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 fourth quarter and fiscal year 2018 financial results. My name is Aman, and I'll be the moderator for this conference call. [Operator Instructions] As a reminder, today's conference call is being recorded. I would now like to 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, Mr. Goel.
Good evening, everyone, and thank you for joining us for the fourth quarter and fiscal 2018 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 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 will 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 question-and-answer 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. As you all would be aware, Aditya Ghosh has resigned and will leave the company on July 31. Aditya wishes to explore starting a new business venture and we respect his decision to do so. Our Board of Directors and I want to thank him for all his hard work and contributions for the successes that our company has enjoyed over the years. That said, I am very excited to announce the return of Gregory Taylor as Senior Advisor to the company, who will be reporting directly to me. Our Board of Directors will consider his appointment as President and CEO of the company subject to receiving the necessary regulatory approvals and paperwork. We announced our fourth quarter and full year fiscal 2018 financial results today. We have recorded our highest ever annual after-tax profit of INR 22.4 billion for the fiscal 2018 with a profit margin of 9.7%.For the fourth quarter, we reported a profit after tax of INR 1.2 billion with a profit margin of 2%. I would also like to announce that our Board of Directors has recommended a dividend of INR 6 per share subject to shareholder approval at the Annual General Meeting. Rohit, as always, will discuss this when he talks about our financial performance in detail. We continue to be the leading airline in terms of on-time performance and were ranked #1 in on-time performance for fiscal year 2018 with an average OTP of 83.1%. For the quarter; our OTP was 78.1%, Technical Dispatch Reliability was 99.87% and flight cancellation rate was 1.74%. Our flight cancellation rate was higher especially during the month of March due to the ongoing issues with some of our neos. Our passengers were informed well in advance and were re-accommodated and assisted. We are happy that our passengers have once again acknowledged our consistent performance and reliable service.We were awarded the Best Low Fare Airline Domestic and Best International Low Cost Airline In and Out of India by the Air Passenger Association of India during the quarter. We have also been awarded as the Best Low Cost Airline in Asia by the TripAdvisor Travelers' Choice Award 2018. We have added 4 new destinations in the quarter bringing our total number of destinations to 50, including 8 international destinations. We were also awarded 20 routes covering 10 additional destinations in the Phase 2 of bidding under the regional connectivity scheme. Over the next 3 to 4 months, we plan to open 5 additional destinations including Dhaka, Allahabad, Hubli, Jorhat and Kolhapur. We have already opened up ticket sales for Trichy, which is going to be our 51st destination. We added a net of 6 aircraft during the quarter, of which 3 were ATRs. This takes our total fleet count to 159, which includes 32 neos and 6 ATRs, at the end of March 2018.In addition to this and as mentioned in our previous call, we also operated 4 aircraft during the quarter under a short-term damp lease arrangement. Let me now take a few minutes to talk about how our performance is tracking against our long-term plan. As we had outlined in our company presentation back in August last year, we are focused on creating shareholder value by building a large and profitable air transportation network. India is a severely underpenetrated market and we continue to capitalize on opportunities that this market presents. Also as we said in that presentation, we are cognizant of the challenges that we face and are taking steps to address them. We spoke about building upon our domestic leadership. To that end, we added 161 daily flights and 4 new stations during the course of fiscal 2018 in the domestic market and successfully launched over turboprop operations.We also substantially increased our international operations whereby our current share of international operations is 15% of our total capacity as compared to 11% 1 year ago. We have also started executing on the financing strategy, which we had discussed previously, with the objective of to lower our aircraft ownership costs going forward. As you all are aware, there are certain issues with the neo engines. Also, as we have discussed previously, these issues will take some time to get resolved and we continue to work with Pratt & Whitney and Airbus to ensure that we have sufficient spare engines available. During the quarter, a new issue cropped up where a sub-population of A320neos powered by Pratt & Whitney engines with engine serial number 450 and beyond. This led to the grounding of some of these aircraft by the Indian DGCA. As we received new engines from Pratt & Whitney, we have replaced all the affected engines and these planes are now back in service.We have been continuously putting in place the building blocks for our future plans. A key element of this is to build a talent pool with deep functional expertise that will be able to successfully execute on our long-term plan. As part of this effort, I'm delighted that we have new leaders joining the team. Since our last call in addition to Wolfgang Prock-Schauer; Raj Raghavan has joined us as our Head of HR, Michael Swiatek as our Chief Planning Officer and Willie Boulter as our Chief Strategy Officer.With this, let me hand over the call to Rohit for an overview of our financials.
Thank you, Rahul, and good evening, everyone. As Rahul mentioned, we reported record profitability for the year with a 35.1% growth in profits compared to last year. We reported a profit after tax of INR 22.4 billion with a profit margin of 9.7% for the year compared to a profit after tax of INR 16.6 billion with a profit margin of 8.9% last year. Our EBITDAR for the year was INR 66.8 billion with an EBITDAR margin of 29% compared to an EBITDAR of INR 54.4 billion with an EBITDAR margin of 29.3% last year. For the quarter ended March 2018, we reported a profit after tax of INR 1.2 billion with a after-tax profit margin of 2% compared to a profit after tax of INR 4.4 billion with an after-tax profit margin of 9.1% during the same period last year. We reported an EBITDAR of INR 11.3 billion with an EBITDAR margin of 19.5% compared to an EBITDAR of INR 14.5 billion with an EBITDAR margin of 29.9% 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 groundings and delivery delays. Our profits for the quarter were lower compared to the same period last year primarily because of 3 reasons. One, the fuel price increased by 11.6%; two, our yields declined by 5.6%; and three, we were adversely impacted by foreign exchange. We booked a loss of INR 925 million this quarter compared to a gain of INR 1.6 billion in the same period last year. Just the foreign exchange impact resulted in a year-over-year swing of INR 2.5 billion for the quarter. Our earnings per share were INR 3.06 for the quarter and INR 60.03 for the full year. Our total capacity for the year was 63.5 billion ASKs, an increase of 16.4% compared to the same period last year. Our total capacity for the fourth quarter was 17.1 billion ASKs, an increase of 20.9% compared to the same period last year.This is lower than the capacity we had previously guided due to the grounding of some of our neos during the quarter. Our revenue from operations in the March quarter was INR 58 billion, an increase of 19.6% over the same period last year. Our other income was INR 2.6 billion for the quarter. Our RASK for the quarter was INR 3.40 compared to INR 3.52 during the same quarter last year, a decline of 3.2%. This decline in RASK was primarily driven by lower yields, partially offset by higher load factors. While our yields were down 5.6% to INR 3.31, our load factors were up by 2.8 points to 88.9%. We normally do not give guidance on how the revenue environment in the current quarter is shaping up. However, last year, we did share certain short-term yield trends post the demonetization event since it had resulted in a sharp decline in yields during that quarter. Having said that, let me provide some color on near-term yield trends. Currently, we are seeing yield pressures in the industry. We saw that in the 0- to 15-day booking window, the fares are materially lower compared to a year ago. This is typically high yielding traffic and consequently our yields have been impacted more than expected and that is in spite of increasing fuel prices. In April the revenue environment was weak and year-over-year yields were down more than we were expecting primarily driven again by the weak pricing in the 0- to 15-day booking window. That said, there have been some recent signs of yield improvements in this window, but it's too early for us to comment whether this will sustain over the quarter. Fuel prices increased by 11.6%, which led to an overall increase in CASK by 7.4%. Our CASK for the quarter was INR 3.30 compared to INR 3.08 during the same period last year.CASK excluding fuel was INR 1.94 in the current quarter, an increase of 5.3% from the same period last year primarily on account of the depreciation of the Indian rupee this quarter compared to an appreciation in the Indian rupee in the same period last year. Similar to previous quarters, we also paid a GST of INR 356 million under protest in the March quarter. Now moving to the balance sheet. We had total debt of INR 24.5 billion at the end of March 2018. As we have discussed previously, we have started purchasing some of our aircraft with our free cash. We purchased 3 more ATRs during the quarter with our free cash in addition to the 3 ATRs we had purchased in the previous quarter. We will continue to purchase more aircraft with our free cash going forward. Our cash balance at the end of the period was INR 137.1 billion comprising of INR 70.6 billion of free cash and INR 66.5 billion of restricted cash.Based on our cash position, the cash required to purchase aircraft and the overall profitability for the year; the Board of Directors has recommended a dividend of INR 6 per share for fiscal 2018. This is subject to approval by our shareholders in the upcoming Annual General Meeting. Now let me give you guidance for the coming quarter and for fiscal 2019. We expect a year-over-year capacity increase in terms of ASKs of 18% for the first quarter of 2019 and 25% for the full year of fiscal 2019. So to recap the year. We generated record profits, we continue to focus on our costs and have delivered consistent and profitable growth.With this, let me hand it back to Ankur.
Thank you, Rahul and Rohit. [Operator Instructions] And with that, we are ready for the Q&A.
Thank you, sir. [Operator Instructions] The first question is from the line of Binay from Morgan Stanley.
My question is on the load factor. The load factors currently are close to all-time high. So when we look at next year, should we look at the March quarter load factor and look at that as a doable or should we adjust for seasonality and benchmark it to the financial year '18 load factor? So could you sort of guide a little bit about how do you see load factors moving in a year where capacity will grow by 25%?
Binay, it's Rohit. So I think as we've historically talked about, we don't try to look at load factor or yield in isolation. We try to maximize RASK and there are various periods in time where sometimes the optimal RASK includes higher load factors and slightly lower yields and vice versa. So we will always look and our revenue management system, they're all trained to optimize RASK. So having said that, yields have been low this quarter and that was offset a little bit with higher load factors. That will not necessarily be indicative of what we expect going forward and we don't normally give forward-looking guidance on that in any case.
Because like one of the questions we get on load factor is that how the peers are running at much higher load factors. Would you normally attribute it to them having a larger fleet of smaller planes or like for an A320neo or an A320, what will be the ideal load factor? I know it's tricky to answer that, but any point on that.
So Binay, as you probably have noticed over the last year, our load factors have increased on a year-over-year basis primarily on account of us being much more aggressive as we've signaled in terms of matching competitive fares. So that's what you would see with load factors. Now there's -- so there's is no ideal load factor as I said because it's always a combination of optimizing yield and load factor.
The next question is from the line of Sonal Gupta from UBS Securities.
Rohit, just wanted to understand again speaking load factors are at on all-time high or load factors are running close to 88% and still we're seeing the yields drop. So I just want to understand -- I mean in terms of -- like even for the industry as a whole, it's not just you, the whole industry is running at all-time high load factors and still we're facing this yield pressure. So could you just explain as I mean why this should -- I mean ideally you would think that at certain capacity utilization levels, you could actually start seeing it yield the other way over and above fuel price increase, but it's going the other way. So can you just explain the phenomena and just what you think?
So clearly we're not happy with what's going on in the industry with respect to yields especially with respect to close-in bookings. However, in the past we've made this mistake where we didn't match the fares that the competition was offering. We've clearly indicated we will not make that mistake again. It's fundamental to our business that we should always remain competitive. Our competitors have been offering discounts to passengers through coupons, specialty promotions and we continue to match these offers. At the end of the day, our perspective is the revenue environment can always remain volatile, but we remain focused on our cost and our cost structure is the lowest in the industry and that provides us the cushion to withstand the short-term pressures. Now we feel these fare levels especially with today's fuel price levels or in the light of the fuel price level, these fare levels are just not sustainable and that's where again we -- our lowest cost structure is -- gives us that cushion to withstand the short-term volatility. Rahul, anything you want to add?
No, I agree with you entirely.
Sorry. I guess to clarify on the [indiscernible].
Sorry to interrupt, Mr. Sonal Gupta, but your voice is breaking. So if you could just...
Can you hear me? I'm sorry. I'm in a slightly bad coverage area so ...
Yes, please go ahead.
So just on this on 0-15 day booking window thing. So we typically...
Sonal, I think maybe you can go back into the queue and join when you're -- and we'll take your question.
The next question is from the line of Kunal Lakhan from Axis Capital.
In your opening comments, you mentioned about the company being compensated in some way for the revenue [ after ] the grounding of planes. Have we been fully compensated or partially compensated and can we look at some partial compensation coming in Q1 of this fiscal year? How should we look at it?
We -- I think we've said on the last few calls that we do get compensation, but we won't be able to comment anything more about that. So I think that's pretty much all we can tell you on that.
Just one last one. In terms of dividends, how should we look at going forward? Our payouts -- payout ratio has been declining in the last 3, 4 years and you have mentioned about it that we'll be spending cash more towards purchasing planes now and towards adding capacity. But in terms of directionally, should we look at these kind of payout ratios sustaining in the next few years?
So firstly the context under which our board looks at dividends is in terms of long-term shareholder value. That's a very clear lens that we -- that our board looks at. And in the context of long-term shareholder value, we believe that our best use of cash right now is to invest in buying aircraft. We think that's a significant competitive advantage that we will create. It will bring down our cost structure and in light of what you see in the marketplace today, it all the more reinforces that cost structure is the key to fundamental long-term success. And so with that context, that's the reason the board has allocated the majority of our cash generation in fiscal 2018 towards the purchase of aircraft. We won't be able to give you specific guidance going forward, but the context around the decision making is as I said.
The next question is from the line of Achal Kumar from HSBC.
I have 2 questions actually. One is about what sort of price elasticity you see in the system? I mean do you think industry will be able to pass on some of the fuel burden without having any impact on demand or you think the fuel might turn out to be a big hurdle for the growth and in that context, how do you see yourself placed? That is my first question. Secondly, you said you're going increase your capacity by 25%, 18% in Q1 which implies 27% in the next 3 quarters and given that the capacity of Mumbai and Delhi about almost full, how do you see that capacity deployment? I mean if you can comment on that. Obviously the strong demand on metro to metro and metro to non-metro. So do you see that you'll have to deploy more capacity on the non-metro to non-metro routes where of course the demand is picking up, but yet you may face some bit of softer load factor? Thank you.
So I think just in terms of the question on our capacity guidance and capacity deployment, we see no issue with the deployment of the capacity. We've got plans across all the metros. Yes, there are some -- I mean across all markets; both metro markets, non-metro markets as well as international markets. Yes, there are slot constraints in Mumbai and some in -- and Delhi, but the other metros still have capacity available. So you'll see us add capacity across all aspects of our network. Sorry, I missed the first part of the question, if you can repeat that.
The first question about the price elasticity you see in the system and do you think industry will be able to pass on some of the fuel burden without having any impact on demand or you think that fuel might be another be a big hurdle for the growth and in that context, how do you see yourself placed in?
So clearly there is elasticity of demand, but what we see in all that's going on is in the 0 to 15 booking day window where actually you have the most -- most of the inelastic demand exists in that market. The industry has discounted the price of those tickets and so we think there's clearly some inefficiencies with industry pricing right now. So that's one. And as I said, we don't think it's sustainable for the industry as a whole. As far as we are concerned in our position we see, again as I said, our low-cost structure gives us that cushion to withstand short-term pressures much better than others in the industry. Rahul, you want to add or talk about our capacity?
This is Rahul. So let's take a step back. And so the quarter is the quarter, but let's step back and look at sort of where Indigo is going long term.We are not going to shrink our capacity deployment based on quarter-to-quarter performance. IndiGo as a business is here for the long term, we have taken a large [ fund ] on India, we have the lowest cost structure in the industry and we'll continue to go and continue to build the franchise. And like Rohit said earlier, at the end of the day our view is that the airline with the lowest cost structure must prevail and we are firmly sort of -- firmly in control of that. And we sort of -- the guidance we've given of 25% for this year, we are very comfortable with putting it out there.
But does that mean...
Sorry to interrupt. May we request you to return to the queue for your follow-up question, please. Next question is from the line of Ashutosh Somani from JM Financial.
Just wanted to understand the PLF in trade-off a step better. So just in terms of PLF, the increase in the PLF, has it come through -- how much of it is through metro or not how much, just directionally whether metro contributed more or non-metro contributed more in terms of increased PLF. And the fare pressure that we have talked about, we see it in the metro routes or the non-metro routes? So if you can answer this question.
I think the answer to the question is you see it pretty much across the network. So there's no specific trend difference on both load factor and yield in -- across our network.
Which is?
Which is you see the overall load factor improvement across the network, you see the overall yield decline across the network.
Okay. Across the network so there's no bifurcation between metro and non-metro. You are not particularly facing a pressure in the non-metro routes in fares, is it fair to say that?
That's absolutely fair. There's nothing different going on in those markets.
Next question is from the line of Pulkit Singhal from Motilal Oswal Asset Management.
First question is just really in this yield environment, I'm kind of shocked with the kind of yield decline. Just wanted to understand, I mean in airports like Mumbai and Delhi where it's anyways chock a block, wouldn't -- I mean one would expect there could be yield increases out there at least. I mean one would not need to compete in such airports. Is that what you're seeing or is it just the opposite?
So as I said, I think the yield declines are across the system. Yes, maybe Mumbai where there is no capacity being added has slightly less pressure, but you see pretty low fares in Mumbai as well. It's the pricing in this 0- to 15-day window that has been mostly affected. Having said that, as I said earlier in the prepared remarks, we have seen some firming up of these yields in the 0- to 15-day window over the last week or so, but we said it's too early to say whether that trend will continue. But we have seen some firming up of this in the last week or so.
And are there any some one-off costs relating to the neo issues in the last quarter, which is substantial enough for you to mention that may not be repeated?
No, there's nothing that we need to mention on that.
The next question is from the line of Saurabh from JP Morgan.
My question was essentially on the neo engine. So United Technologies in their analyst meet in March have indicated that they now expect to resume supplies to almost normalcy for the P&W engines in the balance of 2018. I was wondering whether you have had any communication on that from them. And a related question is how much of these aircraft you have on your fleet would be short-term leases?
So Wolfgang here, I'm taking the first part. Yes, we have got information that deliveries will resume and that's why we end also up with a forecast of 25% capacity increase for the financial year. We see a ramp-up of deliveries which around this post 450 -- to above 450 in serial number has been resolved. All the engines have been replaced. All aircraft -- new aircraft are flying and we will get substantial deliveries from May onwards until the end of the financial year. This is the first part of your question regarding resumption of deliveries. Second part?
So the second part, I think you were asking about what percentage of our aircraft are on short-term leases. I think we have a certain number of -- we have in addition aside from our neos, we've got the rest of our Airbus aircraft as CEOs. Some of them are CEOs that we owned right from when they were new aircraft. There's about 40 planes that we've leased from the secondary market. They're all on -- they were all leased in the 3- to 4-year lease terms.
Okay. So Rohit, just as a follow-up if I may. So as the newer deliveries resume, would you expect to retire a substantial -- I mean at least part of the short-term leases? Just trying to figure out your cost structure for F'19, that's it.
So the reason we did all the short-term leases was to bridge the gap because of the delays in neos and the lease terms are designed such that as we start getting neos, we start to return these planes and have our fleet be predominantly neos over time. And so that's still very much the plan.
The next question is from the line of Naveen Baid from Aditya Birla Capital. As there is no response from the line, we'll move to the next question which is from the line of Joseph George from IIFL.
My question is in relation to the impact that the flight cancellations in March had on your yields. Would it be right to say that you face pressure on pricing because of the cancellation and related impact on the brand, et cetera, and in order to cover that up or in order to mitigate that, you went ahead with aggressive pricing to make sure that you don't lose the customer and that in fact continued in April? Would that be a right statement to make?
That would not be accurate at all. We didn't see any decline in bookings with that event.
And the second thing I wanted to check was in terms of trend, is it that you saw deterioration through the quarter from, say, Jan, Feb, March and as you mentioned, April has not been great from a pricing perspective and now we are starting to see improvement in May. So would March and April be the peak of the weak pricing scenario or do you think that continue -- or do you think it continued through the quarter?
We can't really speculate on that. I think we gave you the information on April and slight firming up over the last week. We would hope that the firming up would continue, but we can't tell. Clearly the firming up is a sign that the fare levels were not sustainable for the...
Actually Rohit, my question is more on what happened in the 4Q rather than outlook. So my question is whether the pricing trend deteriorated over the course of 4Q that's from Jan to Feb to March and then starting to improve now in April. So my question is more on the trend that you saw within 4Q rather than outlook.
No, there's no such trend like that. I think you can see that. Really what happened was this 0- to 15-day booking window prices just went down and that you saw across the quarter, you saw it continue in April.
Next question is from the line of Ansuman Deb from ICICI Securities.
I have 2 questions. First is that regarding our CapEx, so why have we not bought the neos that we inducted in 2H FY '18 and whatever CapEx we have would have a substantial amount of neos being bought in FY '19, if that's the correct understanding. And second is regarding Air India's acquisition that we have kind of rejected. So what changes which if the government made at all, what were the reasons for which we thought that the Air India acquisition was not capable for turning around as per our design initially which we thought? Thank you.
I'll take the CapEx question and then Rahul will talk about Air India. So in terms of aircraft CapEx, we've started to buy ATRs with our free cash. ATRs where we got the most bang for our buck because the sale leaseback market for ATRs is not as efficient as the Airbus market and so we definitely get the best bang for our buck by buying ATRs. We will stop buying Airbus planes, but we also have struck some attractive sale and leaseback deals previously on these and so -- but you will see us buying some Airbus planes in the coming year.
Ansuman, this is Rahul just to answer your question on Air India. As we had stated, we were very interested primarily in the acquisition of Air India's international operations and Air India Express. Unfortunately, such an option is not available under the government's current divestiture plan of Air India and hence we express our inability to turnaround the entire airline operations of the company. Having said this, we continue to look at the long haul opportunity without Air India. We continue to seek route rights and other necessary regulatory approvals as may be required to operate long haul flights and we are also actively studying the choice of wide body aircraft and will update you once we have more -- made more progress on this issue.
The next question is from the line of Ashish Shah from IDFC Securities.
Just wanted to check on the -- how were the yields different in the domestic versus the international operations that we have, whether the domestic yields were any better than the international or vice versa?
We saw yield pressures across the network, both domestic and international.
Second on the non-fuel cost, this year we have seen about 2.5% increase in the non-fuel cost. Going into FY '19, we obviously have plans to expand our operations and probably also start the various UDAN route. So what would be a reasonable outlook for the non-fuel cost for FY '19, if you can give some direction on that?
So we don't give specific guidance going forward. All I can tell you is that we manage our costs very tightly. We are very aggressive in looking at how to control our costs and offset inflationary pressures that we inevitably get. There are pressures with foreign exchange as well that affect the cost structure, but we aggressively manage our costs. So beyond that, I won't be able to give you any specific guidance on a number.
The next question is from the line of Binay from Morgan Stanley.
Actually 2 questions. Firstly, could you share some impact like the lease rentals, are they on fixed rates or floating rates? Globally rates are rising so will that have an impact on lease rentals? And secondly on the restricted cash, just for better understanding, like it's up 15% quarter-on-quarter so what are the big drivers for restricted cash?
So the restricted cash is -- I'll take the second question first. So the restricted cash is based on our supplementary lease rental liability that we have to [indiscernible]. We give them letters of credit and we place a cash collateral with the banks to issue that. And so when you look at our balance sheet in addition to our debt, there's other liabilities and so you'll see that is largely reflective of our supplementary lease rental liability and cash balance will grow -- restricted cash will grow -- requirements grow largely in line with that. I forgot your first question, I'm sorry, Binay.
So the supplementary rentals remain the key reason for the changes in cash or changes in restricted cash?
That's correct. And the first question is about lease rentals, whether it was fixed or floating, most of our -- in fact all our leases are fixed rate leases. So we fix the rates during -- at the time of the lease so there's no exposure to additional rates. There is some exposure of the debt in our balance sheet which relates to the financial leases. There's about INR 2,000 crores of debt on our books, which is floating rate debt; but all our leases are fixed rate debt. Now having said that, new leases that we get set -- those rates are set at the time we sign the lease agreements and those get exposed to new rates. But the old leases don't get marked up because we have fixed rate.
Just a follow-up. Could you share the number ...
Mr. Binay, sorry to interrupt. May we request you to return to the queue for your follow-up question, please. The next question is from the line of Achal Kumar from HSBC.
First question is mainly around the cost, I mean of course your unit cost is lowest in the Indian aviation industry. Now obviously you started with a single type of fleet, pure low-cost model which worked pretty well, and then you added ATRs for UDAN and now you're planning to add wide body. So how do you see your model evolving and do you see you could lose the tightening or discipline around the cost? How do you see that happening? And obviously you are ordering A320neo, those are almost 40% or 50% higher -- more expensive than A320s. So how do you see the -- how would you be able to control the cost? And secondly around UDAN, if you could please talk us about how UDAN is doing? And then last -- on last call also I asked this that you were supposed to keep this operation separately. So how that independent operations are doing? Thank you so much.
So firstly on the business model perspective, there is absolutely no change and no effect on our business model with the fact that we would have a turboprop operation -- that we have a turboprop operation and we have a wide body operation -- and potentially a wide body operation in the future. The key is in a particular market to have a single fleet type and have the cost efficiencies associated with that fleet type and have the best cost structure in the market. So from our perspective in the Airbus operations where we compete with other similar aircraft types, we need to be the lowest cost in that market. In the turboprop business where we compete with other people in the turboprop business, we need to be the lowest cost there and we fully expect to be the lowest cost in that market. Once we go into the -- if we go into the wide body market, we would expect to have the lowest cost structure in that market. So the key is to have the right cost structure in each market. The weighted average cost structure doesn't matter. It matters to have the right cost structure in each market. And in terms of our -- in terms of the cost structure, we also have A321s coming into our fleet this year, which have all the commonalities of an A320 so same pilot, same engines, so doesn't add any complexity; but it has a 15% lower seat mile cost because it will have a number of more seats than the A320. So we'll continue to manage our costs very tightly and the additional operations don't -- won't affect that. In terms of what we talked about the turboprop operations, yes, we have a separate group of operations with -- in terms of pilots and flight attenders, which are on the turboprop operation. That's working very well.
[indiscernible] operations. That's for us an example to actually reset our cost structure going down. It's a very lean set-up and actually a lot of deals when we set these up, we are now actually we see a lot of advantage in getting good ideas how to bring our cost structure down. So it's a good trend being set up in our turboprop operations.
But my second question was about the UDAN performance so how that business is doing in terms of profitability and all?
So we have not started our UDAN markets line. We have -- we are flying our turboprop operation in certain markets. We're very pleased with the ramp-up so far, load factors have been -- has been good. It's still very much in the ramp-up phase, we have only a few aircraft flying, but we are very optimistic based on how the operations are ramping up.
Next question is from the line of Kunal Lakhan from Axis Capital.
Just wanted to understand in terms of like we in currently -- in the current environment we don't seem to have control on the fares, but we do have certain expenses lined up in ForEx and this quarter alone we saw some losses booked on that account. Just wanted to understand in terms of what kind of a ForEx hedging policy that we follow and any color on that side?
So on foreign exchange, our philosophy as we've shared before is a lot of the foreign exchange expenses; which are lease rentals, maintenance costs; are all expenses that the rest of the industry follows, the rest of the industry also incurs. And so we are a firm believer that the business has to offset these pressures, very similar to how we think about fuel hedging. The fuel is a cost, our foreign currency, lease rentals and maintenance costs are a cost; they're all input costs that the industry has and ultimately the industry has to absorb this as a whole and any financial instruments you use are really more speculating on those markets than actually hedging. So we view that the business has to actually withstand that and that's been a consistent hedging policy that we've had on both foreign exchange and fuel.
And secondly, just wanted to understand the 25% ASK growth as we spoke about. In terms of additions of neos, if you can give some guidance on that front for the full-year, that will be helpful.
We have not given the guidance, the break up yet. But certainly a large chunk of this capacity guidance, the capacity increase will be neos.
Next question is from the line of Naveen Baid from Aditya Birla Capital.
Could you just -- this is a more philosophical question that industry's be increasing cost pressures with crude having risen from about $40 to $75 now. At $75 if this is an indication of the profitability, is it safe to assume that the best days of the industry can only be attained at about $60, $65 and anything beyond that the profitability will be severely dampened?
I wouldn't say that -- we wouldn't say that at all. I mean, I think, firstly as we said...
Because I mean let me just add to that because you've said that there are no one-offs in this quarter so there's no adjustments that needed to be made apart from the fact that you don't hedge your foreign exchange expenses. So even after you adjust for the foreign exchange hedges, if this at this level of crude, is this the normal profitability that one should expect?
I think as we said, we don't believe that with this combination of this today's fare levels and fuel prices is a sustainable situation for the industry. And as we said, we are very comfortable or because we have that cost structure that gives us that cushion and as I said, we have some recent signs of things firming up.
And if I may add, going forward with neos with minus 15% less fuel consumption, actually we'll be in better position going forward. So the hedge we are building up here in terms of the high fuel cost.
Next question is from the line of Miten Lathia from HDFC Mutual Funds.
I don't know if we have frozen what we will do to what type of fleet we will use for our international long haul operations and if not, then by when would we be freezing it?
So Miten, we are -- as we said, we are actively studying this opportunity and when we have more information, we'll provide it.
If I -- I mean the press reported that the first international long haul flight would probably in the winter later this year. So that's not a whole lot of time between now and then.
Honestly, I don't read the press because I learn new things about IndiGo every time I read the press. So we'll update you when we have more information to share.
Next question is from the line of Pranav Tendulkar from Rare Enterprises.
Sir, could you please compare cost per available kilometer for various models that you have. So for example, the new 3 ATRs that you have hired or bought?
So we don't have that breakup to share right now because it's too early. The ramp up of the operation is still very new. So we don't have that breakup to share.
So out of that capacity addition that will happen in FY '19, how much of this capacity will be deployed on existing routes and how much of it will be new destinations?
It will be a combination of both just like when you look at what happened over the past fiscal year, we added a lot of capacity in existing routes and we opened new destinations and I think we -- Rahul talked about the fact that we're going to add 5 additional destinations where we've also these new routes, the 20 routes under the UDAN scheme so we will definitely have some new destinations, but we'll also add capacity in existing markets. Absolutely, it'll be a combination of both.
Last question from my side, on UDAN routes can you just highlight operating parameters like revenue and costs?
We have not started the UDAN markets yet so there's nothing we can share yet on that.
Next question is from the line of Saurabh from JP Morgan.
Just 2 data points. So one is how -- what was the block hour utilization this year and what was it last year? And secondly, the landing charges, how have they trended year-over-year and any outlook for that?
So on aircraft utilization, we had a total aircraft utilization of 12.5 hours this quarter compared to 12.65 hours a year ago and ...
And Rohit, the full year number if you can give as well. That'll be nice.
So let me just -- but in this current quarter as you know, we had some neos on the ground. So if you exclude the neos and look at operational utilization, it was 13.2. So we target that about 13% utilization -- sort of the 13 hours a day utilization is what we target. But year-over-year because of the groundings of neos, it was lower. I'm sorry I forgot your second question.
So if you can give this block hour for that year and secondly what's the landing charges. How much have they gone up year-over-year and what's your outlook for F '19 if you can?
So landing charges have gone up a little bit year-over-year because of the -- primarily because of the RCS levy. So that adds a little bit. Excluding the RCS levy for the quarter, nothing material had changed. Going forward the landing fees for when we have our turboprop operations ramping up will be a little lower. But overall for the year, we had some increases in the previous quarter that we talked about year-over-year in some other airports, but for the quarter year-over-year, the only increase was the RCS.
But this year landing charges could have gone at higher rate than cash [indiscernible]. Is that a fair number -- I mean assumption to make?
Roughly, yes.
Next question is from the line of Pulkit Singhal from Motilal Oswal.
My question is on the international operations,. You mentioned 15% of ASK is on the international side. From a 3-year perspective, where -- I mean broadly where do you see this going? Is it like 25%, 30%? Is that what you're looking at?
It's too early to give you that kind of guidance. It will probably interrupt, because it's too early to give you that kind of guidance.
And is it -- what is the impact of this currently on your margins and profitability of the business?
As, we said, we manage our business based on where the opportunities are to fly or not. The short haul international we view just like domestic, it just incidentally crosses the geographic border. So we look at optimizing the network and the markets based on the opportunities. So we don't view this any differently. Long haul would be obviously looked at slightly differently, but the short haul international is just an extension of domestic.
Okay. Lastly, the long haul. I mean is it fair to assume it would require certain amount of investment period or gestation period before it becomes profitable. I mean the kind of competition out there is lot different than competing with the Indian carriers in India?
Pulkit, this is Rahul. Like we said earlier, there is a lot of work going on internally on this whole opportunity and when we are ready to share the details, we would do so. And more than that, we are not able to share anything at this time.
Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Ankur Goel for closing comments. Over to you, sir.
Thank you...
Mr. Goel, we are not able to hear you sir.
Thank you all for joining us on the call. I hope you found this useful.
Thank you very much. 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.