Interglobe Aviation Ltd
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Interglobe Aviation Ltd
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Good evening, ladies and gentlemen, and welcome to IndiGo's Conference Call to discuss the First Quarter Fiscal Year 2019 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 turn the call over to your moderator, Mr. Ankur Goel, Associate Vice President of Treasury and Investor Relations for IndiGo. Thank you, and over to you sir.
Good evening, everyone, and thank you for joining us for the first quarter fiscal year 2019 earnings call. I have with me our Co-Founder and Interim CEO, Rahul Bhatia; and our Chief Financial Officer, Rohit Philip, to take you through our performance for the quarter. I also have with me Greg Taylor and Wolfgang Prock-Schauer for the question-and-answer 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 Rahul Bhatia.
Good evening, everyone, and thank you for joining us on this call. We announced our first quarter fiscal 2019 financial results today. This quarter, we reported a profit after tax of INR 278 million. Our profits for the quarter were adversely impacted primarily by depreciation of the Indian rupee, increase in fuel prices, continued pressure on yields and an increase in our maintenance costs. While Rohit will discuss this when he talks about our financial performance in detail, let me take you through what's going on in the industry. The current revenue environment continues to remain weak, particularly in the 0 to 15-day booking window. While we spoke about some signs of improvement in the last call, the fares continue to be lower in the quarter compared to the same period last year. We do not believe that these fare levels are sustainable, especially given the increase in input costs. Clearly with industry load factors in the high 80s or 90s, the industry is turning away passenger demand at current fare levels, but we have no choice but to keep our fares competitive. Having said that, we believe that IndiGo is best position to withstand these pressures because we have the lowest cost structure and the strongest balance sheet. We have 169 aircraft in our fleet at the end of June 2018, including 124 A320ceos, 36 A320neos and 9 ATRs. We added a net of 10 aircraft in the quarter, including 3 ATRs and 4 A320neos. As you're aware, the neos continue to have issues resulting in a couple of parts wearing out sooner than they should. And we're not happy about the situation. Pratt & Whitney and Airbus are working on fixing these issues. UTC, Pratt & Whitney's parent company, in their investor call last week mentioned that they believe they have resolved the seal issue and continue to make progress on the combustion chamber. We remain cautiously optimistic and hope these issues are resolved at the earliest. In the interim, we continue to rely on adequate availability of spare engines to keep the aircraft flying. However, sporadically, we do face shortages as some planes have been temporarily grounded. We expect the situation with the spare engine to improve in the current quarter. IndiGo continues to be a leading airline in terms of on-time performance and we ranked #1 in the DGCA reported OTP for each of the months of April, May and June, with an average OTP of 83.9% for the quarter. Our Technical Dispatch Reliability was 99.85% and flight cancellation rate was 0.33% for the quarter. I'm also happy to report that our company has been awarded the Best Low Cost Airline in Central Asia and India at the Skytrax World Airline Awards 2018 for the ninth time in a row and the Best Domestic Airline India at the GMR Annual Awards 2018 for the seventh time in a row. These great operating results and accolades are due to the hard work of our 18,000 committed IndiGo team members and I want to take this opportunity to thank them. As we continue to add capacity over the course of the year, you will see IndiGo deploy capacity to new routes and destinations. During the quarter, we have added 2 new destinations, Hubli, our first destination under the UDAN scheme and Trichy. This brings our total number of destinations to 52, including 18 international cities. We have started 9 new routes during the quarter: Calicut to Chennai and Bengaluru; Trichy to Chennai, Bengaluru and Kochi -- sorry. Trichy to Chennai, Bengaluru and Kochi; Hubli to Kochi and Goa; Kochi to Ahmedabad and Madurai to Hyderabad. In addition to this, we've also started selling tickets for 5 new destinations: Dhaka, Gorakhpur, Jorhat, Surat and Tuticorin. While we remain focused on building our domestic network, we will also continue to connect international destinations to additional cities in India and also open up new destinations internationally. With our existing fleet and the new A321neos, that we expect to start getting towards the end of the year, IndiGo will have the capacity -- the capability to reach cities in China, the Middle East and Southeast Asia. We've also secured traffic rights to fly to cities like Abu Dhabi, Kuala Lumpur, Kuwait, Mali, Jeddah and Hong Kong. We are evaluating all such opportunities to expand our network and provide many more choices to our customers. With this, let me hand over the call to Rohit for an overview of the financials. Thank you.
Thank you, Rahul, and good evening, everyone. For the quarter ended June 2018, we reported a profit after tax of INR 278 million compared to a profit after tax of INR 8 billion during the same period last year. We reported an EBITDAR of INR 11 billion with an EBITDAR margin of 17.4% compared to an EBITDAR of INR 20 billion with an EBITDAR margin of 31 -- 34.1% during the same period last year. As we have said in the last few quarters, we also received credits from our manufacturers this quarter to offset some of the adverse impact from aircraft grounding and delivery delays. Our profits were lower compared to the same period last year, primarily because of 4 factors. First, foreign exchange. The Indian rupee depreciated significantly during the quarter and closed at INR 68.44 per U.S. dollar. Based on this, we booked a foreign exchange loss of INR 2.5 billion compared to a gain of INR 66 million during the same period last year. Second, fuel prices were higher in the quarter compared to the same period last year. After adjusting for the increased volumes, this increase in fuel prices resulted in higher fuel costs of INR 5.6 billion compared to the same period last year. Third, we continue to see a competitive fare environment in the industry, and despite the increase in fuel prices, while our load factors are up, our yields are down year-over-year. The impact on -- the impact of these lower yields on our profits was INR 3.3 billion. As Rahul mentioned earlier, we do not believe that the current revenue environment is sustainable, given the increase in input costs. And fourth, we had an increased number of shop visits this quarter on engines pertaining to our older A320ceo aircraft. These engine shop visits are a regular event and happen in the ordinary course of operating an aircraft based on the number of hours the engine has been used. We've significantly more scheduled shop visits during the quarter compared to the same period last year, which resulted in an increase in our maintenance costs. Our total capacity for the June quarter was 17.8 billion ASKs, an increase of 18.4% compared to the same period last year. Our revenue from operations in the June quarter was INR 65 billion, an increase of 13.2% over the same period last year. Our other income was INR 3 billion for the quarter. Our RASK for the quarter was INR 3.70 compared to INR 3.82 during the same quarter last year, a decline of 3.1%. This decline in RASK was primarily driven by lower yields, partially offset by higher load factors. While our yields were down 5.4% to INR 3.62, our load factors were up by 1.3 points to 89.3%. As I mentioned earlier, fuel prices have risen by over 27%, which led to an overall increase in CASK of 19.8%. Our CASK for the quarter was INR 3.69 compared to INR 3.08 during the same period last year. CASK, excluding fuel, was INR 2.17 in the current quarter, an increase of 13.3% over the same period last year. As I mentioned earlier, this was mainly because of the adverse effect of foreign exchange and the engine shop visits that I just discussed earlier. The foreign exchange loss, combined with the impact of currency depreciation on our dollar-based expenses, resulted in an increase of 9.1% on our CASK, excluding fuel. The engine shop visits in the quarter contributed another 5.4% to the increase in CASK, excluding fuel. Excluding these 2 factors, our CASK, excluding fuel, would've gone down by 1.2%. As we have said before, we have the lowest cost structure in the industry, which we believe is fundamental to our business. Over time, as our older planes get replaced by A320neos in addition to the fuel burn advantage, we expect to see a reduction in our maintenance costs as well. Further, as we start getting larger A321neos, our unit costs will further reduce. We also continue to optimize our cost structure by improving efficiency and leveraging our scale. We're strengthening our balance sheet by purchasing aircraft with our free cash. We purchased 3 more ATRs during the quarter, and have a total of 9 ATRs purchased so far. Our cash balance at the end of the period was INR 132 billion comprised of INR 61 billion of free cash and INR 71 billion of restricted cash. We have total debt of INR 25 billion at the end of June 2018. During the previous quarter, our Board of Directors recommended a dividend of INR 6 per share for fiscal 2018. This will be placed for approval of our shareholders at the upcoming Annual General Meeting, which will be held on August 10. Subject to us receiving the approval, the dividend will be paid shortly after that. Before I close my remarks, let me give you our capacity guidance for the coming quarter. We expect a year-over-year capacity increase in terms of ASKs of 28% for the second quarter. We still expect a full year capacity increase of 25%. With this, let me hand it back to Ankur.
Thank you, Rahul and Rohit. [Operator Instructions]
[Operator Instructions] The first question is from the line of Sonal Gupta from UBS Securities.
Rohit, I just wanted to -- if you could just talk about your maintenance accounting, I mean, because clearly this -- as you jump on maintenance shop visits, I heard you guys used to sort of amortize it out or in a way we sort of regularly planning for this so we should not see one-off jumps. So could you just talk about the maintenance accounting? And do we continue to see them going forward be sort of -- I mean, the sort of unforecasted jumps in maintenance costs?
Sure, Sonal. So the way the accounting works for maintenance is fairly simple. We have leased -- a majority of our aircraft are leased aircraft for which we accrue a supplementary rent liability. So we take a supplementary rent expense on our books every month. And it creates a liability and when the maintenance event happens, we pay for the maintenance event out of the supplementary rent accrual. Depending on the nature of the shop visits, the actual cost may be higher or lower than the supplementary rent accruals. Typically what happens is when a lot of these are older aircrafts that are going through second shop visits, if you recall, we've extended the leases of several of our original planes beyond the original 6-year term. And so several of these aircrafts are going through what's called a second shop visit. The first shop visit is around 4 years. Second shop visit is around 8 years. And so this will be the second shop visit, which typically tends to be a little bit more expensive. And then the supplementary rent accrual, which is done on a straight-line basis, typically is insufficient to cover the second shop visit. So that's why you see an extra hit in maintenance expense. So that's typically how the accounting works.
Sorry. Just to understand this better, the -- so we have to pay for this -- I mean, this doesn't get paid out of -- completely out of the supplementary rental and we need to take this in addition to that?
We will first utilize the balance that's available on the supplementary rent accrual. And then if there's an excess, which as I said in some cases there is, and in this quarter there clearly was, we will take that charge to maintenance expense, which is in the other expense category.
Okay. But this applies to all the aircrafts then, I guess, like even the additional ones that you've taken on lease as well as the newer ones, right?
These typically will relate to older aircraft because the first engine shop visit is typically at the 4-year mark. So these will typically relate to older aircraft.
Next question is from the line of Binay Singh from Morgan Stanley.
Just to follow on from the previous question. So how do you see this expense going ahead? Was it just a one quarter thing and the issue has been resolved with regard to the higher maintenance cost? Because -- or are you going to sort of increase the provisioning going ahead for supplementary [ and has to adjust further ]?
So, Binay, what you'll see is the year-over-year impact in Q1 was more significant because we had a very low number of shop visits in the same period a year ago. If you go forward, yes, there was a little bit of a spike in shop visits this quarter, just happened to be. But you'll still see these kind of things going forward, but the year-over-year impact will be less because in Q2 to Q4 last year, we had a similar set of situation with shop visits. So it just shows up starting in Q1 just because Q1 last year had a lower number of shop visits. Going forward, this is all a result of the fact that because of the delivery delays in our A320neos, we had extended the leases of several of our older planes. Over time, as the new neos come into the fleet and these planes get returned, you'll go back to sort of having maintenance costs in line with a younger fleet.
Okay. Okay. That's clear. And just 1 question on the annual report. We've talked about almost INR 75 billion ForEx outgo. I understand this will include rentals, this will include the purchase of planes. What else is included in this amount because I think fuel costs will not be included in this, right, when we talk about ForEx outgoing the annual report of almost INR 75 billion?
So effectively, so I'm not sure about the INR 75 billion figure, but it's effectively all the ForEx outgoes are dollar-denominated expenses, which primarily are aircraft leases and maintenance costs as well as any capital cost for the new aircraft purchases like we have with the ATRs. In addition, there are several other areas where there are dollar-denominated expenses like certain IT software and other matters. So there's several line items in the income statement that have dollar-denominated expenses as well as certain capital costs.
But the fuel expenses will be excluded in this, right? Because all your fuel payments will be in INR terms...
Domestic fuel will be in INR terms. Obviously, we have a fair amount of our capacity that's international. And international fuel will be dollar-denominated as well, as well as the station operation expenses associated with our international operations.
The next question is from the line of Deepika Mundra from JPMorgan.
Firstly, I just noticed that your free cash has dropped slightly from the March quarter. This is largely because of the purchase of the ATRs or have you also commenced the neo purchase program as well?
No. We've not purchased any neos with our free cash. So the reason for the cash -- for the reduction in free cash in the quarter was, yes, primarily driven by the ATR purchases as well as certain CapEx associated with maintenance expenses on our own network, as well as the fact that typically in this quarter you see a higher number of -- amount of profits that -- since lower profits, the cash flow wasn't generated through profits as well. So those are the 3 factors that are concerned with the reduction in cash.
And then just to follow up on that regarding the neo purchase program. When is that expected to kickstart? And both Pratt & Whitney and Airbus have recently highlighted a pickup in new deliveries. So when does IndiGo start seeing the benefit of that?
So firstly, I'll answer the financing question first and then we'll talk about sort of the deliveries. The -- on the financing question, we've indicated that we plan to start buying A320 aircraft as well with cash. We haven't made a firm decision as to when we'll finance. As I also indicated previously, we have already pre-financed a number of our A320 deliveries through 7 leasebacks for the remainder of the year. So we still haven't decided when we're going to start buying those planes. We will keep you posted as we decide to start buying A320 or A321 aircraft with cash. As far as the delivery schedule, Wolfgang, you want to comment on the delivery schedule?
So we saw during the quarter, a temporary stoppage of deliveries because of this [indiscernible] which has been detected, which has been in the meantime rectified. But now, deliveries have resumed. And we see overall moving towards the year-end a full recovery of deliveries will be -- see the aircraft moving into the faster rate side now because all the backlog is clear now -- will be clear now.
The next question is from the line of Achal Kumar from HSBC.
I had 2 questions. One, actually, was about the profitability. Of course, you said that the fares are not sustainable, and the input cost is rising. In that scenario, now, of course, I understand from the recent news that most of the airports are trying to increase the charges as well as some of the surcharges are probably on the card for the peak hours. So is that going to be the addition to the cost burden? And if that is the case then do we see profitability further declining? Are you expecting to sort of [ move the market ] because you barely managed to make profits this quarter? And with such a high cost, I mean, we see additional burden from the dollar where it is and then these charges are coming, how do you see the profitability doing? And the second question I had about, on the network planning. So it looks like you are adding more flights on the new routes. So how do you see that playing with each? I mean, how do you see the balance between the new network planning, if you could help on these 2 things?
So this is Greg Taylor. I'll take this question. So when we look at our capacity planning, we really don't focus on what's going on so much in the current quarter as we look at it much more as a long-term strategy. Realistically, India continues to be a very under-penetrated market with respect to air travel and demand is growing 20% a year. And although we're sitting here with fares and yields that we don't think are sustainable in the long run, we do think that with the cost that we have and the strong balance sheet, that we're in a better position to sustain and do well in this environment than anybody else. So under a lot of pressure from cost in sort of this weak revenue environment, we still think that the long run strategy that we're pursuing is really the right strategy. And we're going to sort of quickly build up our network. We're going to make a broad network in a lot of markets that's deep with frequencies where we need them, and we think that, that's clearly the right long-term strategy for, not only passengers, but our shareholders. So, again, I guess, in summary, yes, there's a lot of short-term pressures, but we think we're well positioned and we're taking a long-term view really that's going to be really the right strategy for shareholders.
But do you think on the -- yes. I agree with you that in the tier market and this quite under-penetrated market, but the routes, which we're talking about are actually immature or undermature, I'd say. And then it will take years for these routes to see the maturity and where you can sort of charge the fares we want. Don't you think that we will add pressure to the [indiscernible]?
So I agree with you that some markets are maturing, but what we're seeing is that when we put capacity in the markets, we're finding that there's a lot more demand out there than anybody thought was there. There's a lot of city players where there's never been nonstop service before. And when we put capacity in there, what we're finding is that there is quite a bit of demand. I mean, if you look at where we are with respect to load factors, they're clearly very strong. So we're getting -- the demand is there at the current price. The real challenge for us is -- as was mentioned by Rahul, what's going on in the 0- to 15-day booking window. When we look at our sales outside 15 days, we're actually seeing yields up year-over-year so that -- the kind of pricing we're putting in the market to stimulate traffic, it's doing well. The challenge we're seeing is that inside 15 days, the period, which would typically the business travelers who are not so price-sensitive where we would normally get higher yields, the comparative market is just not allowing us to get the kind of yields inside 15 days than we used to. I mean, it's a situation where historically airlines would use advanced purchase parameters. So low fare, you have to buy outside 15 days. When you buy inside 15 days, typically the fare is higher. Inside 7 would be even a little bit higher. And that structure has worked very well for the industry over the years where we can take these high yields that we get from business travelers and use it to offer low fares to leisure travelers. And the problem we're seeing right now in the markets is that the sort of advanced purchase rules have been competed away, and we're just not getting the higher deals inside 15 days that we used to. So we are -- our strategy is going to be that we're going to remain competitive because you don't have any choice, you have to be competitive in this market. And we just think over time, as we said, that their structure is not really sustainable, it's going to have to get better. And we're going to focus on a longer-term strategy and build our network. And we know things are going to get better over time.
The next question is from the line of Bhavin Shah from Sameeksha Capital.
So if I look at the last episode of fuel price increase that happened in 2013/'14, you were able to pass on about 50% of fuel price increase in follow-up fare increases, yield increase, whatever, the way to look at it. Now in that period, I guess, competitively and I mean with respect to what was happening to other airlines versus what we see today and probably next couple of weeks... [Audio Gap]
Mr. Shah, we are unable to hear you clearly. Your audio is breaking. Mr. Shah, are you connected?It seems like there's no response from the line. We'll move to the next question that is from the line of Prashant Kothari from Pictet.
2 questions. One is on the fuel cost. This year [ could increase in fuel of 52% ], which is not explained by the amount of domestic growth and the fuel prices that we have seen. And we should have had some benefit on the [ neo ] planes, as you said which we were kind of assuming the last 3 quarters. But that doesn't seem to be there anymore. Is there any particular reason why we are seeing [ fuel rising by as much at first ]? That's the first question. And the second question is, if you could just give some outlook on the industry additions you expect for the next 20 years.
Thanks, Prashant. So this is Rohit. I'll get -- I'll take the first question and Greg will take the second. The -- sorry. On fuel, if you just look at fuel divided by the ASK and if you look at our fuel CASK, it went up about 50%. So that would adjust for sort of the capacity increase. The highest published fuel price went up by about 27%. So you're actually right. It went up slightly higher than the actual underlying higher fuel price. And typically you should see some savings from neos as well, which we would have. The reason for the increases, it's just a function of how the domestic oil companies priced their fuel. So the way they priced their fuel is, they give you a fixed -- you negotiate these deals, which have a discount per liter of fuel. And that's a fixed discount. So once fuel prices go up, the discount as a percentage of your fuel prices actually starts to become a smaller percentage. So it's a higher percentage at a lower fuel price and when you go up -- just the arithmetic works against you as fuel prices go up. So it's just normally how the domestic oil companies price their fuel. So that's the explanation of why the fuel CASK is slightly higher than the IOC published price increase. On the industry capacity, Greg, do you want to talk about it?
Yes. I'm sorry. Could you repeat your question one more time? I didn't quite hear it clearly.
Yes. The question is simply about your outlook or your [indiscernible] in terms of how much the industry can grow by in the next 20 years?
Sorry. Let me take that. So we all know with industry capacity, lots of people try to make projections and a lot of capacity comes in on short-term leases. We -- people have talked about their orders. Some of the competitors have talked about their orders. The delivery schedule of those are not clear. And so that sort of is fairly volatile. Overall, we're very comfortable with the level of capacity increase that we have planned and we do expect industry is going to add some amount of capacity as they've been doing over the last several quarters. But a specific forecast, I think we don't have anything more to guide you on in terms of what other airlines are going to do.
The next question is from the line of Ansuman Deb from ICICI Securities.
So I had a question regarding the sustainability of the sales that you've said, which was clearly not sustainable. So are we expecting some kind of capacity rationalization by competition, when we say that sales are not sustainable in the sense that some kind of competition, some kind of capacity addition by the competition will be slowed down to -- so that they may be comfortable and finance the increase? And could you also give me the passenger number for this quarter? I don't see that anywhere actually.
So let me talk first about the fare situation. So -- and competitive capacity. So we say they know that the current fare levels are not sustainable. Clearly, something's going to have to change. I mean, the revenue for the industry has to cover the input costs, and that's going have to play out over the long run. As I said before, I think that some changes in fare structure could benefit the industry and maybe that will help with the problem in the near term. But in the longer term, I think, it is, in fact, supply and demand and that will have to be either adjustments in supply or we're going have to wait long enough for demand to grow to fill the gap. So that's my sort of theory on the whole process. Passenger numbers, do we have that?
Yes. I think we reported those to the DGCA. I think the DGCA normal reportage comes out on the 20th. It hasn't come out yet. So it should come out shortly. If not, we can -- Ankur can get you the -- you can call Ankur and we can get you the information.
Your next question is from the line of Arvind Sharma from Citi.
My first question is on the ForEx losses part since it's the first time you are reporting in [ a mixed setting ]. So what exactly are these ForEx losses? And do we expect them to continue over the year? Or do we expect at the end of the year on an annual basis, they will more or less deliver?
Sure. So thanks, Arvind. So this number that we -- given the materiality, we've decided to put it as a separate line item in the financial statements. But historically, every quarter that I've been here the last 8 quarters, we've always sort of given that number during the Q&A session. So we just put it in the financial statements. So it's the same number that has been reported every quarter. The number, essentially, is from an accounting standard. There's 2 components to the foreign exchange. Last one is unrealized mark to market loss and then there's a realized loss for any liability on your books that you pay out during the quarter. And so typically, the majority of this expense is going to be mark-to-market on your sort of unrealized mark-to-market loss on your foreign exchange liability, which is typically a supplementary rent liability. And so there's a significant supplementary rental liability in our books, which is a dollar-based liability. And we mark to market that liability every quarter. And the foreign exchange loss is primarily related to that. So now, if you want to talk about going forward what we're doing is we're looking at -- we've already started implementing some new structures with how we secure our foreign exchange, supplementary rent liabilities with these collateralized letters of credit. And we're doing it in an manner where we're going to put dollar -- where we started putting dollar deposits on -- against these liabilities, which will match our expense and revenues. So we're not expecting this liability to continue to increase. And over the next 12 months, it'll dramatically reduce as the renewals of these letters of credit come up over the course of the year. So we expect to start reducing this liability and just match dollar assets with the liability.
And if I can just get some clarification on the number -- on the EBITDA number that you've said, INR 11.3 billion. What exactly does this include in terms of the ForEx part?
It includes the full foreign exchange number that we have in the P&L.
The next question is from the line of Santosh Hiredesai from SBICAP Securities.
Sir, I had a question around the cost bit. So we keep reading a lot about pilot shortages and stuff for that. So, is that the case that we see on the ground and would actually push up cost when we have more of expats, say, coming in for some of these [indiscernible]?
Yes. I'll take the question. IndiGo, we have a unique position we have, over the years, have -- had a proper planning in creating a pool of pilots that starts with the youngest pilot, the so-called cadet program. We get the pilot with 18, 19 years, train them and then after 4, 5 years, they will be upgraded to captains. So -- and this -- we take this project further, have added new cadet schools to our program. And we have a unique pool of senior first officers, the last stage before you become a captain, which we can upgrade. And if you cross a certain size, which we have, we are close to or have already crossed, then you can generate your captains on your own because you have a huge pool of first officers, which something 20% every year can be upgraded to captains. Having said that, there is a need for expatriates because we are in an expansion, which is slightly higher or is higher than the market close. So we need temporarily expatriates. But we're very confident that we can, after a certain interim period, equalize that and then actually fully sustainable airline in terms of pilots.
So this is Rohit. Just to add, overall, we expect the majority of our pilot needs to be sourced through our internal programs, but there will be some expats that will add some cost.
Secondly, I had a question on the revenue side. So while we understand that the industry as such has been adding capacity in double digits, which is possibly putting pressure on [ the users ] as well. We don't see much of that coming onto the [ metros ], right? I mean, [ Bombay, New Delhi ] given the circumstance. So this pressure on the pricing, is it broad-based or is it more to do with the new rules that we see additions coming?
So we don't normally comment on work-specific results. But what I would say is, as I mentioned before, that the yield pressure we're seeing is primarily in close-in bookings, which is generally business traffic. And so I think as you would expect, markets that have a -- typically have a lot of business traffic are seeing more pressure than other markets that are primarily there.
The next question is from the line of Bhavin Shah from Sameeksha Capital.
Yes. So in the last episode of fuel price increase that happened in 2013/'14, you were able to pass on about 50% of that increase in almost [indiscernible] as a result of the yield improvement.[Audio Gap]Your ability to do so in coming quarter or year when you look at the competitive dynamics back then, what else you see going forward and then I have a follow-up question.
I really don't have too much to add to what I've already said on this subject. The cost inputs are up, the fare levels right now are down. The pressure that we're seeing on fares is primarily close-in bookings. I think we hope to see some improvements there. Relative to what was done in the past, every day we sort of look at the fare environment and look for opportunities to pass on fuel cost to consumers, and we'll continue to do that. How it'll play out over time, it's difficult for me to say. We know that we have to stay competitive in the marketplace, and that's what we're going to do. And we, as I said before, I think we're better positioned probably than anybody else because we have the lowest cost structure, we have the strongest balance sheet. We have the economy benefits that go with sort of a new fleet of fuel-efficient airplanes. And in the end, I think we're going to wait it out. And we'll kind of be the winners in the end. That's my view of it.
As a follow-up question, could you comment on what percentage of your fleet -- what percent of your ASK in FY '18 and also as of the end of this year, will be from neo?
We have a table in the investor presentation that we've uploaded that has the fleet count. Just use that as a rough guideline to take the percentage of that. The neos and average flight are same as the ceos. So the fleet percentage and the ASK percentage will be the same. So we have that cut by different periods. You can take a look at that and just use that same percentage.
The next question is from the line of [indiscernible] from [indiscernible] Securities.
[ You also ] likely mentioned that there is pressure [indiscernible]. And apart from that would mean they're actually up. Would it be possible for you to really quantify the portion of the revenues coming from the [indiscernible] the exact number [indiscernible]. And the second question is [indiscernible] quarterly gone down by 11%. There's also a note regarding some [indiscernible].
Sorry. Just to recap here, the line was not very clear. The first -- the second question was about, I think, was on effective tax rate.
Yes.
Okay. And the first question also wasn't -- you weren't clear at all. If you can actually repeat the first question.
Yes. I'll repeat. Yes. So like you were saying that you see pressure in the 0 to 15-day window. And if you go beyond that, these are actually up for you. So would it be possible for you to really quantify how much of the portion of it comes from the window? If not the exact number, maybe ballpark number.
I guess what I would tell you is that 40% of our bookings come from the inside 15-day window. With respect to the specific yields and the different windows, I don't have that number.
So I think -- I mean, I think that sort of, I think, gives you the information you need on the 0- to 15-day window. The majority of the yield, the time is all explained by that 40% of the booking that are in that window. Let me take the second question on effective tax rate. So as you know, the effective tax rate is an accounting sort of number that is based on a lot of different factors like booked tax differences, permanent differences, the absolute level of profits. There's a lot of things that affect the effective tax rate. So based on all that, our effective tax rate for this quarter was 11%. Having said that, I would continue to advise you for modeling purposes to use the 28% to 30% range that I've historically guided.
Okay. So just to follow up also, what is it really [ that's coming up here ] and also coming [indiscernible]
That note has been there in our financial statements for a long time. It's in our annual report for the last many years. So there's nothing new on that note.
We'll take the next question from the line of [ Pranav Tendulkar ] from Rare Enterprises.
Could you give a split between passenger revenue and cargo revenue in the operating revenue?
Roughly 40% of our ancillary revenue is cargo revenue. That's roughly where it is.
Passenger revenue -- sorry, cargo revenue was around 600, 700 run rate per quarter, right? So is it around that?
So we reported our ancillary revenues in the press release. And 40% of that is cargo.
Okay. Okay. So when you calculate RASK in the presentation that you have given on the exchanges, you include just these 2, right? You don't include other operating income in the RASK calculation, right?
RASK will include all revenue. So our -- what we have in the investor presentation, the last [ page ] here, an abbreviation definition that actually shows the exact sort of calculation that has total revenue. There is another measure that you can use called PRASK, which is passenger revenue per ASK which is another measure you can track, which is not in that presentation, but all the ingredients of that are in the press release. If you just take the passenger revenue that we've disclosed separately in the press release, you can calculate PRASK as well.
Right. Right. So another question just pertaining to this quarter because your reporting has change a little bit. So CASK net you have calculated. Did it include ForEx in previous quarters? So ForEx as a cost, did it include in CASK calculation in previous quarters vis-à-vis the quarter because this quarter it clearly includes?
Yes. So the calculation of foreign exchange in CASK didn't change at all. It was just that it was always in other expenses and now, we've just highlighted it. We've booked it other expenses to give better disclosures in the financial statements for the calculation, okay?
The next question is from the line of [ Ravi Srikanth ] from the [ Family Office ].
So I had just 2 questions. One is that given the current environment and given the current RASK, do you think this is an optimal level? There is some scope for improvement over the year? And my second question is, I mean, basically general observations. What I observed is that even on a 1.5-hour flight, around half hour is spent just circling around the airport at the destination place. So what is the global average for this and is this a big cost? I mean, is this a big cost, the time spent over the airport?
Can you just repeat -- yes. So we got the second question. The first question, were you talking about the -- were you asking if the current RASK environment was optimal? Was that your question?
The environment remains as it is. So first IndiGo, do you see that the RASK that you reported of 3.7, is it at optimal levels or do you see some room for improvement over the years? Only for IndiGo, not the industry as a whole.
So let me start and I'll let Greg jump in. I think Greg sort of talked a lot about the fact that we don't think the revenue environment is optimal right now, especially because of the fare environment in the 0- to 15-day bucket. So if that fare environment is improved, you should see a significant increase in RASK. So that's sort of the answer to the first question. I don't know, Greg, do you want to add anything?
I guess I want to add 2 things. One is I think that we have a revenue management group and revenue management tools who will sort of constantly try and optimize the revenue on every flight. And I think they're probably as good or better than anybody in the industry. I think they're really very good at this. And I think we're getting as much out of them as possible in the environment. On the other side of the coin, there are some revenue areas where I think we have upside potential going forward and focusing on I think [indiscernible] could be better and we're going to focus on that. And the other area is cargo where I feel like we've been a little bit underperforming there. And so going forward, I hope to see some improvements and I expect to see some improvements in both of those areas over the next few quarters.
Yes. Coming to your question on ATC delays, you're right that actually airlines are spending a lot of money in circling around the major airports. And although I don't have the concrete figure with me, I'm quite sure that the number of hours spent unnecessarily in the air due to air traffic control delays is here in India much higher than, for example, in Europe or in the U.S. Having said that, if you look back the last couple of years, there was an improvement in the [ aviation ]. That's why we could grow the industry by 15%, 20%. So there is some improvement, but as the industry is continually growing, there's a constant challenge and I can say we work very closely with the authorities here to improve the systems and there are many ideas which we can take from other countries to improve that situation further. So there are short-term challenges, but in the medium, longer term, I think the challenges will be overcome.
As a percentage of flying hours, how much of...
You can't give a general -- it really depends on the route network, depends on the season. To give a general figure here is not possible.
The next question is from the line of Binay Singh from Morgan Stanley.
In the starting, we talked about couple of additional international destinations. Fair to assume that, that is coming from the additional order book -- from the existing order book only?
Yes, that is correct.
So a lot of media speculation on your long-haul international strategy. Any updates on that? When are you going to place an order? Or do we see something concrete playing out in financial year '19 itself or is it more like '20 -- FY '20?
Binay, like -- Rohit mentioned, I think, on the last phone call, we tend to learn a lot about our company through the press.
Okay. So I guess, there will be opportunity for us to learn from you then.
I guess. As and when we are ready with the information, we'll be very happy to sort of extend that to yourself. For the moment, it's all on the boiler plate and we're trying to figure out what's the best strategy going forward.
And just to again repeat what I said earlier, the routes and all that we talked about are all with our existing A320 fleet and the order book.
And just linked to that, like if you look at staff and number of fleet, in FY '18, we saw that number inch up. So was it because of the fact that in FY '18, you built staff capacity, but then the actual capacity got delayed? So to an extent, this year some leverage came from that bench trend [indiscernible]
Absolutely. That's a good observation, Binay. We've talked about this on prior calls that there's always a little bit of a timing issue between having employees in capacity actually coming in. You always have to hire people in advance. And then if the delays come in, you're stuck with the cost for a little bit until the capacity comes in. You saw that a little bit last year. That's why this quarter, actually, if you saw our employee expenses went up 11% even though capacity went up 18%. So you saw some of that capacity increase absorbing some of the bench. So that unfortunately given the growth plans that we continued to sort of go up and down, both ways, but that observation is absolutely correct.
The next question is from the line of Garima Mishra from Kotak Securities.
I just had 1 question. Is there any evidence on the ground that you're seeing right now of competitive airlines cutting down capacity given their sort of cash burn would be shortly higher than you guys? You're still in profits as of now.
So we don't have any evidence on the ground. It wouldn't be obvious to other people serving the industry. There is really -- we have nothing to add to that.
Ladies and gentlemen, due to time constraints, that was the last question. I now hand the conference over to Mr. Ankur Goel for closing comments. Thank you, and over to you.
Thank you, everybody, for joining on this call. I hope you found this useful.
Thank you very much. Members of the management, ladies and gentlemen, on behalf of IndiGo, that concludes today's conference call. Thank you, all, for joining us. And you may now disconnect your lines.