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 fourth quarter and fiscal year 2021 financial results. My name is Aman, and I'll be your coordinator. [Operator Instructions] As a reminder, today's conference call is being recorded. I would now like to hand the conference over to your 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 Fourth Quarter and Fiscal Year 2021 Earnings Call. We hope that you and your families are safe and in good hands. We have with us our Chief Executive Officer, Rono Dutta; and our Chief Financial Officer, Jiten Chopra, to 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 today. The transcript of the Q&A session will be uploaded subsequently. With this, let me hand over the call to Rono Dutta.
Thanks, Ankur. Good evening, everyone, and thank you for joining the call. Hope all of you are safe and doing well. We have ended a very difficult year for the aviation industry. In the last quarter, we were seeing a lot of positive signs. The number of COVID cases were steadily going down. The capacity allowed by the central and the state government was going up. Consumers were showing their willingness to travel. As a result, we were showing an improving performance every quarter-over-quarter. However, with the second wave of the COVID-19 between us, we have seen a significant drop in travel demand. This, coupled with the fact that average fuel prices went up by roughly 26% quarter-over-quarter impacted our results severely. As a result, for the quarter ended March '21, we reported a net loss of INR 11.5 billion compared to a loss of INR 6.2 billion for the December quarter and a loss of INR 8.7 billion for the same quarter last year. For the full fiscal year '21, we reported a net loss of INR 58.1 billion. Until the end of February, we saw a steady recovery in traffic with over 180,000 passengers traveling with us daily, hitting peak load factors of 85% on certain days. Our daily bookings were also strong, reaching a peak of 231,000 bookings per day. Unfortunately, in March, we saw a resurgence in the number of COVID cases across the country, and we saw a 10% reduction in passengers. Our RASK for the quarter was INR 3.26, which were roughly similar to the RASK that we had in the December quarter, but the sharp increase in fuel costs, coupled with adverse foreign exchange impact, increased our losses during the quarter. During the quarter, we have continued to increase capacity deployment in Tier 2 and Tier 3 markets to further strengthen our regional presence. We announced operations to 7 new airports during the quarter. Of this, we have already started operations to [indiscernible] and Agra. On the international front, during the quarter, we were operating air bubble flights to 10 cities, mostly in the Middle East as well as charter operations to various destinations. Our international capacity deployment increased by 26% compared to the December quarter. Overall, our international capacity in the fourth quarter was at around 30% of our pre-COVID international capacity. For the fiscal year 2021, our cargo revenues increased by 9.6% compared to the previous year. This has really supported us during this difficult time when the passenger services have been severely impacted. Building on the success of the cargo business, we have initiated a freighter program and are in the process of sourcing 4 A321ceo aircraft. The A321 P2F passenger to freighter conversion is the most efficient narrow-body freighter available, offering 24 container positions and supporting a payload of up to 27 tonnes. The delivery of our first freighter is expected in the first half of '22. Our investments in the freighter program will help strengthen our product and services in this segment and not only accelerate our own business recovery but will also be a strong engine of economic growth for the country. During the quarter, we also continued to have the best on-time performance in the industry with an OTP of 95.17%. With the rise in the COVID cases, there are several additional restrictions imposed by various state governments, and our customer relations team did a tremendous job in addressing them. Our customer complaints have been the lowest amongst all domestic carriers at 0.1 complaints per 10,000 passengers. For this, I would like to thank all our employees, especially the operational staff for the tremendous performance over the year. It also gives me immense pleasure to share that IndiGo is now certified as a Great Place to Work. Let me summarize the key highlights for the year. We are focused on strengthening relationships with the key constituents, including our lessors, vendors, customers and employees. We are replacing our older ceo aircraft with more efficient neo aircraft. Our cash position is, of course, the most critical parameter in this crisis, and we have managed our cash position prudently. The COVID crisis also gave us the opportunity to look at new ways of doing business. We have done charters for both passengers and cargo with great success. We were able to support the government with the initiatives of repatriation flights. We were #1 on average OTP for the year, and our Net Promoter Score continued to be high, higher than what it was pre-COVID. We are strengthening our domestic network. We have opened new stations, and we're increasing our penetration of smaller cities. We are remaining true to our mission of being a catalyst in the economic growth of the country and, therefore, deliberately and actively engaging connectivity in area [indiscernible] we needed the most, such as in the [ Northeast ] -- excuse me, sorry about that. The most important pillar of strength for IndiGo is its employee culture. And I don't know why I'm losing my voice. Excuse me. Okay. The most important pillar of strength for IndiGo is its employee culture, and we are very focused on a high performance and high employee engagement. In conclusion, we have our vision firmly rooted on the long term, and we are not willing to be distracted by the trials of the pandemic. This means that we're constantly questioning ourselves on what action we need to take to keep the foundations and the pillars of IndiGo strong, so that when we do emerge from the crisis, we are well positioned for the good times that will inevitably arise. Given this environment and lack of profitability for the year, our Board of Directors has not recommended dividend for the current year. While our net cash position remains strong with free cash of INR 71 billion as on 31st March, we remain committed to safeguard ourselves against the ongoing disruptions by exploring various options of raising funds. In line with this, our Board has approved raising of funds by way of qualified institutional placement of up to INR 30 billion, and we have already initiated the shareholder approval process. In terms of our short-term outlook, we started seeing the decline in airline travel in March, but this decline accelerated in April and May. While May started out with very weak traffic, we did see a modest turnaround beginning through the last week of May, and this has continued into early June. This shows that passenger confidence returned swiftly with the decline of COVID. We are hopeful that with the reducing trend in COVID cases and the increased pace of vaccination, passenger confidence and airline traffic will gain further momentum by early July. So let me try and give you a broad-brush picture on our best guess for the domestic revenue outlook. February '21 was the best month we have post COVID and booking on certain days in February peaked at approximately 80% of pre-COVID levels. Our best guess scenario is that we will hit February of '21 domestic travel levels again by third quarter of FY '22. The near-term outlook for international continues to be weak and a meaningful recovery of international traffic will probably be pushed to the fourth quarter of '22. Given the weakness in revenues in April and May, we will, of course, report deterioration in revenue performance for the quarter ending June '21 as compared to March '21. But after that, we expect to see a steadily improving revenue trend for the rest of the year, provided, of course, the anticipated third COVID wave is relatively flat. However, despite all the near-term challenges, our belief in the long-term IndiGo growth story with explosive growth in aviation remains intact. It is important to note that IndiGo has dedicated the past 12 months to strengthening its competitive positioning in the industry in terms of fuel costs, liquidity, customer service levels, network and employee training and culture. We are therefore poised to expand aggressively, both domestically and internationally once this pandemic is over. With this, let me hand over the call to our CFO, Jiten Chopra.
Thank you, Rono, and good evening, everyone. Hope all of you are safe and doing well. For the full year fiscal 2021, we reported a net loss of INR 58.1 billion, an EBITDAR of INR 6.2 billion and an EBITDAR margin of INR 4.3 billion -- 4.3%. For the quarter ended March 2021, we reported a net loss of INR 11.5 billion and EBITDAR of INR 6.5 billion and an EBITDAR margin of 10.4%. On the revenue side, the second wave of COVID-19 starting March '21 resulted in demand erosion, thereby impacting RASK, which decreased marginally from INR 3.27 in December quarter to INR 3.26 in March quarter. While our yields remained flat at INR 3.7, our load factors reduced from 72% in the December quarter to 70.2% in the March quarter. On the cost side, we were adversely impacted by fuel and products, which was partially offset by additional capacity deployment. The fuel price went up significantly during the quarter by 26.1%, thereby increasing our fuel CASK from INR 0.75 in the December quarter to INR 1 in the March quarter. The foreign exchange went up -- went against us during the quarter, resulting in foreign exchange loss. While we had a gain of around INR 2 billion in the December quarter, we had a loss of around INR 1.2 billion in March quarter, impacting our cost and profitability adversely by INR 3.2 billion. As a result, our loss during the quarter widened, breaking the improving trend that we had been seeing in the past few quarters. Despite the significant jump in fuel prices during the quarter, our CASK, excluding foreign exchange, compared to December quarter remained flattish at around INR 3.8. Given the adverse profitability, our average net cash burn increased from INR 150 million per day in the December quarter to INR 190 million per day in the March quarter. Given the current performance erosion with second wave of COVID-19, we anticipate the cash burn to further increase in the June quarter. Managing our cash position continues to remain our primary focus, and we continue to work with all our stakeholders. For this purpose, we are working on securing credit lines from lenders and entering into sale and leaseback arrangement for new aircraft. These 2 actions will result -- will likely result in additional liquidity of INR 45 billion for the coming year. Apart from this, we have also secured a Board approval for raising funds by way of qualified institutional placement up to INR 30 billion, and this proposal is under consideration by the shareholders. We ended the quarter with a free cash of INR 71 billion and a total cash of INR 185.7 billion, a net reduction of INR 3.4 billion in free cash as compared to December quarter. The capitalized operating lease liability was INR 257.4 billion and our total debt, including the capitalized operating lease liability was INR 298.6 billion at March end. 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] The first question is from the line of Lokesh Garg from Credit Suisse.
Basically, I wanted to ask you, in this quarter, we have observed increase in combined rental and maintenance costs. Is that natural? Is there something else that we need to watch out for? Plus particularly given that somewhere in FY '20, we started with quarterly provision of INR 2.6 billion, which are supposed to run out some time in FY '22. So can you just give us a perspective around that, please?
So basically, our rentals are largely variable as it's going up because of the capacity has gone up. This year, this quarter, if you see our capacity compared to last quarter, it has significantly gone up and that has added to our rental, which is primarily the supplement in rental we have talked about, which is variable in nature. Other than that, there has not been a very significant change. And if you try and match that with our capacity movement, you'll be able to get to the answer.
And also, I would say that we are returning a lot of planes. But right now, many of them are sitting around in MRO during the return process. So they're not going out as fast as they would like, but that's adding some cost to the rental costs.
Yes. I have a very short follow up. One thing is how do you put in perspective the government increase of capacity down to 50% and increasing the fare? What objective does that serve in the current industry's context? So the industry could have chosen that itself? Second question, which is more numbers is what is the per unit efficiency that you're achieving on A321neo versus ceo aircraft that you used to have?
Okay. So on the government capacity and fare band, IndiGo has consistently been against any kind of government regulation. And we have, of course, objected to these bands and the capacity restrictions. Looking ahead in July, we are scheduling exactly at 50% of capacity. So we are going up to the limit. And again, we've written to the ministry, said hey, we'd like to go higher. So we are just hoping that the government will stay true to its word and July 31, they will remove the capacity restriction. The second question was regarding...
Ceos, sir.
Ceos. So let me tell you, we are very happy with the A321 aircraft. It has a unit cost that is 10% lower than the A320, so that's a very good thing. And this is -- allows us, therefore, to deploy the A321s in peak demand. So in the multiple frequency market, we take the [ 730 ] departure and use the A321. And for the other departures, we use A320. And also strong markets, we can use the A321. So right now, utilization is at roughly equal, the A321neos. But clearly, we'd like to use the A321 a lot more. It's a very efficient airplane.
Looks like unit cost, which I take it as total cost. So basically, fuel cost advantage is closer to 25% and total unit cost is probably closer to 10%?
So I'm saying A320neo versus A321neo, now they're the same engine. So you've got the fuel efficiency. And then the larger number of seats helps you. So that's why the unit costs are down by about 10%. On A320, of course, it's more fuel efficient. But compared to A320neo, it's the same fuel [ efficiency ].
Okay. And neo versus ceo is another 10%, right, more or less?
Neo versus -- on fuel itself, it's 15%.
The next question is from the line of Varun Ginodia from AMBIT Capital.
Hello. Can you hear me?
Yes, Varun, we can hear you.
Can you hear me, sir? Hello?
We can hear you. Yes, please go ahead. Ask the question, please.
Yes. Sorry, sir. Yes. Yes, sure. Sure. Sorry, sir. So sir, a couple of quick questions. First question is on your sequential fuel cost increase. We see that the fuel cost, fuel prices are up by 26% sequentially, and your capacity is up by 25%, which adds up to close to 50%, but sequential increase in fuel cost is about 68%. So is there any other reason behind that? If you could just explain that.And second question is on your ceo aircraft, older engine aircraft phasing out. That seems to be at a much lower run rate than we would be happy with. So if there are any issues with returning those older aircraft? That's -- those are my 2 questions, sir.
So let me take the first question first. So you're absolutely right. The published rate has fuel prices are increased by significantly by 26%. The other added factor, which is our discounts, which we get on our published rate is a flat rate. So as the prices go up, that percentage on impact on fuel CASK becomes higher. So that's the impact you're seeing. Therefore, that increase you're seeing is coming out because of that. So net -- in a net-net basis, it's all about fuel, which is the prices coming up.
And on the...
[ It's ] visible on -- in the year-end results is we have not been 100% happy with the tempo of lease returns. But if the time is, as we speak right now, we have gained momentum. So was it 23 aircraft for -- which went through lease return. And right now, we are already at 40. So because the last year was the major obstacles in lease return was the COVID situation, the situation with the MROs and the supply chain. So all this has eased out and we gained momentum and making good -- what we have lost maybe in this COVID year at the beginning. But now we're confident that we can finish the backlog, which is still there for us and continue also this coming year with something like what we have envisaged as lease returns. So you will see a speed up in this whole process going quarter-by-quarter going forward.
So the run rate that we are looking at will be close to 40, 45 aircraft per year? Is that the run rate we will be looking at?
That's a good run rate, yes.
The next question is from the line of Arvind Sharma from Citi.
Yes. Sir, can you hear me?
Yes, we can hear you.
I have a question on the fleet part. I think you alluded to a number of 45 per year. What would be the net addition to fleet over FY 2021? Is there a planned number?
So our total fleet count will be about flat. So we are taking deliveries and returning ceos at the same count -- same speed. The total number of seats will go up a little because of the A321.
All right. Sir, second question. Sorry, I didn't hear it correctly. What would be the daily cash burn rate in fourth quarter versus the third quarter? Sorry, I know you said it, but I just missed that number.
INR 190 million compared to INR 150 million.
The next question is from the line of Achal Kumar from HSBC.
I had two questions, actually. So first of all, on the demand, of course, last year, if you remember, I mean, and you just said, that demand was driven by Tier 2, Tier 3 cities. And then last year, actually, the fares were quite low, and we had seen some shift from trains to planes, and yet it took 8 to 9 months to reach -- for the demand to reach about 70% to 80% of the pre-COVID level. Now if you see the more bigger impact in the Tier 2, Tier 3 cities, of course, than the positive vibe coming from metros, but if you see the non-metros like [indiscernible], like [indiscernible] and all those sort of cities are still suffering. So how do you see the demand recovery this year? How -- what makes you confident that the demand recovery could reach FY -- February 2021 level in FY '22? That was my first question, please.
So let me try and answer that. So in the first wave, it was a slow buildup and then a slow decline. This one is a sharp buildup and all the analysts will tell you, it's bell-shaped curve, so the decline will also be sharp. In the first wave, we also had the problem that people were hesitating about not being sure about airline travel. So the first few months, there were like vacancies [indiscernible] what's going on. That hesitancy regarding airline travel being safe, I don't think it's there at all. People are paying attention to the COVID numbers in terms of total terms, should I go to the airport, should I take a taxi, et cetera. But in regards to airline travel itself, it's very, very -- I mean, people are confident about the airline travel. So as COVID cases go up or down, we are really amazed at how strongly correlated it is to demand. COVID cases go up and demand plummets immediately. But equally, COVID cases go down and therefore, demand goes up just as sharp. So we have modeled all this actually. And this is what is giving us the confidence that, yes, we will back to February levels by the end of the year.
But then, Mr. Dutta, I mean, clearly last year, we had last wave, passenger shifting when the fares were too low. And now the fares are up slightly higher. So we -- although the sales are not very high, but the fares are not low enough to attract plane passengers. So don't you think there will be a challenge in terms of getting the same amount of profit? Although you rightly said in the...
Actually, we don't. Actually, we don't because people who are traveling are traveling. They're not being stimulated by low fares or the -- sorry, discouraged by high fares. There is a pent-up demand. And I will tell you, like from the latter half of May to the first week of June, we've seen a sharp increase again. So it's very, very sensitive to COVID cases. COVID cases are coming down, and we are absolutely confident that COVID comes down, travel is going to go up, and we can see it before our eyes. So there's very little doubt in our minds that as long as COVID is controlled, we'll be -- the travel demand will return quickly.
Okay. My second question around...
Mr. Achal, you are not clearly audible. Can you please use the handset if you're using earphones?
Am I audible? Am I audible now?
Your voice is breaking.
Okay. Is it better now? Can I...
Yes, yes.
Okay. And my second question was around the aircraft economics. So of course, you said that the fuel -- of course, they are mostly [indiscernible] aircraft. But if you see in terms of leases, of course, I mean the difference will almost double, right? So -- I mean, so looking at net-net detail, where do you see -- I mean, do you really think -- of course, on the [indiscernible] basis, you might get some benefit, but do you really see any significant benefit coming out of this replacement A320 versus A321neo?
So -- okay. So there are 2 replacements I think you're talking about. One is the classic going to the neo and then from the A320 to the A321. I think from the classic to neo, the numbers are clear to everyone, right? It's 15% lower cost in fuel, so it's a good deal. The A321 versus the A320 is also a very good transition for us. If you're looking -- yes, the leasing costs are higher, but leasing costs per seat is significantly lower in the A321. So -- and then we have the added advantage that we were a mix of fleet with no complexity around, same pilot, same engines and yet we can target when we want to use the A321, when we want to use the A320. So it's a very good deal for us to have within our fleet. Wolfgang wanted to add something.
Yes. I just want to add one more element, which would show that the cost savings are even -- can be even higher. When we go back in production, let's say, [indiscernible] flies 16 times a day between Bombay and Delhi, [ we could use A321s ], we could reduce it to 14. And that save the money of 2 flights per day and that's at the same or more capacity. So that shows the whole economics will come back in a much better way, visible way, when the demand comes back and production comes back.
And when Wolfgang says reduce from 16 to 14, the one thing is we now have 2 slots freed up for something else [indiscernible].
The next question is from the line of Christopher Siow from RWC Partners.
Hi. Can you hear me?
Yes, Christopher. We can't hear you that well, but we request you [ to come closer ] to the phone. The audio is very faint.
Yes. Yes, I just wanted to ask a question on cargo. And clearly, I think there's quite a -- I mean, mutual this quarter. I just wanted to understand how much...
Sir, I request you please use the handset mode, sir. You're not audible.
I just wanted to understand on cargo, how much more capacity can be added or shifted on the capacity side before the freighters come online?
How much more capacity can we add on cargo? So our freighters are coming next year. In the meantime, we had taken 10 of our airplanes and converted them to cargo in cabin. So those are being used in charters. We are not planning to add to those. We have 10 with nets and safety nets inside the cabin. So those are dedicated to cargo, plus we'll have the freighter, but we're not adding to the fleet in the interim period. Did that answer your question?
Yes. Also before the breakout, are we going to test more planes?
No. No.
Are we going to test the planes converted to cargo...
We are utilizing our existing fleet, therefore, the cargo in the belly is less because they're not flying enough, right? So we carry cargo in belly, we carry cargo in cabin and then we have the freighter. The cargo in belly is being suppressed because we're not flying enough. The cargo in cabin, we have 10 airplanes, which we use for charter operations. We're not planning to add to those. And then we have the 4 freighters with the first freighter coming early next year.
Got it, got it. Then on the cargo yields, sir, I mean, are they kind of -- what sort of trends are we looking at?
So cargo use have been very good overall for the past 12 months. But at this point, it seems to be flattening a little. But as we've reported, our overall cargo revenues are up almost 10% year-over-year.
The next question is from the line of Aditya Mongia from Kotak Securities.
I had two questions. The first one that I had was more on the share of capacity that IndiGo would be having, let's say, a year or 2 down the line versus where we are at this point of time.
Sorry, that question is not clear to me. The share of capacity, again, can you repeat that?
Yes. So in terms of speed, in terms of capacity, what would be the share of IndiGo, let's say, 12 months down the line or 24 months down the line? If you could give us some sense versus where we are at this point of time?
With the investment? Are you saying our capacity or the industry's capacity?
Exactly, the fleet figure. Your fleet versus the market aspect, yes.
That is impossible for me to project. We can talk about our own capacity. But GoAir is buying airplanes. I don't know what Air India is going to do. It's truly, we don't know what the competition is going to do. We can only talk about our capacity.
Okay. I got that. The second thing that I -- so the question that I would want to kind of put would be also on the money that has been raised or [ there is being thought ] to be raised. Given how you are thinking through demand reviving pretty soon, is it more of an insurance again something bad happening? Or do you think that this kind of money, INR 3,000 crores, is actually going to be required?
So we've had extensive discussions on this at the Board level, of course. And the fact is it's hard to predict the future right now. It's a very volatile environment. A third wave of COVID could or could not arrive, so we don't really know. Therefore, you're right, it's mostly in insurance. The -- it's not like we feel like we absolutely need the money. But strengthening the balance sheet is always a good idea. As you know, major corporations in this country and around the world are doing it. So it's all an attempt to strengthen the balance sheet even further.
Got that. If I may, can I have one question on the capacity?
Sure.
Sure. So you mentioned pent-up demand and that being a possibility driving volumes in FY '23. I just want to ask you, this is your assessment of where capacity for IndiGo and others is and will be. Is there a possibility of a demand-supply mismatch of the other side -- on the other side?
On the other side, meaning too much capacity?
The demand is higher. The demand is higher and the capacity isn't up to match up for it?
Look, this pent-up demand is a real factor on the table. Let me give you an example. Male, we used to fly Bombay and Bangalore. And we've looked at annualized Delhi and Chennai, and it never worked. Like Delhi and Chennai, there's not enough demand. While we come out of this sort of first wave in February, March and suddenly, Delhi and Chennai showed immense potential. That to me is an example of where there is a lot of pent-up demand, whether we're talking about Thailand or domestically, travel, there is a lot of pent-up demand. So yes, I think there is a potential. Therefore, the industry as a whole, we could be short of capacity as well. We just don't know.
The next question is from the line of Ansuman Deb from ICICI Securities.
Yes. I wanted more color on the liquidity schemes which are available to us. Because last year, we had managed it extremely well. This year, you were saying about 45 billion of available liquidity, which can come from SLB and other measures. A, if you could highlight on that part a little bit, what are the revenues under that? Second is that some of this -- we have been paying to all our lessors on time. If -- what are the other ways maybe through some tactical negotiations, et cetera, can we kind of get to some more liquidity? What are basically liquidity sources available to us at this point of time? If you could share some thoughts on that. That will be all.
So as I mentioned, we have got this INR 45 billion is what we have a visibility today. And these are -- this is clearly on the table. And we have already -- almost in discussion and we closed on a few things around this. Beyond this, there are discussions which are going on, and we continue to explore options beyond this. Credit lines, there are lots of banks we are talking to. There are a few we have phoned up. There are a few who are still [indiscernible] are talking to, and it's -- those have not been considered. Similarly, from a financing perspective, we have got something on the table. There are a few things which we are still discussing with our vendors. So on an overall basis, I think we are in a very comfortable position as we start talk today because our numbers, along with our QIP numbers, at the start of the year seems fine for us to carry forward. But we are not stopping any which ways to explore more possibilities. And maybe as we go along during the quarter, you'll see us calling out more numbers beyond the number we have already reported.
Right. And this INR 45 billion is only SLB profit? Or is there any breakup of this available?
So it's a mix of credit lines and [ SMP ].
Right. And the last question on that point is if you could share what is the debt number that we have right now apart from the finance fees and capitalized leases?
It's there in the report we have given.
Sure, sure. [ I'll check ], sir.
Yes, you can have a look at it.
The next question is from the line of Binay Singh from Morgan Stanley.
The first question is on the cargo side. Could you talk a little bit about what kind of industry growth do you expect in cargo? And what sort of a market share will IndiGo have within that with the cargo planes coming on board? That's the first question.
I don't think we have the answer on the market share yet. Just to tell you what's happening on cargo. The overall dynamic is that there used to be a lot of wide-bodies flying around in India and outside India, which used to carry a lot of cargo capacity. Since this wide-body count has gone down, that's why there's a demand for cargo traffic, and that's what we are tapping into. So it's not only domestic, it's also international. For example, traffic from Vietnam or Bangladesh trying to go to the Middle East, it used to go on the wide-bodies before, now it is coming through India, say, on narrow-body. So that's where we are seeing a lot of growth. It's really the wide-body capacity been going down that is creating this generation. It's not like cargo traffic overall has improved, but the mode of transportation is shifting towards thereabout. And market share data and all that, frankly, we do not have. We're doing a study on all that and looking at all the opportunities. We've done our first step in terms of the 4 freighters, but we have a broader study going on, on a long-term strategic plan for the cargo business.
And sir, linked to that, is there a risk then the cargo yields drop once the environment normalizes? Because almost every airline is focusing a lot on cargo. And in a normal environment, I would assume the wide-body planes to also come back. So is there a risk on the cargo yield that we are seeing today?
Well, the wide-body planes are in trouble across the world, right? I mean before they used to be carrying a lot of one-stop traffic. Let's take an example of the Middle East carriers. They used to carry passenger traffic from the U.S. to the Middle East to India. And now that is coming nonstop from the U.S. side. So the one-stop traffic is in trouble. So I don't see the wide-bodies coming back in the same sort of magnitude as they were before. I think this is a permanent shift in my mind.
That's helpful. And the second question is on the regulations in India. So this time in the downturn, we've seen the regulators step back. In your view, when do you see regulators pull back? Because is there an understanding with the industry that once we go back to pre-COVID levels and the cap and the fare flows that all those things will go away?
I think Mr. -- the Minister, Mr. Puri, has been quite articulate in that regard. He has said consistently that this is a temporary measure. We want to get out of any kind of regulation. So he says that in every public speech he's made.
The next question is from the line of [indiscernible] from [indiscernible].
Sir, in your opening remarks, you did mention that in the near term, the international segment, there's a lot of uncertainty in that segment. But over a longer time period, what are your plans of expanding your business in the international segment in terms of adding new destination in whether long-haul or short-haul? And also, if you could give a sense about the profitability of your international business versus domestic. And how do you see that going forward?
So let's go back to the pre-COVID period and start from there, the benchmark. So in the pre-COVID period, we were expanding international aggressively, and international was accounting for 25% of the total capacity. It also had higher margins than domestic. So highest growth, higher margins, which is a wonderful combination to have. That's why we were very bullish in terms of international expansion. Now our plans are already there for doing that. Our fleet is in place to do that. So as soon as this COVID crisis is over, we plan to sort of restore our original growth path in terms of international. And let me say that we talk about this wide-body competition decreasing, especially during this COVID, we are getting charter demand from such sort of esoteric places, if you will, which is giving us a very good sense of the traffic, which was being carried before one-stop through other hubs, which we can now carry nonstop. So our growth plan again is in the 6-, 7-hour range from Delhi, Mumbai, Chennai, Bangalore or Kolkata and every major city in that circle falls into our potential market. So it is being delayed, of course, because of COVID. There will have to be sort of -- some sort of understanding between governments about travel to the passports or some way or shape or form. But once all that sorts out, I think we'll be going into international markets with rapid sort of growth. And again, as I said, pre-COVID, our international margins were higher than the domestic margins.
The next question is from the line of Rahul Agarwal from ICICI PruLife.
So I got a couple of questions. Firstly, with regards to...
Rahul, you're not audible.
Am I audible now?
Yes, try again. Go ahead.
Are you using an earphone, sir? Please use the handset.
Is this better?
Yes, sir. Much better.
So from what I see in the balance sheet, we've got [ INR 145 crores ] assets held for sale. So if you could just give some sense of what it is and if you are expecting INR 1.45 billion only or there could be some upside to it?
So this is basically -- this is one of the plane engines we had, which had to be -- which is already the agreement was signed, and it has not yet been converted into an SLB. So that has been shown as on 31st March as assets held for sale. So there's nothing more beyond that. So this is only -- this was a transaction which happened, which was not completed at the year-end. Had it been completed, it will not [ appear there ].
Okay. And my second question is with respect to the tax credit that we don't have, we are not carrying for the last 4 quarters. So we are almost at 0% tax rate. So will this be used against the liability that could come up in the [indiscernible]?
So I'm not clear on the question. So tax credit -- can you just elaborate on that question, please?
No, sir. What I'm trying to understand is that the [indiscernible] we have said that the liability could range from INR 400 crores or INR 500 crores to INR 1,400 crores. And I'm seeing that no tax credit in terms of the loss -- no tax credit is being carried forward, which will be used later for our...
So basically, if -- let me try and understand this question. So basically, you're saying because of [indiscernible] which was, I'm not charging any tax amount into my P&L. Is that the question?
Yes. So I'm just trying to understand whether the tax credit is being adjusted with the [indiscernible] and will not really have any tangible cash. That's what I'm trying to mean.
So let me explain here. So this 2008, 2009 assessment year, we had losses. And those losses, we have set up against future profits. So what has happened is our reduction in losses has resulted -- has actually got offset with the MAT credit, which we have written off subsequently, which otherwise we would have had to charge it into the P&L.So looking at -- in normal circumstances, if we had carried -- if we had just taken this [indiscernible] deal and agreed on that, we would have had to pay some cash flow today. However, because of the write-off which we had taken on MAT credit starting last year, that sets off my cost, which results in no outlook for the company.
Okay. And the last 3, 4 quarters, the tax rate that we are seeing, there's no tax credit being carried forward. Any particular reason for that?
So we don't have any visibility as -- you don't provide -- you don't carry any tax credit based on -- we normally look at 1 or 2 years right now, you are in a situation where the future profitability and future revenues are under the COVID. So everybody is looking at that. So you assess it every quarter and take a charge into the books as per that. The current situation is that we are in the COVID, we are into losses. So we have been more pessimistic, and we are not recording any income around that.
The next question is from the line of Prashant Kothari from Pictet.
My question is around the liquidity situation again. And I just am wondering how did you guys come up with this number of INR 30 million. I mean is there some kind of thumb rule, some formula, which kind of helps you to think about how much liquidity we need on the balance sheet? And also kind of as [ a recovery ], as we keep growing our scale, will we need more of cash on the balance sheet? And do we think of like free cash? Or do we think of free cash less the debt we have? How do we think about these things?
So how did we come up with the number of INR 30 million? So we have a worst-case scenario of how low should the cash -- could the cash flow. And we also have a number in mind of -- we are not willing to tolerate the cash from dropping below this level. That level actually compared to most of the airlines is quite high, so we are pretty conservative that we need a minimum of this amount of cash. Now frankly, we don't have any scenario, which says we'll go below that. We've done a pessimistic scenario of blah, blah, blah, and it still is just about there. But then the question that the Board asks is what about extreme cases? What if there is a third wave COVID? What if there's another 3 months shutdown? What if international doesn't open for 2 years? Now those truly are extreme cases, which no one can model, frankly. So it's against those extreme cases that we're saying that have this cash balance as an insurance. It's almost like a disaster risk insurance, if you will. And -- but besides all that, we think it's a good idea to have a lot of cash on our books. We want to have a strong, strong balance sheet. And we're going to do everything to make sure that the cash liquidity comes through revenues and not anything else. But if the revenues were to shut down completely for whatever reason, we still want to have a strong balance sheet. And so we came to that answer of INR 3,000 crores based on that. What is the worst-case scenario that we can think of? We still want to have a certain amount of cash, and therefore, we came up with this number. But it really is disaster risk insurance.
Great. And is it that you think about free cash on a gross basis or on a net basis, like free cash less the debt here?
So free cash is the cash which is available for us to spend, right? So that's the way we look at it. Now I'm not sure when you say net basis or gross basis. Yes, free cash also takes care of when I look at my liability, current liability, which I'm going to pay in next few months. So that, we obviously keep in our mind. But that free cash takes care of that. When I look at my balance sheet in a particular date, we have that visibility that what -- how much it will cover from that day onwards. So for us, free cash is the cash which is available for us to use any point in time. Did I answer the question?
Okay. Okay.
The next question is from the line of Pulkit Patni from Goldman Sachs.
Sir, a couple of quarters back, you used to talk about where our cash burn would be. So did you -- you did speak about the INR 19 crore odd, which was the cash burn in the March quarter. Any guidance of what the number could be for the next couple of quarters, your daily cash burn?
I don't remember giving that guidance. And frankly, the answer is that I don't know. [ So in short, no ]. So we'd be very speculative to give that number.
Absolutely. We cannot give a guidance of cash burn going forward. But obviously, the situation is there, the COVID situation, but revenues are not there. And we have already called out that we expect that our cash burn is going to be higher in this quarter at least.
Sure. No, you used to say that it was about INR 40 crore a day, which you would bring down to about INR 30 crore. Anyway, my second question is related. Can you give a sense of what levers of cost cuts do we have? As you rightly highlighted, nobody knows if there's going to be a third wave or not. So what other levers do we have in terms of cutting costs further, assuming a worst-case scenario of this thing prolonging?
So look, fuel is obviously our biggest line item, and just reducing fuel consumption is a big deal for us, and so we are focusing on that. Employee costs, unfortunately, we've taken a lot of gain already. And as you know, we had to layoff. We had pay cuts, then we did another leave without pay. So I mean the amount of all the pain we can tolerate in that is very, very minimal. Then we are looking at every other opportunity, including, of course, aircraft ownership costs, talking to the lessors in what sort of deals we can get and then all the other nondiscretionary costs. So everything that we have, we are cutting back on. But I wouldn't hold our breath in terms of we have major, major opportunities to reduce our unit costs further. What we need to do is get the airline going and get more on the revenue side quickly.
The next question is from the line of Sonal Gupta from [indiscernible] Mutual Fund.
Yes. First, I just want to understand in terms of the -- I mean, like given the sale and leaseback that you get on these new planes, I mean, even if the plane is standing for a year, does it still make sense for you to take a new plane? I mean, I'm coming in context of the fact that last year, you had guided for a flat fleet count and our fleet count has grown by 9%. So just trying to understand that.
Yes. And the answer is yes. We've looked at all that very carefully. And no matter what scenario we look at, we say it's better to take the airplanes now. And it's not like, oh, in 6 months, we start bleeding on that cash that we've got. No, it's a much, much longer term than that.
Right. And just my second question, I had a similar question last quarter, was like, I mean, like given that the industry scenarios and the demand like you're saying is not really getting stimulated, it's more of people who want to fly are flying. What is the ability, I mean, do you see to raise yield, especially in the scenario that -- I mean, historically, we used to operate at 85% load factor. But maybe for the foreseeable future, we'll have to probably do a 75% or something. In which case, are we going to adjust the yield to at least get a commensurate level of profitability at that sort of load factor?
Yes. So I think yields in India are really the lowest in the world, practically, and lower by about half. Average fares for a low-cost carrier like Spirit or Southwest in the U.S., which is $130, $140. In India, it's like $60. So -- and yet, our cost structure, as you know, on aircraft and fuel is the same. So the yields don't have much room to go down, frankly, and without more blood on the streets and more airlines collapsing, then there is all the issues of middle-class growth, of people substituting from rail to air, et cetera. So I think over time, not in large numbers, but I think yields will generally tend [ to peak ] upwards.
The next question is from the line of Ankur Sharma from HDFC Life.
Just one question on the employee cost. When I look at your capacity, there's a 25%, 26% increase quarter-on-quarter, but the employee cost is kind of at the same [ INR 735 crore ], [ INR 740 crore ] number, both in Q3 and Q4. So if you could help me understand what's going on there. And also for '22, what's the kind of number you're looking at on an annualized basis?
Okay. I'm not sure I understood your question. But to the extent I understand it, on employee costs, what has happened, as you know, first of all, we took a 15% layoff. Then we all took severe pay cuts. And then we all added this leave without pay. So year-over-year, our employee costs are down about 50%, and that's stabilized and has stayed there. There was a second follow-on question. I couldn't follow that.
So my question was despite an increase in capacity in Q4 by about 25%, your employee costs are flat on a Q-on-Q basis. So why is that? Is it because you've not taken any hike or you're not -- are you seeing levels of Q3? And what will be the number you're looking at for FY '22 on a full year basis on employee costs?
Yes. So for the following year, the first thing we'll probably do is get rid of the leave without pay. And then gradually, we'll bring the pay cuts back. So it's impossible for me to predict what the number will be, but it will still be lower than before. But the 30% is not sustainable. We need to climb back up, but I don't have a forecast for where it will end up.
And to your question on the quarter 4. It was -- it's flat because obviously, we did not reinstate the cuts which we had done. So they could continue.
Ladies and gentlemen, that would be our last question for today. I would now like to hand the conference over to Mr. Rono Dutta for closing comments. Thank you, and over to you, sir.
I just wanted to conclude by talking broadly about what the situation we find ourselves in. And many people have asked me, why are you so optimistic about IndiGo? And I just want to highlight why that is. So let's look at the broad drivers of our performance. First is fuel. Fuel, as you know, is our biggest cost item. And our cost for flying now is down 10%. Now that's a big deal, I think. And it will continue to get better as we take more and more neos. Then we said cargo. Cargo was always a small item on our P&L. It's becoming a bigger and bigger piece. And that again is a structural change that will stay for some time. Yields, as I said, yields are very low in India, and I don't expect to see a dramatic change, but yields will only get better over time. The A321 is camouflaged in all the statements. The first 3, you can see in our statement. You can't see the A321 effect. But again, the A321 effect is driven by 2 things. It is more efficient cost-wise, and it allows us to -- in a very targeted way, to fly on the right flights. And then there's a quality of flying and customer service that we are offering. We are #1 in OTP by far. Our complaint ratio is the lowest it's ever been. Our Net Promoter Scores are high. So all the broad matrices of performance are in the right direction. There's only one negative, and the one negative is that there are not enough customer load factors. Now the positives that I talked about are structural, they are here to stay and probably get better over time. The one negative, which is the customer loads, is a very short-term cyclical factor. So it is going to reverse and when it's reversed, the structural advantage is for customer loads in terms of, as we said, the railway substitution, [ middle class income growth ], et cetera, will show up. So there's only one thing we're waiting for, and that's for the load factors to improve. And we all know that it is going to do so at some time. So overall, I really think this is almost like a Cinderella moment for IndiGo, where, yes, the bottom line looks ugly, but very soon, things are going to get a lot better. Thank you.
Thank you very much. Ladies and gentlemen, on behalf of IndiGo, that concludes today's call. Thank you all for joining us, and you may now disconnect your lines.