Interglobe Aviation Ltd
NSE:INDIGO
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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 2022 financial results. My name is Janis, and I will 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 the moderator, Mr. Ankur Goel, Head of Investor Relations for IndiGo. Thank you and over to you, sir.
Good evening, everyone, and thank you for joining us for the first fiscal year 2022 earnings call. We have with us our Chief Executive Officer, Rono Dutta; and our Chief Financial Officer, Jiten Chopra, who'll take you through our performance for the quarter. Wolfgang Prock-Schauer, our Chief Operating Officer; and Sanjay Kumar, our Chief Strategy and Revenue 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 shortly. The transcript of the Q&A session will be uploaded subsequently. With this, let me hand over the call to Rono Dutta.
Thank you, Ankur. Good evening, everyone, and thank you for joining the call. Hope all of you are safe and doing well. We announced our first quarter fiscal 2022 financial results today. We reported a net loss of INR 31.7 billion for the quarter ending June as compared to a net loss of INR 11.5 billion for March quarter of fiscal 2021 and INR 28.4 billion for the June quarter last year. Needless to say, we are deeply disappointed by these results. Last year for the June quarter, we had reported a net loss of INR 28.4 billion. And this year, we have a loss of INR 31.7 billion. Let me first explain the reason for the higher loss. INR 2.9 billion was due to the foreign exchange losses, and INR 1.5 billion pertain to lower finance income. Without these 2 nonoperational items, our losses would have been roughly the same. The next question, of course, is that given we had around INR 9.1 billion higher ASKs, why could we not generate more positive contribution from this additional flying year-over-year? Fuel, unfortunately, was a big negative driver, and our year-over-year fuel costs, adjusted overall capacity impacted us by INR 5.4 billion. You will, of course, be aware that year-over-year fuel price has doubled. The second large factor was the severe impact that the COVID second wave had on our revenues in this quarter. The best way to illustrate this COVID impact is by reading out to you our monthly revenue performance for the period April through July. April revenue was INR 15.4 billion. May was INR 6.7 billion. And June was INR 9.6 billion. And July is projected to recover back to April levels. Sequentially, our CASK for the June quarter increased by 43.7% compared to the March quarter on account of higher fuel price, rupee depreciation and 41.5% lower capacity deployment. Our cash burn also increased from an average of INR 190 million per day in the March quarter to an average of INR 334 million per day in the June quarter because of lower demand and lower capacity deployment. Unfortunately, with the second wave, we faced similar challenges as we did last year and had no option but to reinstate leave without pay for our employees. On the cash side, we continue to look at ways to bolster our balance sheet through various sources of funds and have also obtained shareholder approval to raise up to INR 30 billion QIP. We ended the quarter with a free cash of INR 56.2 billion. In the near term, our primary focus remains on adding capacity so that we can get back to pre-COVID levels as quickly as possible. Currently, we are restricted to 65% capacity deployment, but we are in continuous dialogue with the Ministry, and we are hopeful that we will see a gradual relaxation of these restrictions. Of course, the additional capacity will have to be tempered by the reality of COVID-impacted demand so that we are always covering our variable costs and generating cash to cover the fixed costs. Scheduled international operations remain challenging, and our short-term focus is on increasing the capacity deployed through air bubble arrangements and charters. As we have reiterated throughout the dynamic, our focus is to manage our cash levels, improve our cost structure, run a high-quality airline with highly engaged employees and position ourselves for the future. The core to our business remains our customer service. Some of the key accomplishments during the quarter are: Number one, globally, IndiGo was ranked as the third most punctual airline by OAG rankings for January through June; domestically, we have been ranked as #1 in OTP consistently for the past 4 quarters; our customer complaint rate in the June quarter was the lowest at 0.1 complaints per 1,000 passengers as compared to the rest of the industry average of 1.09 per 1,000 passengers; we have been felicitated as India's best place to work in transportation by Great Place to Work Institute. While the impact of COVID second wave had been severe on both the income statement and our cash flow, we are pleased to see that as COVID numbers decline, travel revenue also rebounds quickly. This has obviously been a very bad quarter, and the key question in investors' mind must be: when do we start seeing light at the end of the tunnel? Given the vaccination rates, a reasonable scenario is that the third wave will be relatively flat. And as such, we hope to be at 100% of pre-COVID domestic capacity by the end of the year, after which we can hope to return to normalcy on revenues. And with that, let me hand over the call to our CFO, Jiten Chopra.
Thank you, Rono, and good evening to everyone. Hope all of you are safe and doing well. For the quarter ended June 2021, we reported a net loss of INR 31.7 billion compared to a net loss of INR 11.5 billion for the quarter ending -- ended 30 March '21. We reported a negative EBITDAR of INR 13.6 billion compared to an EBITDAR of INR 6.5 billion in the quarter ending 30 March '21. In the March quarter, we operated at 75% of pre-COVID capacity. But during the June quarter, we have operated at only 44% of pre-COVID capacity. Such lower capacity deployment has negatively impacted our performance matrices. Some of the key variations from March quarter are: we operated at a load factor of 58.7%, a reduction of 11.4 points; our RASK reduced by 16.4% primarily driven by reduction in our load factor by 11.4 points and reduction in our yields by 5.7% to INR 3.48. Our fuel CASK increased by 8.5% compared to a 12% increase in average ATF prices on a sequential basis. Our CASK ex-fuel increased by 56%. The update on our cash position is as follows. We ended the March quarter with a free cash of INR 71 billion. On average, net cash burn during the quarter was INR 334 million per day. At the end of March quarter, we had announced liquidity initiatives aggregating INR 45 billion. Further, in the June quarter, we were able to secure additional liquidity of INR 10 billion, taking the total initiative to INR 55 billion for the year. Of this, we infused INR 14 billion during the quarter. We are also in discussion with various lenders to further enhance our liquidity position. Additionally, we continue to work with our various partners to secure favorable credit line terms. We ended the June quarter with a free cash of INR 56.2 billion and a total cash of INR 170.7 billion. On other key balance sheet numbers, we ended the quarter with a capitalized operating lease liability of INR 259.3 billion and total debt, including the capitalized operating lease liability, of INR 316.9 billion. The strength of our balance sheet is our biggest defense in the fight against COVID-19. And we will continue to enhance this strength by focusing on cost reductions, liquidity enhancement and capacity additions. With this, let me hand it back to Ankur.
Thank you, Rono and Jiten. [Operator Instructions] And with that, we're ready for the Q&A.
[Operator Instructions] We take the first question from the line of Amit Shah from BNP Paribas.
The reason for the loss was INR 2.9 billion due to FX. And the INR 1.5 billion was because of?
Lower interest income.
And also for July, what is the revenue trending at? I missed that number.
Like we said, we gave you the April number, and then we said July looks like it will be similar to April.
The next question is from the line of Binay Singh from Morgan Stanley.
Actually, I had 2 questions. Firstly, on the quarter, we've seen increase in staff costs. Could you talk a little bit about that on a sequential basis? Along with that, we've also seen ancillary revenues as a percentage of revenues go up. So any sort of a one-off or anything on that? And secondly, any outlook on the second quarter? Typically, we see that Q2 is the weakest quarter in every financial year. So this time, as things are opening up, crude prices are high, are airlines able to pass on the crude pressure or yields are actually trending down? If you could comment on that.
Yes. I mean so regarding the seasonality, we think COVID has sort of trumped seasonality by a big factor. So really it depends on how COVID is performing. And as you know, COVID has -- the numbers are coming down. Yes, it stalled at about 40,000 cases a day. We hope to continue to drop. So really, we think that seasonality will be a factor once we get back to normal but not for now. Now to the other question of staff costs, part of that has to do with -- mostly driven by pilot costs, what we're doing with pilot training, where we're holding people. As you know, we have a lot of people coming in from other airlines, and they were in training for a long time. Now they're coming out of training, and there's a little bit of cost increase because of that. Those were your 2 questions, I think. Seasonality and staff costs.
And also on the ancillary revenue, like if I look at the ancillary revenue for the quarter, it's only 26%, below your best ancillary run rate. So what's happening there?
Ancillary is actually doing well from the cargo. So when you're comparing it to which quarter, how are you saying 26% less?
If you could just share the cargo number within that, like how much will be cargo now for you versus same quarter last year, something on that.
So ancillary revenues number is actually not less if you look at the capacity, which is -- I'm sure you're looking at sequentially, right? And if you look at sequentially, our cargo number stand pretty much the same as last year -- last quarter. And in fact, some of our ancillary revenues like cancellation, et cetera, had been steady for the quarter. So if you look at from a capacity perspective, lower capacity has fallen from last quarter, but we're still holding on -- good on the ancillary revenue because of cargo on these and other niches.
The next question is from the line of Varun Ginodia from AMBIT Capital.
I have 2 questions. One is on the yield side. So passenger yields, they fell sequentially despite fare bans in place and government also increasing the lower end of the fare bans in the month of June. So if you can throw some color there, what were the drivers behind lower passenger yields? And the second question is on the lease rental side. That number looks to be much higher compared to the activity that we did in 1Q FY '22. So if you see 2Q FY '21 was a year where we posted similar revenue, but the lease rentals were much lower. Plus we also had disposals of CEO happening in this quarter. So why this number appears to be high -- on the higher side. So if you can just give your thoughts on these 2.
Yes. So first, on the yield side. Clearly, COVID impacted the yield a lot. And really, it was again a May phenomenon, which really hurt us. So through February, as you know, things are looking better, things are going okay. And then once COVID 2 hit, the traffic really dried up. And when the traffic dried up, yields dried up, too. As far as lease rentals, if you're looking at -- comparing it to the revenue, 2 things have happened. We have obviously taken delivery of new aircraft. And at the same time, our returns were impacted by COVID. And so we had a number of redeliveries that were slated, but we fell short because many of the MROs were closed. And therefore, our overall lease costs would be higher, yes. I also want to say, though, but as the COVID is disappearing, the lease -- we are pushing out these redeliveries at a faster rate. And by the end of the year, we hope to catch up again.
Okay. So historically, I believe this number is like INR 0.8, INR 0.9 per ASK. Is that a fair way to look at it on a longer-term basis? Or will this trend up as we take deliveries of the new aircraft?
So -- well, if you're comparing it to revenues, we are absolutely sure when we get back to normal revenues, the lease costs will not be a factor. Right now, clearly, revenues are subdued. Lease costs remain fixed and redeliveries have slowed down. So that is the issue. Once we get back to redeliveries being pushed out, which will happen, we get to more international flying particularly, then the lease cost per revenue will be back to normal, yes.
Mr. Ginodia, does that answer your question?
Yes. Yes. Yes.
The next question is from the line of Deepika Mundra from JPMorgan.
Sir, firstly on the liquidity, could you give a broad breakup of the INR 50 billion of liquidity for the year?
So we -- so as I mentioned in my commentary also, we have -- we are talking to our various lenders, but we don't normally give a breakdown of our liquidity. But right now, our number is at INR 55 billion, which we have called out. And we keep enhancing it as we continue engaging with more lenders.
Okay. Secondly, on the employee cost reductions, how much was it applicable in the June quarter? Or is it going to be starting in the September quarter? Also previously, you had given a guidance for employee costs for the year. So any similar guidance for FY '22?
FY '22, no, I don't think we can do that. Right now, our employee costs are down over 28%. And we haven't -- I mean, there's no reason why that should change. It's fairly flat. But at what point we will start giving pay raises, taking back all the pay cuts, all that will depend very much on the environment.
[indiscernible] [Technical Difficulty]
Sorry, you're cracking up. We can't hear you.
Can you hear me now? Hello?
Yes. Go ahead.
Yes. Yes. And so last quarter, before we were hit by the second wave, you were fairly constructive on the yields, in line with the traffic recovery. Could you give some color on the -- on that, sir, for the next few quarters or -- and whatever you may have?
Excuse me, are you asking about what is the [ status ] on the traffic forecast? Is that what you're asking?
[indiscernible]. You were fairly constructive on yields. With this...
[indiscernible] we can't...
Ma'am, sorry to interrupt you.
Can't hear you.
We take the next question from the line of Arvind Sharma from Citigroup.
Sir, first question, a more structural one. IndiGo is a market leader with almost 54% market share. But despite that and given the cost pressures on the fuel side, the yield has been rather soft. So do you think that as traffic comes, the yield would be at least relatively higher than the other players? Or do you think the Indian market would be commoditized for a longer time and, therefore, the market leadership might not necessarily translate into better yields compared to competitors?
No. I mean I think the yield pressure we are seeing right now is purely driven by COVID. So February, as I think we mentioned, we were quite optimistic, the yields are good, and I think we'll at least recover to pre-COVID levels. And then it's a question of, well, after that, can we go higher? So I don't see any permanent impairment of yield in any way at all. It's purely driven by COVID.
Sure. Sir, just one more question on the lessor side. Given that operations have been weak, there have been restrictions on the capacity, have there been any further negotiations with the lessors regarding the supplementary rentals or the cash rentals in terms of quantity or time lines of payments?
So as far as the lessors are concerned, we take a long-term view of this. There's a pipeline between OEMs through lessors to IndiGo, and we very much cherish that pipeline, and we want to keep it strong, and we look at long-term relationships. So we've had discussions with both OEMs and lessors. And to some extent, they have been flexible. But we are not in a mode of we are not going to pay you, things are tough, and we'll pay you later. We are not in that mode at all. And that's not just true for lessors. Whether it's airports or oil companies, we make sure that all our bills are current, and we don't have any payables buildup at all.
Okay, that's great to know. Sir, if I could just ask a very small data question. In the new accounting norms, the lease centers are divided into finance costs and depreciation. Could you share that number? How much is the finance cost? How much is depreciation?
No, we don't share that number.
No problem, sir.
The next question is from the line of Aditya Makharia from HDFC.
Yes. Maybe a little bit of a larger-picture question. The corporate or business travel will come back at some point of time. But what are the trends you are seeing? Maybe you could talk about July or generally how you've seen it? And how do you see this particular segment evolving? That's my first question.
I'll ask Sanjay Kumar to answer this question. Go ahead, Sanjay.
In terms of the corporate business, we had seen a recovery of almost 50% until about February, March before the second wave hit. And after that, of course, there had been a downturn of the business. But what we saw was certain industries like manufacturing, infrastructure, pharma, banking, oil and gas, they kind of saw better recovery compared to some of the IT, consulting and professional services industries. So what we are hoping is, as the COVID wave -- second wave is coming down, we will be seeing the recovery in these sectors once again, which will kind of be close to about 40% to 50%. And IT and consulting and these kind of industries might take a little longer than what we can expect in certain parts of the industry. We'll see gradual recovery in next few quarters, thank you.
Sure. And how do you just see the work from home? Let's say pre COVID, corporate travel was on a base of 100. Once things normalize, because of things like work from home, do you see a more realistic level at maybe 70% or 80%? I mean any thoughts you could just share?
So I think we've shared before, and I don't think the numbers have changed, it used -- corporate used to be 20% of our travel, and then it shrunk to about 78%. And we -- our best guess is it'll stabilize at about 13%, 14%. So it won't recover to 20%, but it'll probably hold at about 13%, 14%.
The next question is from the line of Ansuman Deb from ICICI Securities.
My first question is regarding the debt number. If you can share the debt number ex-finance lease and ex-capital lease obligations?
We -- INR 259.3 billion of capitalized operating lease and total debt of INR 316.9 billion.
So INR 369 billion minus INR 270 billion would be roughly the kind of normal debt?
Yes.
Okay. And the second question is regarding QIP. So if we could understand -- tell us what is the delay in QIP. Because the way we look at -- the way we see it, like the big cash arbitrage that we had in terms -- with our peers is now shrinking in the sense that they are in deeper debt, but we are also losing very valuable cash. So -- and to bolster -- QIP could be an important step in bolstering our balance sheet. So I just wanted to understand that -- the time lines and the possible reasons for the delay.
Okay. So I'll just make one statement on QIP, and I don't think we're in a position to take further questions on this issue at this time. So here is the statement I'll make. Given the current cash position of the company, we continue to evaluate timing and size of any QIP. Full stop.
The next question is from the line of Achal Kumar from HSBC.
I had 2 questions, if I may. First of all, so you mentioned that July revenue is almost similar to April. So does that mean your profitability -- if you look at the profitability at the profitability level, it was worse in April because fuel price itself is almost 20% it was in April. And then, of course, all the other employee costs and all looks slightly higher. So do you think, in terms of profitability, the July looks like worse than April? That's my first question. And secondly, in terms of advanced sale, how do you see -- I mean, so how do we expect your working capital to play out in case your advance sale is not as good as it used to be? So how do we look at the advanced sale in terms of -- and working capital?
Okay. So let me talk about how revenue is shaping up. As I said, it's a very, very volatile environment. We get periods in which we are quite optimistic, then we go to pessimistic, then we become optimistic again and all within a very, very short period of time, very compressed cycle. And it's really all driven by the COVID number. If you want to know what will happen to our revenues and if you just track the COVID numbers, you'll get a very good sense of it. So May was -- I don't know how to say -- what's the right way to say. It was distressing in terms of how quickly the revenue shrunk. But then again, it was -- we had 400,000 level of infections per day. Now we had 38,000, 39,000 infections per day. So of course, the revenue is improving. And therefore, I don't think we should say, okay, last quarter, it was this, and, therefore, next quarter, it'll be similar. We have -- the quarter which will be sort of June, July, August is definitely shaping up to be better in terms of the revenue numbers. Now our forward bookings are picking up, but they're not as strong as they were back in February, again all based on COVID. And so we have reasonable optimism for the quarter relative sequentially. But again, if tomorrow COVID 3 hits and the cases spike, within a week we will change our view. So it's very, very volatile in that sense.
But then why you want to fly more? So you initially commented that because your oil price is high, and that's why despite flying more capacity, your losses were higher than last quarter -- I mean, last year. So what will make you too confident that your losses will come down if you fly more despite having such a high fuel price and lower yields?
Yes. So we watched that number very, very carefully. And you're right, it's very much a balancing game of how much capacity we should put into the market. And we are not doing any long-term planning at all. It's almost like, okay, next week, what should we do. And our goal is to make sure that we are always covering our fixed costs. And we've said before, I think, that our fixed costs are in the range of 45% to 50%. And as long as we can cover that, we should be willing to put capacity out in the market. But that number also changes depending on the yield. If the yield is low, that 45% becomes higher. So we are watching all this carefully, and we're trying to make sure that no matter what we do, we are cash positive, and we're always contributing towards fixed costs.
The next question is from the line of Aditya Mongia from Kotak Securities.
I had 2 questions.
Mr. Mongia, so sorry to interrupt, but we are unable to hear you well, sir.
Can you hear me well now?
Yes, sir. Thank you.
I had 2 questions, and both of them actually were on yields. I wanted to get a sense -- if you'll give a sense of the revenue number on a monthly basis. It will help if you could give us a similar kind of number for yields on a monthly basis because, as you pointed out one should kind of take out May out of the equation then see.
I'm not sure that this will be particularly helpful to you, frankly. We've given you the overall revenue number, and that's what's important. And that's a combination of load factor and yield. Now if I tell you a yield number, you'll say what's the load factor, what's the capacity, how much are you flying. So you'll ask a few more questions. Well, the real important issue is how much revenue are you generating? How will we get there? We can get to revenue-to-capacity. We can get to revenue-to-yield. We can get to revenue on load factor. So the final product is how much revenue. And normally, we don't share monthly data. But without this year in particular, it was important to share that, which is why we've given you the revenue number.
Got that, Rono. The second question that I had was -- so the context is the declining share of business travel or corporate travel as you think it would happen over time versus pre-COVID level. And the question I wanted to ask is that -- does that have any impact or should it have an impact on the overall yields that the company would be able to own because certain passengers who would book closer to their date of travel would be lesser in number? And if so, are there means and ways of probably managing the situation where yields are not impacted?
So this is mixed bag. So all our bookings are close then and now. Before, we used to have 60-day booking, 30-day bookings. And part of the challenge during this May decline was, hey, the bookings are happening in the last 5 days. And some of those bookings are happening at quite high yields. So there was a big spread between corporate travel and retail travel, if you will, before because part of it was also Asia bookings. Now that everything is compressed, the yield difference between business and retail has also been compressed. So that's the good news. Also, as we've said, travel in India is among the highest -- sorry, the lowest yielding in the world. So there's not much room for yields to go any lower. They can only inch up slowly. And then we are talking of India growth story and the middle income. So I'd like to say in a very sort of emphatic way that yes, COVID is a big crisis, no question. But it is a short-term crisis. And we don't want to lose sight of the longer-term picture where we sort of lose the script. In the longer-term picture, the India story remains strong. I mean look around, look at other industries. The India story is very much there. The middle income growth story is very much there. So while, yes, oh my God, what's happening next quarter and the quarter after that is all very important. When we look at the long term, we are saying, listen, let's just keep the cash level managed. Let's run a really good airline. Let's really focus on the quality. And then let's make sure our fleet is efficient, that we get rid of the fuel-inefficient planes, that we've got the right size of the fleet and focus on the longer term. And the longer term picture I would tell you is a stable, humping, great story. And we're not losing sight of that.
The next question is from the line of Chintan Sheth from Sameeksha Capital.
One question is on the capacity side. If you can highlight it. What can we expect for the coming quarter in this year given we are not outlining the guidance in the press releases. But if you can give some color, what we are looking at it. That's it, if you can.
So broadly speaking, we had 65% of pre-COVID capacity. That's dictated by the Ministry. That's where we are today. We have solicited a higher level of capacity, as have a couple of other airlines. Now just because the capacity is there, we're not going to fly. It's not like the government says, okay, you can go 100%, we go to 100%. Of course not. So these will be dictated by, again, the break-even load factors that we see in the market. And the break-even load factors will be very much driven by the yields, which, again, will be very much driven by COVID. So we'd like the government to do away with these caps because we don't think they make sense. It's up to us to decide how much to fly. But once those caps are removed or even relaxed, we will fly judiciously. We would not care to lose money. And therefore, we'll put in capacity slowly and in a measured way so as to make sure we are always above break-even load factors.
Sure. And on the expenses side, the run rate we should look at on the employees and the rentals should be similar to this number, at least on the fixed side?
For which period you're talking about?
For the upcoming quarters.
For the upcoming quarters. Lease costs...
[indiscernible].
It's roughly the same, I would say. We get some new airplanes in, we push some old airplanes out, and the fleet cost should remain roughly the same, yes.
Sure. And lastly, the time line of retiring all the neos will be -- sorry, CEOs will be December '22, right, for the remaining...
Wolfgang will take that question, please.
Only the question of the...
CEOs, when will they get returned?
Okay. So CEOs will be all returned in about 2 years. And the old CEOs will be out, we will push that by [indiscernible]. That's our plan. There might be some CEOs left, but not very many actually, yes. And you'll also see that the lease return, yes, after COVID crisis was there in the last -- till the end of last quarter. Now we see the whole situation stabilizing. MROs have started working again. So we do see a good -- as Rono has mentioned, it'll be a catch-up situation on the lease returns. This will also help us to bring out these costs, stabilized.
And again, while we have been slower than planned, we've still been returning the CEOs at quite a good pace. And as we do that, both our lease costs will come down and our maintenance costs come down, which is the other good thing.
Yes. Let me also [indiscernible] the CEOs last by December '22, and we're going to [ transition ] off that. And we'll not be able to [indiscernible]
The next question is from the line of Joseph George from IIFL.
Am I audible clearly?
Yes, you are. Thank you.
Perfect. So I have 2 questions. The first part of the question was in relation to the capacity guidance. So in your opening comments, you mentioned that your -- by 4Q, your capacity would hit the pre-COVID levels. So what I wanted to understand was when you refer to pre-COVID, are you talking about pre-COVID domestic capacity or pre-COVID overall capacity?
No, pre-COVID domestic, yes. Thank you for clarifying. International, as you know, there is no vision as to when the whole thing is going to get opened up. So we are talking of domestic capacity, absolutely.
Sure. And so if your exit rate is going to be at pre COVID, it obviously means that the whole of FY '23, you expect to be better than pre-COVID in terms of overall capacity. Would that be a right statement to make?
Absolutely. Absolutely. Absolutely. Look, I -- we have a stable -- or fuel-efficient, new aircraft just waiting, okay? I just need the flag to come down that say COVID's gone and life is coming back to normal. Those airplanes will take off like a shark. So I'm very anxious to keep adding capacity every chance we get. And by '23, of course -- I mean, I don't think anyone would say '23, the COVID is still around.
Perfect. The second question that I had was in relation to your balance sheet. So when I look at the FY '21 balance sheet, the net worth that you had was about INR 1.1 billion positive. And with a loss of INR 32 billion in 1Q, it's quite obvious that the net worth has turned negative. So in that context, I had 2 questions. One is, does this -- I mean, does the negative net worth impact the terms of your lease agreements, maybe existing or future, with respect to the implied lease rentals because of the perceived risk going up? Is there any such issue to be worried about?
None whatsoever. And as we've said before, one of the relationships that we prize and that is very solid is this IndiGo-to-lessor-to-OEM relationship. And we have placed all our contracts with lessors go over a number of years. We don't do -- we don't place these aircraft close and they are placed well in advance. And we see no softening of that market from our standpoint. If anything, I think in the lessors' eyes, IndiGo has become an even better risk, if you will, from that standpoint. I mean they see what's happening around everywhere else when they look at IndiGo, and we just are a blue chip in that sense. So our pricing will only improve, not get worse.
The next question is from the line of Ashish from Centrum Broking.
Yes, sorry. Am I audible now?
Yes, you are. Thank you.
Yes, sorry for the earlier kinks. Okay. So my first question is that in terms of our lease, are these all fixed-rate leases or variable-rate leases? If tomorrow the overall borrowing rates were to go up, would these leasing costs also go up?
Absolutely not. These are long-term contracts.
Okay. So they do not -- they're not susceptible to increase, which happens [indiscernible]?
I mean, when you look at it the other way, when things were tough, we didn't reduce the rates. So again, that's the relationship. We are not looking at transactions, we're looking at relationships.
Right. Right. Fair enough. Okay. Secondly, there has been a lot of questions around the yield. My one point is that when the DGCA comes and says and the Ministry comes and says that we are increasing the floor of the fare by an X amount, does that reflect into the yields that you get in the market? Or somehow, while the ministry dictate certain terms, but in practice in commercial terms, you do not see that yield is going up in the market?
I'll hand the question back to Sanjay Kumar.
So obviously, there is a reflection of the fare revision by the DGCA in our yield from time to time. As and when the fares have been kind of revised upward, there has been some kind of impact on overall yield. But just when a floor captures this, everything is largely dependent on the overall demand environment. And as the demand environment improves, obviously it will result in better kind of load factor as well as revenue situation. So overall, it does affect to some extent. But until the demand environment improves, we will continue to see some pressure on the yields. Thank you.
The next question is from the line of Achal Kumar from HSBC.
I got a second chance. Sorry. So just want to understand about the situation with the engines. I think you ordered some of the CFM engines. So what is the status? When are you going to receive it? And what is the kind of -- have you -- how are you planning to finance those engines, please?
How to finance the engines?
Yes.
So wait, I mean, this is all part of the lease cost -- lease that we have with the lessor, right? So we pay the engine manufacturers. But finally, that whole engine and the aircraft goes to the lessor, and they pay for them ultimately. And we pay the monthly rent, therefore.
And what are the figures to that?
Yes, to answer your question -- I'm not sure I understood your question. Am I -- did I answer it correctly?
No, that's fine. I basically -- moreover I just want to understand what is the status? I mean when are you going to receive those engines? And do you know how that fits in your overall fleet?
You're talking about the CFM engines, the LEAP engines coming in? Is that what you are asking?
Yes. Exactly. Yes, that's correct. Yes, exactly.
Well, the LEAP engines deliveries just started a couple of months ago. And right now, majority of our NEOs are naturally these W engines. Now the LEAP engine has started, and we expect also to get all the approvals that we have for Prat now in the extended range operations. So it's started. And so far, I have to say our experience in LEAP engine was very good.
Okay?
Excuse me, sir, does that answer your question?
Hello?
Yes.
Yes, sir. Does that answer your question?
Yes. That's fine. Sorry, last one, if I may. How -- so now how confident are you in terms of reaching back at the February '21 traffic levels in the quarter to December, which you were quite confident last time? And you said that you believe that you would reach at that level during the last quarter. Now of course, the traffic has recovered. But from here on, we are at almost like 160,000 passengers. To reach 320,000, sir, is just double, how confident are you?
Okay. So like I said, it is a very volatile environment. Back in 8th of February, I remember how optimistic we were. We were forecasting a profit at some point, very close, and we were like, oh, so by this month, we should make money, et cetera. Then the bottom fell out with COVID 2. And May, the numbers are so bad it's like, oh, my god, can it go any lower than this? It was that bad. Okay. Then we get these periods of improvements, stalled improvement. Now what happens to the -- what causes this improvement in stall? It's really driven by the narrative in the marketplace. So when the COVID numbers are down, we get a sudden surge. Then let's talk about Delta variant, the U.K. variant, a third wave is coming, wear double masks, and we immediately see the numbers fall again. So it's very volatile. So anything I tell you, you have to say that is -- behind the background is what is happening with COVID. Now assuming COVID behaves and that the third wave comes but is relatively flat because of vaccination, this is our best-case scenario with all the caveats that put in there about COVID and a third wave and so forth. Our best-case scenario is that by December, we should be back to -- about February, back to almost pre-COVID levels for domestic only. International will still be slow, but domestic, we should get back to December. So we've got a buildup that we're seeing. And obviously, we are projecting it based on what we're seeing in July and what we're seeing in August, what the medical profession is saying about COVID, with all that and with all the caveats and forecasting is a dangerous game in this very volatile time. But with all those caveats, yes, we think by December, we should go back to 100% of pre-COVID levels.
We take the next question from the line of Chintan Sheth from Sameeksha Capital.
One question I wanted to understand on the demand coming from which segment, if you can -- whatever demand we are seeing right now in the metro or we are still seeing more Tier 2 travelers picking up your space, your capacity, yes.
So let me try. What were the different waves that came through on the revenue side?
Yes. Yes.
Immediately after we opened up, it was a metro-to-nonmetro and one-way traffic. And as you know, it was mostly migrant labor, all of that. And this was well advertised in the press, places like Patna, Ranchi. So huge spikes but one-way spikes. Okay? So that was the first wave. Then we saw that slowly becoming a 2-way spike as people started returning to their work. But metro-to-metro also remained weak. Not also, metro-to-metro continued to remain weak. So metro-to-nonmetro, our capacity actually went from 47% to 65% because it was strong growth in demand. Well, metro-to-metro, we reduced capacity from about 25% to 20% of capacity. However, now with this buildup in revenue, we're saying metro-to-metro also coming back. And that makes us feel better because it's more of a balanced growth. It's no longer 1 way, it's 2 way to nonmetro, and metro-to-metro is also coming back.
That's interesting. That is all.
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for closing comments.
Okay. So we've all been together now for 4 quarters, 4 quarters of very challenging times. And we started by saying that our goal during this pandemic is to come out stronger than we went in. So the question is, we should look at ourselves now and say, are we delivering on these terms? And I will point to the following factors. When we say we're going to do it better. Better at what? How do you know we are better? Well, let's look at the customer-facing issues first. In terms of quality of flying, we've never run a better airline. And we are as good as the best in the world. We're not just saying in India. If you look at our OTP numbers, on-time, we are the third punctual in the world. If you look at our customer complaint ratios, they've gone way down at 0.1 versus 1.0 for the rest of the industry. If you look at our NPS, they're way up. So everything from the customer-facing says, yes, IndiGo has gotten better. Then look at our underlying structure. And our structure, the 2 most important things are our fleet and our employees. Our fleet is the most fuel efficient we've ever been. We're becoming more fuel efficient with time. We have this wonderful animal called the A321. We have the XLRs on order. So our fleet is quite a remarkable fleet, I would say. If you look around the world and you can ask yourself, who has a fleet like this that is this young, this fuel efficient and this much growth built into it? Our other pillar, as I said, from fleet is employees. So take a temperature of our employees. We've gone through very tough times together. We've taken pay cuts, we've taken layoffs, and yet the employee morale is remarkably high. People are engaged. People are enthusiastic. People love IndiGo. Our employees, too. And you can see that in the Great Place to Work. All this has happened only recently. And then I look around and say, what is happening to each division? So I told each division, "I want you to be the best in the industry." IT, you be the best IT in the industry. HR, you be the best HR in the industry. Even legal, be the best legal that you can be. And then look what happens. We are among the top 15 legal -- in-house legal firms in Asia. Look at HR. We keep getting a lot of awards for management of HR. So all of that speaks to, yes, our employee structure is also strong. Then let's look at our brand. We used to be the 53rd most valuable brand. We are now the 32nd -- the 33rd most valuable brand. And just know that ahead of us are mostly multinationals. It's the Googles, American Express, the Nestlé . We have a hard time dislodging them. But if you look at Indian brands, we're the seventh most valuable Indian brand. Then you look at our market position. Every major city, and I'm not just talking about 6 metro. I'm going down, down, down. Most major cities, we have a remarkable market position. And then we have position in all the smaller towns and cities of the country. And places like Leh, okay, we didn't fly there. Now we are flying, in the middle of the pandemic, places like Aizwal, places like Bareilly, we are opening stations even in the middle of the pandemic. So I look at this list and I say is IndiGo emerging stronger from the crisis than when we entered? And I say, hell, yes. Of course, we had lost money. And I'm not promising we'll make money next quarter or anything like that. Short-term losses are there. But long-term structure, IndiGo is emerging much stronger than IndiGo went into this crisis. Thank you.
Thank you. On behalf of IndiGo, that concludes this conference. Thank you all for joining. You may now disconnect your lines.