally very weak. And one of the things that I've learned being in aviation is that September and March, you can't predict. And usually, they have lower than you could expect. So with exams coming and everything, people just refuse to travel in March. So how bad will the effect be to service, we really don't know. On top of that is the Jet effect. And the Jet, if you recall, started reducing capacity in February. So February, March, April, these were very strong months in terms of Jet comparison and trying to match those numbers is going to be a challenge. So with that, I can tell you on hedging, that we don't really know. But at this point, we don't want to give you an answer because all we can see is January, which was good. February and March are going to be real challenges. The right-to-use.

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Aditya Pande, InterGlobe Aviation Limited - CFO [6]

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Yes. On the net ROU, your question on net ROU. 30th September, recall this number was INR 102 billion. This number is now INR 115 billion with the capacity addition that we've had to our fleet.

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Joseph George, IIFL Research - Assistant VP [7]

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Sorry. Just to -- just a clarification needed on the right-to-use number. The number that I have for the September quarter is INR 133 billion. This is on the balance sheet. So how does this number compared to the 3Q number?

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Aditya Pande, InterGlobe Aviation Limited - CFO [8]

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So we -- I don't know where is the -- we have INR 165 billion of gross ROUs. And this is now -- which is now going up to INR 185 billion of gross ROUs.

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Joseph George, IIFL Research - Assistant VP [9]

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INR 185 billion versus INR 165 billion.

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Aditya Pande, InterGlobe Aviation Limited - CFO [10]

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Right. Right. So this is INR 102 billion going up to INR 115 billion.

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Operator [11]

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Next question is from the line of Ashish Shah from Centrum Broking.

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Ashish Shah, Centrum Broking Limited, Research Division - Analyst of Infrastructure and Airlines [12]

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Just wanted to touch upon the subject of supplementary rentals and maintenance. You did allude in your opening remarks that we would expect the per-unit cost to go down next year. So any quantum that you could give? How do you expect either in the per unit basis or an absolute basis. If you would like to guide anything on that?

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Aditya Pande, InterGlobe Aviation Limited - CFO [13]

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We don't -- we're not giving out a guidance as to what it is going to be. But today, as you can see, it is about 63% (sic) [INR 63] per ASK. We expect this to be -- continue to be elevated in our fourth quarter. But as we get into 2021, this number should start reducing. We don't have an exact number as to what it's going to be because we are still working through our planning cycle for the year. But it should be lower than the INR 62, INR 63 that you're seeing.

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Ashish Shah, Centrum Broking Limited, Research Division - Analyst of Infrastructure and Airlines [14]

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Sure. Secondly, on the entire program that we are currently in, in terms of changing the patent with the engines. And that we expect probably to be done by June. So where are we exactly in that process? And do we expect that you'll be meeting this timeline that we've been now given by the DGCA?

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Wolfgang Prock-Schauer, InterGlobe Aviation Limited - President & COO [15]

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Yes. Wolfgang Prock-Schauer here. So currently, we have tracked

(technical difficulty)

and...

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Ashish Shah, Centrum Broking Limited, Research Division - Analyst of Infrastructure and Airlines [16]

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Sorry. Sir, I lost you, sir, in between. Could you just please repeat?

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Aditya Pande, InterGlobe Aviation Limited - CFO [17]

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Can you hear me?

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Wolfgang Prock-Schauer, InterGlobe Aviation Limited - President & COO [18]

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Yes.

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Joseph George, IIFL Research - Assistant VP [19]

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Yes, I can hear you.

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Wolfgang Prock-Schauer, InterGlobe Aviation Limited - President & COO [20]

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106 neos, having 212 engines. And we have replaced close to 60% of all the engines to become fully compliant within FAA rules, which is applicable at end of 2020. So we are very confident. And as you know, there was a guidance given by -- not guidance, a ruling was initiated. We have to replace all these non-modified engines by end of May. And we are confident that we'll meet the target and have all engines modified on our aircraft by end of May. In addition, I can give you information that in between, we have the -- also the other ruling, which does not require all the engines to be exchanged. But there should be no aircraft having 2 unmodified engines on its wings. And we have already complied with [said point.] So currently, there's no aircraft flying with 2 unmodified engines. So we are well on track on both applicable rule, both IATA and the FAA and we're confident to meet these targets.

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Operator [21]

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The next question is from the line of Ansuman Deb from ICICI Securities.

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Ansuman Deb, ICICI Securities Limited, Research Division - Aviation Analyst [22]

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I had a question regarding the supplementary rentals. The additional accrual in 1H -- in this last 3 quarters has been to the tune of around INR 6 billion as per our disclosures, 9-month FY '19. This additional accrual, how much would it be for FY '20 or FY '21? If you could give any idea on that, that would be really helpful. That is one. Secondly is that in concern with our EGM meet that we have on 29. If you can share any color on that, that would be helpful.

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [23]

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So I'll take the EGM meeting. As you know, the Gangwal Group has asked to remove the right of first refusal from the articles of association. The company really does not have any stand on this matter. We are totally neutral. It's really up to the shareholders to decide which way to go. And Aditya, on the supplementary rental?

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Aditya Pande, InterGlobe Aviation Limited - CFO [24]

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So Ansuman, on the question of supplementary rental, as I just mentioned, I request you to please focus on the overall line. We are at INR 1,650 crores for the quarter. We expect to be in a similar range for 4Q. And then on a per ASK basis, as we start getting to 2021 fiscal year, you will see that per ASK cost going down. So that's the guidance we are offering right now.

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Operator [25]

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The next question is from the line of Bhavin Shah from Sameeksha Capital.

Since there's no response from the line, we'll move to the next question. That is from the line of Deepika Mundra from JPMorgan.

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Deepika Mundra, JP Morgan Chase & Co, Research Division - Research Analyst [26]

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A couple of questions. So last quarter, you had mentioned that the neo deliveries have been slightly slower, particularly, A321s. So could you provide a status update on that? Because it seems towards the end of the quarter, the pace of the deliveries has picked up. And in relation to that, we've also seen some decline in the ceo fleet in the particular quarter. So again, what bearing will that have in terms of the cost structure in the coming quarters as that continues to wind down, given the maintenance provision has been largely taken for the same?

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [27]

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On the neo deliveries, we have basically -- you can predict to certain degree, the delivery slowdown because you see that the aircraft are in the assembly line. And we have factored all that is factored into our capacity forecast. So whatever we gave you in terms of our capacity guidance for FY '20 and FY '21 is already factored in. The guidance had a slowdown, but deliveries continue in the pace of 4 to 5 a month. And it's all [taken in.] In terms of ceos, there is a nature [that over the side gate] at ceos to be removed. We -- because our lease terms are relatively short. And there will be, let's say, give back to lessors. So there's a continuous cycle going on. So there's not a specific strategy behind it. It's just the continued pace of returning all the aircraft and getting new aircraft in space.

And in terms of the costs, the classic engine with a higher maintenance cost and a higher fuel cost, but a lower ownership cost. So those are the 3 pieces that we can grow. And clearly, we can renew it better overall, with a slightly higher ownership cost, but a lower maintenance cost and a lower fuel cost.

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Operator [28]

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The next question is from the line of Bhavin Shah from Sameeksha Capital.

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Bhavin Ajitkumar Shah, Sameeksha Capital Private Limited - Founder [29]

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Yes. I was just asking, you mentioned that the cargo volume is up strongly year-on-year and the revenues are not showing a similar trend. So could you comment on that? Is there a lot of pricing pressure in that space? And second, I think you mentioned some of the positives -- factors with respect to the international business. So would you care to comment on the spread between international and domestic? Or at least the RASK and CASK comparison?

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [30]

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So on the spread between domestic and international. Clearly, domestic has its strengths, domestic has its weaknesses. Domestic strengths, as you've said, are in the non-metro markets. So we find those doing very well. Metro-to-metro markets, historically, used to be one of the strongest markets. But now with the low-cost carriers coming in and being very aggressive on pricing, that will become relatively weaker. Similarly, international, clearly, the markets that have matured, are doing exceptionally well. The market that we've just introduced are sort of building up. So again, you have

(technical difficulty)

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William Boulter, InterGlobe Aviation Limited - Chief Commercial Officer [31]

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Sorry. Just to mention on the cargo side. I mean, as Rono covered, I think, in the opening remarks, we have seen a bounce back in terms of our market share, which is now above 41% compared to 27% last year. And this is driven really by a better concentration on the sales cycle for cargo and better throughput, and also 1 or 2 of our competitors have had challenges on the cargo side. So we do anticipate that this will be maintained for some time.

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Bhavin Ajitkumar Shah, Sameeksha Capital Private Limited - Founder [32]

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Yes. What I was asking is the cargo revenue seems to be growing at a lower pace in volume. So that is kind of counterintuitive, given what you had explained.

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William Boulter, InterGlobe Aviation Limited - Chief Commercial Officer [33]

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The cargo volumes are up about 40%, which -- it's a pretty good result, I think.

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [34]

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And I think the answer is the lower yield. But...

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William Boulter, InterGlobe Aviation Limited - Chief Commercial Officer [35]

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Yes.

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [36]

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(inaudible)

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William Boulter, InterGlobe Aviation Limited - Chief Commercial Officer [37]

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That's slightly lower yield. But as I say, we are -- we continue to be optimistic about cargo.

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Operator [38]

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The next question is from the line of Aditya Makharia from HDFC.

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Aditya S. Makharia, HDFC Securities Limited, Research Division - Analyst [39]

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Firstly, just wanted to know what is international as a percentage of our revenue today? And secondly, with this issue around the virus, I mean the whole China virus issue. So how do you see air travel growth, particularly on the international side?

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [40]

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So again, international, both capacity and revenue are sort of marching towards 25% of our total capacity. And the virus situation, we're obviously monitoring very, very closely. And we have seen some cancellations. We've offered for a month, we'll take cancellations. And we have seen some. So we're monitoring the situation very, very closely. But we have not taken any decision on capacity adjustment as of now. But as you can see, this is an ever-evolving story. So every day, we have a conference call talking to all our salespeople around, especially in China, but in other areas as well. And looking at how our bookings are doing, and will -- based on that, we'll take a decision.

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Aditya S. Makharia, HDFC Securities Limited, Research Division - Analyst [41]

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Would it be fair to assume, at least that the traffic, which is westbound, at least that is not impacted. So the eastbound traffic, I can understand. But the westbound should be holding up, right?

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [42]

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Westbound has actually seen a pickup. Because I'm sure a lot of people are coming out of China. So we've seen a pickup in that. But equally, we've seen the cancellation going into China. So these are still early days and we're monitoring it closely.

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Aditya S. Makharia, HDFC Securities Limited, Research Division - Analyst [43]

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Sure. And last question, China relatively for you is a new market, right? So in that sense, the impact would be lower?

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [44]

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China is back, we were off to a very strong start, frankly. And that has been one -- I think we mentioned in the last call also. China has surprised us with its strength. So it's a new market, which took off very fast. So it is an impact. And you had a question of how do -- what does it do to air travel. It's really bad for air travel overall. I mean it's -- we're talking about China. But people will just stay home. They don't know what's happening in other parts of the world either. So compared to SARS and all that, this is not a positive for air travel.

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Operator [45]

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The next question is from the line of Varun Ginodia from AMBIT Capital.

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Varun Ginodia, AMBIT Capital Private Limited, Research Division - Research Analyst [46]

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I have 3 quick questions, if you can throw some light on them. Number one is, on this entire engine issue by Pratt & Whitney, are you eligible for any compensation from the OEM? And if you can quantify that, if that is the case? Number two, government released -- invited EOIEs for the Air India sale today. Wanted to know your thoughts whether -- because the news flow are suggesting the name of IndiGo as well as one of the potential bidders. So how are you looking at that particular transaction? And number three, on the FY '21 capacity guidance, you gave 20%. If I remember correctly in your 2Q call, you were expecting in the range of 25%. So is this lower guidance largely driven by delay in neo deliveries? Or is there anything else as well to this guidance number? That will be it from my side.

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [47]

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So let me take each one of these. Air India, we really will not comment. Yes. Air India, no comment. FY '21 guidance, our first quarter -- sorry, our fourth quarter is off to a weak start because of all the engine changes and so forth. And as you said, after that by June, we will ramp up the aircraft utilization. So aircraft utilization is weak in the fourth quarter, weakish in March, April and then ramps up towards the end. So it's the aircraft utilization that's really driving this. We've had some delivery delays as well from Airbus. So it's a combination of those 2 factors. On the engine issue, excuse me, can you ask the question again? On the engine issue.

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Varun Ginodia, AMBIT Capital Private Limited, Research Division - Research Analyst [48]

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Are you eligible for any compensation from Pratt & Whitney for all the delays that are happening there?

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [49]

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So both with Airbus and Pratt & Whitney, we have very, very good contracts in terms of compensation and eligibility for thereof. And we will pursue them vigorously with manufacturers.

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Varun Ginodia, AMBIT Capital Private Limited, Research Division - Research Analyst [50]

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Okay. Okay. Just on that, the FY '21 capacity guidance. So you are expecting utilization to ramp up from the May, June onwards, right? Around that time to remain muted until May. So it's only about a month or so of FY '21, where the utilization will hit your ASK guidance per se. So this markdown from 25% to 20% is only driven by those 2 months? Or is there anything else as well in here?

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [51]

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The number of aircraft deliveries also is lower than we had anticipated.

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Varun Ginodia, AMBIT Capital Private Limited, Research Division - Research Analyst [52]

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Okay. So that is also another reason.

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Operator [53]

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The next question is from the line of Abhishek Joshi from CGS-CIMB.

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Abhishek Joshi, CGS-CIMB Securities (Singapore) Pte. Ltd. - Analyst [54]

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Are we looking to buy any wide-bodied aircraft carriers? There was just a news that Singapore Airlines, or should I say Vistara is planning to buy some wide-body carriers. And so that they can directly fly long distances. So -- and if we are not planning for any wide-body carriers, then how does it affect our route towards the Middle East?

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [55]

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So wide-body is a project that is ongoing. We keep studying it with different perspectives. No decision has been made. As to our route plan, we have the A320, 21s. And the A321 as you know is over 220 seats. Then we have the XLR, which takes us almost 9 hours. So we can do -- go through a lot of markets around India from Seoul to Bali to Barcelona on with the fleet that either we have already or that we have on order. And the discount is also, with the A321, quite attractive. The Middle East is really not affected by this. You don't need a wide-body to go to the Middle East. We have enough A321s to serve the Middle East quite properly. And remember also, traffic tends to fragment by frequency, not by fleet. So would I rather have 2 frequencies or 1 large wide-body, I think I'll get more market share by going with frequency. So we're quite happy with the fleet plan currently.

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Abhishek Joshi, CGS-CIMB Securities (Singapore) Pte. Ltd. - Analyst [56]

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No. I was asking about the Middle East because many passengers go for the Middle East, there is a hold time like we have a codeshare agreement. So for example, it takes 16 hours to fly to U.S. So we can't fly directly to a market like U.S. So because of that, if passengers choose to fly directly, then like how are we affected?

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [57]

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Okay. First, let me tell you about the nonstop India to U.S. market. It's a very, very challenging market. And many carriers try and many carriers have failed. And the problem is the fuel burn. It burns so much fuel during nonstop to the U.S. that you have to load more fuel. And the more fuel you load, the heavier you become and your fuel burn goes higher. So unless you get a very good yield premium, if the economics don't work, and the fact is you don't get a good yield premium. Therefore, the market is very challenging. We have no plans of flying nonstop to the U.S. Even if we had a wide-body, that would not be one of our first market, believe me. So our fleet plan is very much in line with what we want to do, of the markets we want to fly. We've got a schedule built for the next 4, 5 years. And we've ordered a fleet plan according to that.

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Abhishek Joshi, CGS-CIMB Securities (Singapore) Pte. Ltd. - Analyst [58]

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Sir, our -- can you give me the average revenue per passenger for international flights and for domestic flights. (inaudible)

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [59]

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The yield -- revenue per seat mile goes down with length of haul. So you would expect that as we grow longer distances, our yield will gradually come down. But along with that, your cost curve also comes down. So it's all dependent on the length of how our yield comes down and cost scale also goes down.

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Operator [60]

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(Operator Instructions) The next question is from the line of Sonal Gupta from UBS Securities.

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Sonal Gupta, UBS Investment Bank, Research Division - Director and Research Analyst [61]

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My question has been answered.

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Operator [62]

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

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Binay Singh, Morgan Stanley, Research Division - Executive Director [63]

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The first question is at the start of the year, the Aviation Minister made a comment that the government is looking into predatory pricing in airlines in India. Do you foresee any change in competitive landscape or regulatory landscape as the government is also now worried about sales being very low in India?

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [64]

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So there's a high flow in India in the metro-to-metro market. I think that's where all the attention has been in the month of October. As you said, they've recovered in December, and January looks reasonably strong. So I don't know how anyone would prove predatory pricing in all of this. I think people are just reacting to the marketplace. The load factors are strong, we raise there. If load factors are weak, we reduce there. So there's no predatory pricing in any of this.

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Binay Singh, Morgan Stanley, Research Division - Executive Director [65]

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Okay. And second, what percentage of your traffic is now from China? Will be a very small percentage, I assume.

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [66]

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Very tiny.

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Aditya Pande, InterGlobe Aviation Limited - CFO [67]

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1. Less than that.

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [68]

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People are saying less than 1. We've just got 2 flights right now, right? Delhi-Chengdu and Kolkata-Guangzhou. So it's a very small part of our system.

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Binay Singh, Morgan Stanley, Research Division - Executive Director [69]

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Right. And then thirdly, in your comments earlier, you said that the aircraft utilization will rise from June. So could you give us any number as to what is it today? And how do you see that changing going ahead? Because that will have implications on CASK and on.

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [70]

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Sure. So we are trying to get to about 13 quickly. Right now, we are closer to 12.2, 12.3 in that range. But we want to take it above 13 very quickly after June. And again, the reason we are being held back is because of -- we're doing so many engine changes and because of the pilots in training, that's what's holding us back. So I feel like the airline is not able to fly it full throttle right now. But after June, we will be flying it full throttle, and I'm excited about what will happen after that.

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Binay Singh, Morgan Stanley, Research Division - Executive Director [71]

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And what is like the upper end of this number? Like till what number, with your current mix of domestic and international, like, if you become 1/3 international in a year or so. So what is the upper end of this number?

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [72]

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You need to look at global carriers and what they do, including low-cost carriers. 13 is a very, very healthy and respectful number, respectable number. We'd like to go above that. Some -- in some low-cost airlines like Ryanair and like at the. But of course, everyone's schedule is different. So we can easily get to 13 and above, and that's what we were shooting for.

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Operator [73]

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The next question is from the line of Ashwani Kumar from Nippon India Mutual Fund.

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Ashwani Kumar, Nippon Life India Asset Management Limited - Senior Equity Fund Manager [74]

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My question was, what is your market share in metro-to-metro and nonmetro-to-nonmetro? And wherever it is falling, what is the way to correct it or improve it?

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [75]

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Wait, I didn't know that the market share is falling anywhere. We've looked at everything by every metro, everywhere, our market share is fixed, maybe 49% or 47%, it's somewhere in that range. But we're not losing market share anywhere. Each of our metros, each of our non-metros. As I said, as we add more capacity, I do want to direct it all internationally. I must -- we've got lots of domestic opportunities, which are very attractive. So yes, there is no question of losing market share.

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Ashwani Kumar, Nippon Life India Asset Management Limited - Senior Equity Fund Manager [76]

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Yes. I wanted to know, in terms of nonmetro-to-nonmetro, what is the opportunity, basically? Nonmetro-to-nonmetro, if you look at it. And where is this growth coming from? What's the reason for growth around -- in these specific markets?

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [77]

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So I mean I guess [this one coming.] The fact is that Bangalore and the Hyderabad, they're great markets but to an extent, they've been played out, right? Now the Patnas, the Lucknows, the Bhubaneswars, the Coimbatores, there's lots of room for growth in all those areas. So that's where -- now our first phase is metro-to-metro. Okay, so we've maxed out on that further. Then we went metro-to-nonmetro, still lots of opportunity. And finally is the nonmetro-to-nonmetro, which today is a very small part of our system. But we're coming up with a plan to serve those better.

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Ashwani Kumar, Nippon Life India Asset Management Limited - Senior Equity Fund Manager [78]

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Yes. And sir, the international customer who is coming to you. Predominantly, which kind of airlines are you able to attract the customer? Is this a typical Air India customer? Or is it Jet Airways customer? And can you specify? And would you aim to compete with the bigger premium airlines also at some point in time?

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [79]

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Well, we are a low-cost airline, they're a full-service airline. So we are not going for the business class customer, obviously. We're also not going for the premium economy customers. We're just going for the economy customers. So Emirates and British Airways, they have a segment that we don't compete in, which is the business class and the premium economy. But after that, in economic economy, we're fully competitive.

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Operator [80]

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The next question is from the line of Manish Ostwal from Nirmal Bang.

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Manish Ostwal, Nirmal Bang Securities Pvt. Ltd., Research Division - Senior Research Analyst [81]

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I have a question on the maintenance cost. In that December presentation, we have indicated that the maintenance cost will remain elevated level till FY '22? And in the initial remarks, you said that in FY '21, the maintenance cost will decline from the current level. So what is the reason for diversion of comment from the December update to the current quarterly update?

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Aditya Pande, InterGlobe Aviation Limited - CFO [82]

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I think what you're referring to is the line item of cost. So what we meant, and also, if you look at our December presentation that we made, the line item of cost itself would remain in this region. INR 1,600 crores, INR 1,700 crores as the volume goes up. But what we want you to focus on is the per ASK cost of that. So while the per ASK cost is obviously elevated because these are higher than what we've been typically been experiencing in '16 and '17. But as you go into the '21 fiscal, and we're only talking about '21 right now, you will see that the per ASK level cost will start coming down. However, the line item itself, which is the line item of supplementary rental and maintenance would remain in that INR 1,650 crores range or in that range. But unit costs will come down because you'll be flying higher ASKs.

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Manish Ostwal, Nirmal Bang Securities Pvt. Ltd., Research Division - Senior Research Analyst [83]

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So when you say unit costs will come down, that means unit cost, again, back to INR 44, INR 45 per ASK kind of level thing?

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Aditya Pande, InterGlobe Aviation Limited - CFO [84]

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No. It can't go down to that level. Definitely not to that level, and we're not guiding any number over there. We still have these aircrafts in our fleet for the next 12 to 18 months. They will still incur the expenses. We are booking those costs on an accrual basis. So it's -- they're not going to go back to INR 44 But as we go into '21, they're not going to remain INR 62, INR 63 as well.

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Operator [85]

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The next question is from the line of Deepak Krishnan from Goldman Sachs.

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Pulkit Patni, Goldman Sachs Group Inc., Research Division - Equity Analyst [86]

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This is Pulkit from Goldman. My first question is, if you look at your A320 ceo fleet, could you highlight what is the average age of that fleet as of now?

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [87]

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Average age. Yes. So because we're all saying around 6 because they're hitting their second shop visit, which means they must be around 6. So we haven't actually studied this number, but because of dispute, maybe we can call Ankur. But we're all guessing in what we'll have next year.

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Pulkit Patni, Goldman Sachs Group Inc., Research Division - Equity Analyst [88]

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Okay. Which effectively means that we have to do the [details,] which is why the maintenance cost has been higher. Now what is the balanced lease life left for the same ceo, if you could also highlight that number?

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [89]

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So by '22, they go away.

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Aditya Pande, InterGlobe Aviation Limited - CFO [90]

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Right. By December '22, we expect all of them to go away. We've already -- we will start returning these aircrafts starting '21. So you'll see the proportion of the ceos that are leased and used in our proportion going down. And as we get to December '22, we have all these aircrafts returned by that time.

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Pulkit Patni, Goldman Sachs Group Inc., Research Division - Equity Analyst [91]

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And when you say all, you mean the ones which are over 6 years? Or you mean the entire fleet basically gets replaced?

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Aditya Pande, InterGlobe Aviation Limited - CFO [92]

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No. These are only the used aircraft that we've -- that you've taken and the extensions that we've made.

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Pulkit Patni, Goldman Sachs Group Inc., Research Division - Equity Analyst [93]

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Understood. Understood. That's helpful. My second question is, since you've spoken about the metro and the non-metro route. And the yield has actually been pretty decent with 1.2% growth. Would you give a rough idea of how the metro yields would have been? And what would have been the trend in the non-metro yields, if you were to look at percentages...?

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [94]

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We really don't want to be that specific. And we can only say there is weakness in metro-to-metro. It used to be our biggest, strongest market, they are not now. But fortunately, that weakness is compensated for both by international and by the non-metro experience.

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Operator [95]

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The next question is from the line of Vijay Gupta from Edelweiss.

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Vijayant Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [96]

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I had a couple of questions. Firstly, so we have seen a very welcome increase in PLF this quarter. But along with that, other operational metrics like on-time performance, for example, or the cancellation rate, that has actually worsened if credit on a Y-o-Y basis. So how do we balance all these factors? And how -- what is your outlook on PLFs going forward?

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Wolfgang Prock-Schauer, InterGlobe Aviation Limited - President & COO [97]

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Yes. Wolfgang here. So I think the question on cancellation rate and on-time performance. If you look at the fiscal DGCA data, you will see that we operate as #1 amongst Indian carriers, the official data for the last quarter. So overall, there ought to be -- underperformance was, let's say, was a challenge for every airline, but we were #1. I'm not talking about right now, I'm talking compared to last quarter. And same applies to cancellation rates where we have been the airline with the least cancellation rates in the industry for the -- compared to last quarter, '18.

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [98]

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So as Wolfgang said, we were #1. But the whole industry is performing much worse. If you do a year-over-year comparison, industry is not doing any better. And there are a number of reasons for that. One, of course, is the weather patterns. And people talk of climate change and all that. We seem to have more cyclones, more strong winds. We saw the dense fog that enveloped the whole of northern India for the last few weeks. And on top of that, we have the infrastructure challenges. And one thing you need to know is that Bombay, the primary airport -- runway has been closed for a few months. So people say, "Oh, I took 5 flights from Bangalore to Bombay, and 2 of them were late." I'm like, "Yes, the runway is closed." So it's true for everyone. So Bombay in particular has taken a big hit in terms of on-time performance. So you have to look at the environment we are operating in right now. And we are not doing as well as we'd like to. But competitively, at least, we are still doing that. And I think you were saying, how does it affect load factors. I don't think it does. I mean, our load factors are strong, our demand remains strong, and customer complaints will be lower for sure if we had a better operation going. But you can't fight fog and you can't fight runway closures.

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Vijayant Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [99]

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Right. So I have to confirm, PLF is not at all related to having a -- to the cancellation date. I mean, it's not like we are bunching flights with lower PLF with flights with higher PLF. And that is why the overall number is higher?

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [100]

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Believe me, one of the metrics that we look at most, most carefully every morning is customer complaint. I mean, that is something that is very close to us and we say, yes, we can be growing, we can be profitable, yes, yes, yes, everything is great but if the customer is not happy, we are not happy. So no, we wouldn't dare do something like that, which would disenfranchise some new customers.

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Vijayant Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [101]

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All right. All right. And secondly, the EBITDAR number, which you actually gave in the presentation. How do we reconsider that with the reported P&L?

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Aditya Pande, InterGlobe Aviation Limited - CFO [102]

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You mean the EBITDAR number that we reported at a rate is lower than what you see from last year?

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Vijayant Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [103]

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No. So the EBITDAR number, which you have quoted in the presentation is INR 19.6 billion. How do I get that from the reported numbers? I mean what costs are included in this?

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Aditya Pande, InterGlobe Aviation Limited - CFO [104]

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So you can do profit before tax, add your lease rents, add your interest costs and lease rents and depreciation, add your interest costs and take out interest income.

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Vijayant Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [105]

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And what about supplementary rentals? Is that included in this or?

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Aditya Pande, InterGlobe Aviation Limited - CFO [106]

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No. It's not. If you want, we can -- you can -- if you work with the IR team, Ankur, we can give you a small table for that.

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Vijayant Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [107]

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All right. And would it be possible to disclose the quantum of supplementary rentals?

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Aditya Pande, InterGlobe Aviation Limited - CFO [108]

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So we -- supplementary rentals move quarter-on-quarter for a variety of reasons. But roughly, it's about 50% of the total cost line item.

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Operator [109]

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

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Achal Kumar, HSBC, Research Division - Analyst [110]

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I had a few questions. One, obviously, I want to understand about the capacity growth. I'm so sorry to go back to that question. But a bit confusing. I mean so your utilization is going up by 6%, 7%. And then you're getting bigger aircraft, which are A321neo. So -- and yet you are guiding a capacity growth of about 20%, which is actually -- and despite the fact that a couple of quarters back, you've been guiding capacity growth of about 25% for the next 3 years while you had a plan to return your ceos, and now you're carrying on with your ceos because you had a problem with flattened engines. So overall equation looks a bit confusing, if you could please help to understand that. And if that is the case, and the capacity growth is only 20%, which means the remaining momentum looks to be slowing and your cost is growing. Of course, we have a cost pressure, which will decline in the next year. And yet, overall equation looks a bit unfavorable for the profitability. So if you can please help on that. So that is one question.

Secondly, I also wanted to understand about your international operations, so -- which are doing good, of course, you said. China is actually -- is -- with the virus, China has been impacted. And if I look at the SARS, the traffic was impacted were so far about 2 to 3 quarters. How do you see that situation? I know you are committed on that. But when would you decide on the China thing? And if you need to move capacity out of China, would you sort of deploy it somewhere else? And how would you sort of manage your international operation in that case? And finally, the third thing I wanted to understand about Qatar because I remember the deal was sort of a one-way deal where Qatar was able to put his code on your ticket. So what sort of benefit are you getting? And how do you see your relation with Qatar?

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [111]

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Okay. Alright. So I'll take it in reverse order of your questions. Qatar. So Qatar, as you know, we do 3 destinations, while we fly to 5. So we are in discussions with Qatar. They're very happy with what's going on. We are very happy with what's going on. So we want to expand the relationship and quickly. And so one way to do that is to go to more destinations. And the second is to go to 2-way rather than 1-way. The 2-way is currently still held up because of IT issues, but we are working hard on that. So Qatar I think holds a lot of promise. What we're doing now is better than what we expected, and we are both very enthusiastic about broadening the relationship.

International operations. China, as we mentioned, is just 2 flights. If we decide to discontinue them, there's enough room for 2 more airplanes, if you will. But we're going to take a decision soon. You asked, when will you decide? Well, this is a very quickly evolving situation. We looked at the numbers this morning, and we said, till day before yesterday, there were no cancels. This morning, when we looked at it, there were quite a few cancels. And we're like, "Okay, so this is getting serious here." So we'll look at the numbers again for the next 2, 3 days and decide. If we pull out of those 2 markets, for whatever reason, and we won't do it very quickly and we'll have to pace it up because we still have a lot of bookings on it and we can easily redeploy the aircraft.

Your other question was about ceos, you're deciding to extend it. That's not true. It's quite the reverse. We decided to extend it back in 2017 when we had the neo issues and so forth, that's when they got extended. Now as we look at it, we're like, okay, let's get these airplanes out as quickly as we can because we have enough neos coming in. And as I told you before, in the economics, the ceos have a higher maintenance cost, higher fuel, slightly lower ownership cost. So the neos are a much better engine. So we are not extending more ceos, we're returning them at a faster rate, if you will. A321, yes, it's a very -- it has got a lot of seats and that helps our capacity. Overall, what has been happening is, as I said, there's the low utilization, which will ramp up, more ceos being returned at a fast pace. Some delivery delays in the A320, 21. And all of that is, okay, the numbers are where they are. We are not moving it in one direction or the other. If Airbus would give us airplanes faster, we take them faster. The ceos, we are returning them as fast as we can. We're not holding on to them. So I think that, that answers your question. Have a shout back if you want to clarify anything.

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Achal Kumar, HSBC, Research Division - Analyst [112]

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Yes. Sure. I mean, so on Qatar, sorry, I didn't get -- so what sort of benefit are you getting? And of course, you said that you are moving into the 2-way direction. But at the moment, what sort of benefit are, I mean, you are getting as an IndiGo?

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [113]

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The number is big. We have it in millions of dollars, it's a very healthy number. We're very happy with it.

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Operator [114]

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The next question is from the line of Ruchit Mehta from SBI Mutual Fund.

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Ruchit Mehta, SBI Funds Management Private Limited - Analyst & Fund Manager [115]

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Just a quick query on the international side, considering, as you said that you're focusing more on the economy side of it. In a hypothetical like-to-like, let's say Bombay-Dubai, if you were to fly in full economy LCC style thing. Would you be able to deliver a similar level of profitability per aircraft or per route? And, let's say, a full-service guy would be -- because he offers us...

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [116]

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I can render you much higher than what a full-service guy could ever dream of offering. I mean the numbers are very, very effective.

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Ruchit Mehta, SBI Funds Management Private Limited - Analyst & Fund Manager [117]

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Okay. Okay. So from a customer standpoint, sometimes these full-service guys, they do kind of do all these economy-like fares or discounted fares at marginal costing. And they get a full-service experience, you have in-flight entertainment, meals, et cetera. So how do you tackle that challenge that even they'll be a part of a customer base that forever will he kind of keep flip flopping between something or the other. Or is the market wide enough and large enough that with a good LCC offering, you can sort of kind of expand the market?

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [118]

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I think that would say that we really don't focus on the competition on that much. We look at the marketplace, we look at our cost structure, and we see what we can do. So the reason we are adding all these flights is not because someone else is doing something else, and we're studying them or anything. It's like, "Wow, look at this market, look at our cost structure, let's do it." And that's why the sort of appetite for a serious rate of growth. And what the full-service guy is doing, I mean, hey, really, you do your thing, we'll do our thing. We don't focus on them at all.

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Operator [119]

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The next question is from the line of Lokesh Garg from Crédit Suisse.

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Lokesh Garg, Crédit Suisse AG, Research Division - Research Analyst [120]

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I had a few questions. One thing is related to you said that (inaudible) November time frame. Also, you said that by Jan 31, you need to replace all (inaudible)

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Operator [121]

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Your audio is breaking, Mr. Garg. Requested to come in network area please.

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Lokesh Garg, Crédit Suisse AG, Research Division - Research Analyst [122]

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I'll try to be louder. So (inaudible)

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Operator [123]

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You're still not audible, Mr. Garg.

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [124]

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I'm afraid you're breaking up.

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Lokesh Garg, Crédit Suisse AG, Research Division - Research Analyst [125]

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Okay. So did you -- can you share (inaudible) because how is that (inaudible)

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Operator [126]

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I'm sorry. Mr. Garg. We are unable to hear you. Can I request you to come in network area or reconnect, please?

We'll take the next question that is from the line of Santosh Hiredesai from SBICAP Securities.

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Santosh R. Hiredesai, SBICAP Securities Ltd., Research Division - Research Analyst [127]

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So my first question is around the modified engines that is [compulsory.] Have you developed any different sort of problems that have been motives of the committee saying that there have been some issues of [et cetera] and so forth. So is the problem identified? And do we have a complete fix? Or it's still in process?

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [128]

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The problem has been identified and is fixed. Yes?

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Unidentified Company Representative, [129]

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Yes.

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [130]

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And the fix has also been identified that, as I mentioned at the beginning of the call, around 60% of our engines are already of modified nature meaning stronger material. And we haven't seen -- we had no issues so far with a modified engine. So the problem has been identified. Whatever you read in papers, what everything is necessary, engine problem or neo problem, sometimes is an -- there's a lot of reporting going on things which are not necessarily something related to our neo aircraft. So I'll give you one example. There was -- an aircraft had to land because there was a smoke warning. When the aircraft landed, we checked it. It was a false and the censor was a defect. So not everything you read in the paper is necessarily a neo engine problem. So we have identified the issues. And our aircraft, all of them will be modified as per the directives of DGCA by end of May. And we have good progress on this. We monitor it on a daily basis. Engines are coming in on a continuous basis and will be updated pretty quarterly. This may take -- main issue right now, and then other things are of minor nature, but give, let's say, learn to live with this engine, we know, together with the manufacturer, we'll have very stringent intervals of checking, a certain other ways of how to, let's say, pull a daily maintenance of prevention and I think we're very confident right now that we'll make it work and by end of May, everything should be modified.

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Santosh R. Hiredesai, SBICAP Securities Ltd., Research Division - Research Analyst [131]

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Just trying to understand the important guidance that has been [given] for '21. Is there a risk to that number? Should there be something here in terms of, let's say, the (inaudible) a lot of the engines in (inaudible) that will be [showing the increase?]

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [132]

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No. I mean look, we give you our best guess estimates. If things change, things change. So we can't say we built in a contingency of some kind for aircraft deliveries, we haven't. Whatever data we have, based on that, we're giving a capacity guidance.

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Santosh R. Hiredesai, SBICAP Securities Ltd., Research Division - Research Analyst [133]

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Sure. So my second question is in terms of the international expense. I understand that you tried to (inaudible) you do expect benefit. But I -- we have (inaudible) in terms of guidelines.

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Operator [134]

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Your audio is breaking. Can I request you to be a bit loud?

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Santosh R. Hiredesai, SBICAP Securities Ltd., Research Division - Research Analyst [135]

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So I was just trying to understand (inaudible)

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [136]

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Okay. I think I get the question. You're saying you've tried some routes. Do you have a pipeline of new opportunities? The answer is yes. We have a great pipeline, and my frustration is we don't have enough aircraft to fly them all right now.

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Operator [137]

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Ladies and gentlemen, due to time constraints, we'll take the last question that is from the line of Arvind Sharma from Citi.

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Arvind Sharma, Citigroup Inc, Research Division - Associate [138]

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It's -- Again, the guidance front while we know the capacity guidance that you've given, what is the kind of heat expansion that you are building in when you give this capacity guidance? Any indication on that part?

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [139]

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You mean net-net, what is the aircraft count? Is it what you mean...

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Arvind Sharma, Citigroup Inc, Research Division - Associate [140]

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Right. The net addition to the fleet. Yes.

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [141]

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I don't think I want to share that quite yet. We have deliveries coming in and we have retirement going out. And based on all that, we're saying 20% growth rate. I can't give you specific numbers of in and outs.

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Arvind Sharma, Citigroup Inc, Research Division - Associate [142]

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Sure, sir. Sir, secondly, on the engines for the A320neos, I believe that we shifted from the Pratt & Whitney to CFM. Now the premise for the A320neo was better for the economy. With the changed engines, is this fuel economy still as good as it was with the previous engine?

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [143]

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It's the same. And we haven't shifted. We had run through our Pratt & Whitney order, and we needed more engines, and we did a sort of comparison and they both bid and CFM came out ahead. But the economics are obviously very favorable to us, as I was reviewing the comments [near them.]

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Arvind Sharma, Citigroup Inc, Research Division - Associate [144]

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Great. So that actually [reverse] well. The maintenance cost would be lower, I believe?

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [145]

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On the CFM?

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Arvind Sharma, Citigroup Inc, Research Division - Associate [146]

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If the fuel economy is the same and there are no troubles, which are there in the current engine. The maintenance costs, et cetera, would go down. Is that right? We do see it.

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Ronojoy Dutta, InterGlobe Aviation Limited - CEO & Whole Time Director [147]

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Okay. So as we said before, our contracts protect us very well against technical disruptions. So that's not an added cost in either direction. If there's a technical problem, we are compensated for it. We're looking for the CFM engines. I think they'll be very good for us. And we don't look at it, what is the fuel rate, how much you buy it for. We look at the life cycle of the engine. We say, what is the initial cost? What is the maintenance cost? What is the fuel cost? And we'll take everything into account in making the final decision.

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Operator [148]

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Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Ankur Goel for closing comments. Thank you, and over to you, sir.

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Ankur Goel, InterGlobe Aviation Limited - Associate VP of Treasury & IR [149]

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So thank you for joining us. Sorry, we cannot take all the questions in the queue, but I hope you found the call useful. Thank you.

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Operator [150]

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Thank you very much. Ladies and gentlemen, on behalf of IndiGo, that concludes today's call. Thank you all for joining us, and you may now disconnect your lines.