IndiGo has been consistently beating market estimates. But for the quarter gone by, the story seems to be different. There is a drop in margin. This is one of the slowest quarterly growth you have reported in 12 quarters. What has led to this decline? Was it traffic? Was it an issue with aircraft? Could you just share more light on that?
Pieter Elbers: Let me take a step back and see how India has basically recovered in terms of traffic post COVID. Maybe we have gotten used to 20% growth. But what we see in this quarter is a bit of a normalisation of certain growth trends. We all know that the second quarter is traditionally a somewhat weaker quarter and that is also how the capacity growth was foreseen, so the numbers which have come out are pretty much in line with the expectations which we had. We had around 8% growth in terms of capacity and we had a 15% growth in terms of revenues which again, we speak about a seasonally softer quarter, yet we had a year-over-year 50% growth when it comes to the revenue side, 14.6% to be precise. I would say growth is very much in line with the expectations and in line with the seasonal patterns. After the surge post COVID, we are now going back to a more normalised seasonal pattern as we have seen even before COVID in the Indian market, albeit at a much higher basis in terms of travellers, that is the revenue side of the equation.
On the cost side, we have seen that clearly we have been confronted with a peak number of AOGs driven by the global supply chain issues and some of the engine challenges which we had, and that, of course, has led to some additional costs which we had to take in this quarter and that combination of additional costs, some higher fuel costs, has led to the results which they are.
On a forward-looking note, and I am sure we will come to that, we see that we have reached a peak when it comes to these AOG numbers and actually, we see them trending down now. So, whereas the average for the quarter was in the mid-70s, we are now in the high 60s. After all these consecutive quarters of more AOGs and more AOGs, we finally see them treading down, and I think turning that corner has been a very important milestone for us.The second half is obviously a better half for IndiGo and as the seasonality advantage kicks in, do you expect the second half of this year, especially Q3, to be better than Q3 of last year, both in terms of base and also in terms of the percentage uptick?
Pieter Elbers: Of course, we cannot give any of that guidance at this point in time. What I can say is that we will be growing with an early double-digit number in that third quarter, which is more growth than we had put in the second quarter.
We are clearly adjusting our growth levels to the seasonal patterns which are out there. I think IndiGo has developed an excellent capability of tuning its capacity to the seasonal pattern in the market and the early double-digit number which we have now put out there for the third quarter is in line with the outlook for that third quarter and clearly, with Diwali coming up, we expect those numbers to be realistic in terms of demand out there.
Let us talk about the industry and how the dynamics are changing, which is that after the entry of Tatas, the general view was competition will intensify and there could be a war in the sky, so to speak, but that has not happened. Do you think this trend will continue, where even though competition has intensified, new capacities are getting added, airline companies are unlikely to resort to any kind of a price war?
Pieter Elbers: One should look at what is the basis in India today and India today is one of the most competitive markets in the world. If you see how average fare levels in India compare to some other parts of the world, India is clearly one of the most competitive markets and the Indian consumer has an enormous appetite for value for money type of air travel being on offer.
What is happening overall in the Indian market is what you have seen in other markets in the world, in Europe and the US, where you see some form of consolidation arising and that consolidation is also needed if we look at how we want to position India on a more global scale. If we want to compete with the big carriers of the world, we need to have big carriers ourselves in India in order to do that competition so the domestic landscape is obviously one of them, but looking at where even larger part of the growth is going to be on the international side and we know that on the international side India had a relatively lower share of the pie when it came to international travel, that was often picked up by non-Indian foreign airlines. So, with what is going on today, both the consolidation at the Air India Group and certainly for what is happening with IndiGo, we continue to grow internationally and today, we have reached 28% of all our available seat kilometres international now and earlier we put out 30% as a target and we continue to grow on that.
When we spoke to you after your last quarter numbers, which is Q2, you mentioned that about 75 aircrafts were grounded. What is the update on that and how many of those grounded aircrafts are likely to be part of the IndiGo fleet in this quarter?
Pieter Elbers: It is a very important part and thanks for addressing that. That number of 75, if you take a step back and look at what is happening globally even, IndiGo was being confronted with a humongous challenge in terms of dealing with that 75 planes.
Despite that enormous challenge, we have been able to live up to our capacity guidance, did a whole range of mitigating measures in terms of wet leases and damp leases and temporarily capacity and lease extensions, so thanks to all these mitigating measures, we have been able to actually live up to our capacity guidance. The number of 75, which in itself is an enormous number, we see now that that has been the peak and not the peak one likes to see, but it has been the reality we had to deal with. Today, we are in the high 60s, so we started to go down on these numbers and we now expect the next fiscal year to start in a number somewhere in the mid-40s. With that, we see it tapering down between the high 60s today and the mid-40s by the start of the next financial year and that is to the best of our knowledge.
Today, it is unpredictable, of course, but for us, it is a very important point because here we start to turn the corner and as new planes are coming in, we can start tapering down on the mitigation measures, which we have done. Of course, these measures have come at a cost, that is part of the explanation for these quarterly results, so that gives us actually a lot of confidence in the outlook going forward.
