InterGlobe Aviation Limited (INDIGO) Earnings Call Transcript
August 26, 2022
Earnings Call Speaker Segments
Warmly welcome you all to the 19th Annual General Meeting of your company. On our behalf, I also extend to you and your families, our very best wishes that you remain safe and in good health. While this Annual General Meeting is conducted as a virtual meeting, let us hope that by the next year, we will have the opportunity to invite you to a meeting where personal interaction will be possible. Governments and industries have come to learn that reviving the economy in these challenging post-COVID environment requires both care and vigilance in matters of health and safety. In this period, your company has implemented various measures to protect our employees and our passengers so that its operations continue to grow in a safe manner. The past 3 years have been a reminder that aviation is an essential service to society. I'm delighted to say that as a prominent player in India's aviation landscape, your company worked closely with our government in repatriating thousands of people back to India and transporting millions of COVID vaccines across the country. To look back at fiscal year 2022, COVID continued to be a central concern. In its efforts to navigate its way out of this gloom, the company has been active on many fronts. It has continued to optimize cost, head count and capacity; enhance the company's liquidity position; and sustain critical investment in network and fleet. Today, as a result, we are stronger to face challenges ahead with higher customer satisfaction, a stronger cash position, an expanded network and a newer fleet. Even as global society has been straining at the bit to emerge out of the shadows cast by the pandemic and look forward with hope, we have seen setbacks to global economy arising from geopolitical tensions, concerns about energy supply and security, and in some ways, consequentially, disruptions to supply chains. To some degree, it is fair to say that the Indian economy is partly shielded from the brunt of these challenges. The second half of the last fiscal provided validation of this assessment and welcome encouragement in terms of growth. The combination of the impact of the pandemic, higher fuel prices and adverse foreign exchange impact did, however, lead to the lack of profitability for the fiscal year 2022. In view of the poor financial performance, your Board [indiscernible] a final dividend for the fiscal year 2022. Looking forward, India with an increasingly urban population whose incomes and aspirations are growing in tandem is expected to generate impressive growth in air travel demand. Backed by recent policies from the government, policies like UDAN and regional connectivity and renewed emphasis on airport infrastructure investment, the foundation for this growth appears to be sound. Furthermore, globally, post-COVID air travel patterns are also expected to favor growth of leisure travel over business travel, and many economies are seeking to rebuild the appeal of tourism as a part of their own recovery. Your company is well placed to benefit from these trends, both for domestic and international routes. For the first quarter of the current fiscal year, your company operated its highest-ever capacity, which was above its pre-COVID levels and noted commensurately strong revenue performance. We are resolved to perform better in the fiscal year 2023 and to get back on the path of profitability soon. Since inception, the cornerstones of your company's competitiveness remain its focus on operational excellence and on-time performance, modern fuel efficient aircraft, and above all, on affordable fares and customer satisfaction. While these remain the focus of the business going forward, as you will hear from our CEO shortly, your company has dovetailed these objectives with contemporary goals on environmental, social and governance topics, the ESG agenda. This comprehends matters such as sustainability, social equity and quality of governance. Many of these goals come naturally to us. For example, a young fleet of fuel-efficient aircraft not only helps us keep operating costs low, but also go a long way towards minimizing carbon emissions from air travel. At IndiGo, an important part of a larger and focused push on ESG, we have formally launched our sustainability program, IndiGo Green, last year. We continue to aggressively pursue our long-term environment sustainability strategy, reducing carbon emissions with fuel-efficient aircraft and operational protocols, early exploration of use of sustainable aviation fuel and carbon offsetting. In addition, our efforts towards minimization of use of plastics, our support of afforestation and revival of water bodies are other examples of our commitment to sustainability. Our service and linkage to society does not stop with our role in air travel. A good fraction of our employees are women, and this has cost us to pay special attention to initiatives such as gender empowerment for rural women touching over 55,000 individuals last year. Our outreach to rural school teachers and over 1,400 students was aimed at awareness and education to prevent child sexual abuse. IndiGo has been actively engaging with people with disabilities and has set up internal targets to allow more of them to be a part of our committed and successful workforce in the coming years. On the governance front, processes and checks spanning operations, management and the Board have been further upgraded to confirm compliance. Importantly, going beyond near compliance, many aspects of the business, including enhanced scope of internal audit, risk management, digitization of operational processes and enhanced cyber security focus have all been a part of this initiative. Going forward, we expect IndiGo to remain focused on its strengths, expand its role as the airline of choice for air travelers, open new routes, many of them international, and significantly build upon the start that has been made in air cargo logistics. In each domain, we expect IndiGo to chart successful trajectories. IndiGo's strength since inception comes from its people, and I'm grateful for the tireless efforts, dedication and commitment of our employees for going above and beyond the call of duty in these trying times. We know we can count on that continued commitment in the journey forward. Importantly, I would like to thank you, dear shareholders, for the steadfast confidence and faith reposed by you in IndiGo. I wish to thank my colleagues on the board for supporting, encouraging and guiding management in these trying times. Now let me invite Mr. Rahul Bhatia, our Managing Director, who would like to convey his greetings to you and his message as well. Over to you, Rahul.
Thank you, Dr. Sumantran. Good morning, and I just want to add my welcome to Dr. Sumantran's to all of our shareholders. And while, of course, the proceeding will be conducted essentially by the Chairman and Rono, I will be quite happy to contribute to the Q&A session if necessary. Thank you once again. Over to you, Rono.
Thank you, Rahul. Dear valued shareholders, thank you for joining us. I feel privileged to speak to you today. Our last 2 financial years have been the most challenging in the history of our existence due to the advent of COVID-19. Throughout this period, IndiGo stood firm and responded judiciously with appropriate reduction in capacity and head count, cost reductions, liquidity enhancement and investment in network and fleet. With these efforts, IndiGo emerged even stronger with leadership position in cost and a strong cash position, expanded network and a newer fleet, improved customer service with higher share of customers served. The problems we experienced in a 2-year performance such as COVID, fuel, large losses, et cetera, are all cyclical in nature. In contrast, all our responses and our structural changes have been strategic and sustainable. I'm proud to state that IndiGo also fulfilled its social responsibility by operating numerous repatriation flights and transporting COVID vaccines across the country. IndiGo remains committed to support these missions and to respond to critical humanitarian needs of the hour. When I look back to our 16-year-journey through inception, we have remained committed to the 3 pillars of our service, which are being on time, providing courteous and hassle-free service and providing affordable fares. We have always focused on securing the #1 position in on-time performance, reducing customer complaints to the lowest and reducing mishandled bags and also improving net promoter scores. In all this, our core strength continues to be a highly skilled and engaged employees who support our growth plans and enable us to deliver a consistent, high-quality product. We are grateful to them for their dedication and loyalty. Our overall financial performance for financial year 2022 was disappointing with total losses aggregating to INR 61.6 billion. Given the lack of profitability for financial year 2022, our Board of Directors have not recommend any dividend. Most recently, we announced results for the first quarter of fiscal year 2023. The good news is that we had a remarkable quarter in terms of our revenue performance as we reported the highest ever capacity of 27.5 billion ASK, which was 7% higher than the COVID levels. We reported the highest ever revenue of INR 130.2 billion with highest ever yield and the highest ever unit revenue. Unfortunately, the headwinds [indiscernible] rupee and higher fuel prices led to a net loss of INR 10.6 billion for the June quarter. Excluding the foreign currency loss, we were operationally profitable by INR 3.6 billion. As we entered the second half of the fiscal year, we expect the external environment to improve, and we look forward to a better performance in the fiscal year 2023. We are also nearing the commencement of commercial operations of our first two freighters in October 2022. The freighter segment will add another critical dimension to our business. We continue to see robust growth across the network, and our expansion is being accompanied by high growth in connecting traffic. We have a balanced fleet order of 500 aircraft plus the XLRs, which are currently expected to be delivered in '24-'25. These aircraft will allow us to capture non-stop international traffic, which is currently served only through one-stop competing hubs. We connect different corners of the country, providing a stimulus for commerce, medical traffic, corporate traffic, leisure and VFR traffic. As the nation's preferred and responsible airline, we promote national integration and socioeconomic progress. We are building capabilities to grow sustainably and striving to reduce the carbon footprint, delivering services that cater to societal needs and a strong governance framework. We aim to play a pivotal role in taking the communities that we serve along with us on our journey of sustainable growth. We are responding to the ever-growing challenges and opportunities in the areas of customer experience, revenue maximization and cost reduction through increased productivity and optimization techniques. With the objectives of low cost and high growth, we will certainly maximize value to our shareholders. I will now conclude by expressing profound gratitude to all of you for your unwavering faith in us. And with that, let me invite our Chairman to proceed further with the AGM.
Thank you very much, Rono. As there are no qualifications or adverse remarks in the auditor's report, I shall take it as read. Since the notice of AGM has been circulated to all the members, along with the annual report for FY 2021, '22, the same may be taken as read. Your company has proposed the following items as set out in the notice for your approval. Item #1, to consider and adopt the audited standalone financial statements of the company for the financial year ended March 31, 2022, along with reports of the Board of Directors and the auditors thereon and the audited consolidated financial statements of the company for the financial year ended March 31, 2022, along with the report of the auditors thereon. Item #2, to reappoint Mr. Anil Parashar, DIN: 00055377, as a director who retires by rotation, and being eligible, offers himself for reappointment. Item #3, to appoint Mr. Vikram Singh Mehta, DIN: 00041197, as an Independent Director of the company. Item #4, to appoint Air Chief Marshal, retired, Birender Singh Dhanoa, DIN: 08851613, as an Independent Director of the company. Item #5, to appoint Mr. Meleveetil Damodaran, DIN:02106990, as a Nonindependent Nonexecutive Director of the company. Dear members, the moderator will announce one by one the names of the members who have registered themselves as speakers. The members are requested to keep their questions brief and specific and limit their queries to a maximum of 3 minutes. The answers to all the questions will be provided at the end. Any queries that are not addressed will be responded to by the company by e-mail. The company may send their queries by e-mail at investors@goindigo.in. The management of the company will respond to such queries in a reasonable time. With that, let me turn this over back to the moderator.
[Operator Instructions] I now request the first speaker shareholder, Mr. Mustafa Khedwala.
Am I audible?
Yes, sir, you are audible.
Sir, there was a news article today, which claims our company has grounded 22 airplanes due to unavailability of engines. How will this affect our near-term expansion into international markets? Also have our lease rentals gone up due to these shortages across supply chains recently. Sir, now that the fare caps have been removed, what are the forward booking trends we are noticing? My next question is a recent report was suggesting a very strong yield environment even in the current soft quarter. Are the unit revenues currently better than last quarter's? And sir, lastly, our on-time performance has taken a beating recently, what steps have we taken that an anomaly like what we experienced a month back does not take place in the future? Those are all my questions, sir. It is a privilege to see this company grow year after year even in the most -- harshest of environments. My compliments to the entire team.
I now request the next speaker shareholder, Mr. Arijit Roy. Please proceed with your question.
Am I audible?
Yes sir.
Okay. My name is Arijit Roy, I'm from Calcutta and I'm one of the shareholders of the company. At the very onset, I would like to state that the annual report of the company for this year is very informative and very impressive. I really appreciate the ESG initiative that has been taken forward by the company. Couple of questions. There has been a decline in the net profit of the company. Also, the net worth of the company is negative. But the good thing is that the revenue for the first quarter has been -- by far, has been very good. So what is the future outlook of the management for the next 2 to 3 years? My next question is new low-cost airlines has been coming to the market. So how does the management perceive this as a competition in the near future? At the end, I would like to say that's a very well-planned AGM, and I would like to take this opportunity to congratulate the entire IndiGo team for this event. And hopefully, the company crossed all barriers and grow significantly in the future. All the best for all the individuals.
I now invite the next speaker shareholder, Mr. Santosh Bhutani, connected on audio. Please proceed with your question.
First of all, I would like to thank the [indiscernible] and his team for sending the email well in time and I found that the annual report is [indiscernible] information and in a very transparent and [indiscernible] manner. Sir, my question is what are the company's strategy to counter [ complete ] platform? And what are the steps company has taken to strengthen business and value creation road map. So as your shareholder, I believe that the company's management is far younger in its thinking, transparent in its working, stronger in its commitment and more responsible. So as previous speaker said, the company performance made in the last year was not satisfied because there was a testing time of second and third wave as most affecting sector is [indiscernible] newest model. So as your shareholder, I support on the resolution and I wish the company all the best in the business and hope to see healthy growth and [indiscernible] company in the coming time. We also believe that [indiscernible] rich experience of the Board will help the leadership team in achieving bigger milestone and it will soon effect on our stock price, too. Best wishes to each one of you, sir, ahead of the festival season. Thanks to company's [indiscernible] and to top management and each and every employee who rendered their services during the pandemic time, and they all deserve the reward and appreciation [ distributed ] from the management.
Thank you very much. I now invite the next speaker shareholder, Sneh Mohnot.
Hello?
Yes, we can hear you. Please proceed.
I am a joint shareholder of your company. [Foreign Language]
Thank you very much. I now invite the next speaker shareholder number 2, Mr. Anil Champaklal Parekh connected on audio. Please proceed.
Hello? Hello?
Yes, we can hear you.
Hello? Chairman, sir. Am I audible? Am I audible? Hello, am I audible?
Yes, we can hear you, sir.
Okay. Okay. Chairman, sir, Board of Directors and fellow shareholders, my name is Anil Parekh from Mumbai. I would like to extend wholehearted support for today's all the resolutions proposed. My question is, sir, how many more fleets we are adding this year and next year onwards? And what is the occupancy rate of our older fleet? And where other destinations we are looking at globally. I support all the resolutions.
Thank you very much. That was the last speaker shareholder. Over to Chairman, sir, for further proceedings.
Dear shareholders, thank you very much for your questions, your comments, your greetings, and in some cases, feedback. Thank you very much. I will now request our whole time Director and CEO, Mr. Ronojoy Dutta, to respond to the queries that you have raised. Rono?
Thank you, Mr. Chairman. We welcome your questions, and I'll do my best to respond to them as fully as I can. Mr. Mustafa raised a question about 22 aircraft being on the ground, AOG as we call them. As you're probably aware, there are significant supply chain disruptions going all throughout the world. As a result of which, many of our suppliers are struggling to keep pace with parts, seats, aircraft engines, you name it. We are seeing pressures all across the board. Yes, it's true. We do have around 28 planes on the ground now. And the key question is what does it do to our capacity. We are in a very strong revenue environment. And we would hate to be losing any opportunities to be flying the capacity we are flying for. Fortunately, we have enough levers to pull to try and keep our capacity at the levels that we had earlier planned. Some of these, of course, are related lease returns. We have a significant number of airplanes that are always on a return cycle. As you know, IndiGo has a strategy to keep airplanes only for 6 years. And as they get older, we return them to the lessor. So while we're taking delivery of planes, which may slow down a little, we also have the opportunity to slow down our returns as well. So net-net, although, we are struggling with this capacity, which you are looking, we are comfortable that our fleet plan will proceed close to where we had planned. And to give you specific numbers, for full year 2023, we still plan that our capacity will be 13% higher than pre-COVID. So it is a challenge, but we are comfortable that we can deal with it. And there was Mr. Mustafa have also asked about forward trends, and in particular, he asked the question will the unit revenue this quarter be higher than last quarter. Last quarter, as we stated, was one of the highest unit revenues we ever performed. This quarter, we are in a seasonal weaker quarter. The quarter ending in September is one of the weakest quarters and September month, in particular, is the weakest month of the year. So is the unit revenue looking good or is it not looking good? Well, compared to seasons -- comparing this season to last season and the season before that, the quarter looks very good. But it'd be impossible to match last quarter's unit revenue because it was such a strong quarter and we're going into a weak quarter now. I'll move on to the next speaker, Mr. Arijit Roy, and he was looking for a revenue outlook for the next 2, 3 years and also had a question on start-up competition. Revenue outlook for 2, 3 years. We are blessed to be in a geography that we operate in. Airline revenues typically perform at about 2x the GDP. And as you know, our country has one of the highest GDPs in the world right now. And if we said that India is going to grow at 7%, we can safely assume the airline revenues will grow at 15% or more. So therefore, we are very optimistic about the future. On top of that, speaking specifically to IndiGo, as you know, we have the strongest network in the country and we have one of the lowest costs. We have a great customer service. So we put it all together, the macro looks good in terms of the geographic positioning and the micro looks very good in terms of IndiGo's particular position. Mr. Arijit's follow-up question was on competition. And I would say we all airlines operate in the same overall environment, but each one has its own unique positioning. Some are service carriers, some are wide-body airplanes, some are international, some are more domestic. So we are all in our own particular market positioning, and IndiGo's market positioning is particularly strong, and in some ways, insulated from the competition that we are facing. Just taking us versus Air India, there are enough degrees of separation. They are a full-service carrier, we are low-cost carrier. They operate a wide-body fleet, we operate narrow-body fleet. They are mostly international, somewhat domestic. We are the reverse, we are mostly domestic, somewhat international. So again, enough degrees of separation. Comparing ourselves to some of the low-cost carriers that are also there. Again, we have such a strong network. We have such an efficient fleet. We have all [ neo ] airplanes, as you know. So all of those again give us enough separation. Overall, I would say that we have a very strong business model. And we are focused on delivering our business model and leveraging it to the maximum. So as we said sometimes, we mind our own business because our business opportunities are so strong, and that while we are responsive to the competition, we are not reactive to the competition. The third speaker, I'm trying to see the questions. Yes, the key question there was, what is IndiGo doing to create value? And I could go on and on, on this. But let me just list the top factors. What are we doing to create value? We are the lowest cost carrier clearly in the country and among the lowest cost in the world. We run a very quality airline clearly in the country and on quality airline compared to anything in the world. As you know, we are the fourth most punctual airline in the whole global network. We have one of the highest growth rates of any airline in the world. We are one of the most efficient fleet of any airline in the world. We have an aircraft order of 500 airplanes, one of the biggest order books anywhere in the world. We have codeshare alliances with multiple airlines now, and there are many more standing in line to do a codeshare alliance with us, which again creates revenue opportunities. Our network is one of the strongest penetration into all the smaller cities of the country, one the strongest, and above it all, we have a highly skilled, well-paid employee force. So value creation, yes, we are creating a lot of value and we can promise shareholders that we'll deliver on all of these opportunities that we see. Mr. Mohnot was the next speaker, and he wanted to know what is IndiGo doing about rising fuel prices. The rising fuel prices, we believe, is a cyclical issue. Our belief is that we've seen our spikes of oil up to $120. We don't think the world economy can sustain such high oil prices. Either the economies will go into recession or there'll be other oil supplies coming on stream. So it is a cyclical challenge. We don't think it's a long-term challenge. But in the meantime, we are doing everything we can to increase our yields and our revenues to combat this. And we are close. We just need a little bit of a break on 2 things: on oil prices and the currency in terms of the dollar-rupee rate. It's close to what to behave even moderately. We think we would be into profitability very soon. Mr. Parekh asked a couple of questions. He wanted to know about our fleet additions, occupancy rate and our new destinations. So fleet additions. In general, we take between 40 to 50 airplanes a year. It's also true that, right now, we are also returning 40 to 50 airplanes here because we have a lot of old inefficient airplanes we want to return. So net additions are somewhat modest right now for this year and next. But the good news is the planes we are taking are of higher capacity. They are the A321s, which have around 272 seats or so whereas the -- what we're returning are the A320s, which have about 180 seats or so. So while our fleet count is not going up, our total seat additions are going up, which is why we said this year we will end up with 13% higher capacity than in pre-COVID. The next question was on the occupancy rate. So our job is to maximize revenue on every flight. Now that maximizing the revenue we take a determination every day of the week, are we better off increasing prices or are we better off increasing load factors? And it is that balance that we manage every day. So occupancy rate by themselves are only part of the question. The overall question is what is happening to unit revenues, and as we've demonstrated, our unit revenues have been on a climb quarter after quarter for the last 5 or 6 quarters. So yes, we believe that we'll continue to increase unit revenue and manage occupancy rates. Finally, new destinations. We are extremely excited about new destinations. Throughout this COVID period, while many people were retrenching throughout the world, we added 7 or 8 destinations domestically. And we're giving a run for the money to the railway system and service transport that used to -- people used to rely on earlier. So the small station group opened, Bareilly, Agra, Pantnagar, Deogarh, did exceptionally well, better than we had anticipated. Now that's just the domestic part. International, as you know, India carries only about 35% to 40% of its international traffic. The rest is carried by international airlines. Why? Because they have competing hubs all around us. And one of the things that we've launched through this COVID experience where there was such a demand for charters from destination we would never have thought of. For a week, we were operating charters to Tashkent every other day. We are operating charters to places like Manila and Bali, and we were like, my God, we didn't know there was so much traffic there and how did people get there before? Well, they got there one stop to Dubai or one to stop to Singapore or Bangkok. Now we are very eager to go -- to get into those markets. I wish we had more airplanes right now, we will be opening international destinations all around us. But we have our eye on places like Nairobi and Tel Aviv and Bali. We'd like to go into each one of those destinations. And I promise you that we will very soon. Mr. Chairman, I believe it was the last question. Thank you.
Thank you very much, Rono. May I now request the company secretary to explain the procedure for e-voting at the AGM and the date of declaration of combined results of remote e-voting and e-voting at the AGM. Sanjay?
Thank you, sir. In compliance with the provisions, both The Companies Act, 2013 and the SEBI listing regulations, the company had provided the facility to its members to exercise right to vote on all the resolutions, which were set forth in the notice by remote e-voting. The remote e-voting period commenced on Tuesday, August 23, 2022, at 9:00 a.m. and concluded on Thursday, August 25, 2022, at 5:00 p.m. The members who have not cast their votes electrically and who are participating in this AGM will have an opportunity to cast their votes now through the e-voting system provided by NSDL. The member can cast their vote post logging in the meeting. The members who have cast their votes by remote e-voting prior to the AGM and attending the AGM shall not be entitled to cast their votes again. We have appointed Ms. Amrita Nautiyal, the present company secretary, to work as a scrutinizer to supervise the e-voting process. The combined result of the remote e-voting and e-voting at the AGM will be announced within 2 working days from the conclusion of the AGM. The resolutions as set forth in the notice shall be deemed to be passed at the AGM today subject to receipt of requisite number of votes. The results of the voting will also be informed to the stock exchange, that is NSE and BSE, and shall display it on their website and the results will also be uploaded on the website of the company and NSDL. Over to Mr. Chair.
I hereby declare the meeting closed and request the members who are desirous of casting their votes to please do so within the next 15 minutes. Thank you all for attending the 19th AGM, and please do take care of yourselves and your families. Stay safe and healthy. And thank you very much.
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