Pegasus confident on home market resilience

ISTANBUL - Reuters

‘At the end of the day people continue flying, so if there’s an economic downturn in any of these countries, people continue to fly but they fly with airlines that are lower price,’ Pegasus Chairman Ali Sabancı has said. AA photo

Turkey’s low-cost carrier Pegasus Airlines said a resilient home market gave it confidence it could meet its target of increasing passenger numbers by 20 percent this year while maintaining its core earnings margin.

Pegasus, announcing its debut full-year results since a $1 billion flotation last April, said net profit fell 27 percent to 91.7 million lira ($42 million) last year, suggesting a net loss in the fourth quarter of around 70 million lira, according to Reuters calculations.

Despite a weaker fourth quarter, hit by the sagging Turkish lira and one-off charges including higher engine maintenance costs, Pegasus boosted its core earnings margin to 22.3 percent during the course of last year from 21.9 percent in 2012.

“The domestic market is growing very strongly,” Pegasus’ Chairman Ali Sabancı told Reuters in an interview in London, shrugging off market concerns about the possibility of a hard economic landing in the country.

“Some countries become politically unstable, some countries become economically unstable, but at the end of the day people continue flying, so if there’s an economic downturn in any of these countries, people continue to fly but they fly with airlines that are lower price,” he said.

Room to enlarge in market

Pegasus is the second biggest carrier in the domestic market behind Turkish Airlines, with a 27 percent share. Like other developing economies, Turkey has been battered in recent months by U.S. Federal Reserve plans to reduce its monetary stimulus.

But it has also been hit by political instability along with rising inflation and sustained lira weakness, which have prompted rating agencies to cut their outlook for Turkey and warn about future economic growth prospects.

Sabancı said that while the market in Turkey was competitive, there was plenty of growth to go round.
“The local market is still very under-penetrated so ... there is so much potential to grow,” Sabancı said, adding that so far this year, forward bookings were in line with company expectations.

Pegasus will also look to add more international routes to its portfolio, with flights to Frankfurt and Madrid due to start in March. Sabancı said he expected Pegasus to continue to add new international routes at a rate of about 6 to 7 per year.

The airline said the crisis in the Ukraine meant it would delay plans to start flying to Simferopol in Crimea. It had been due to start the route from May. Sabancı said flights in and out of Ukraine accounted for about 1.5 percent of total revenues.

In 2013, revenues rose 34 percent to 2.4 billion lira, beating guidance given at the time of its IPO of revenue growth of 25 percent. The company’s market value now stands at $1.34 billion.

Pegasus’s net profit for 2013 was down from 126.3 million lira in 2012, the company said in a statement, and compares to a 161.7 million lira net profit in the first nine months of last year.