Pegasus Airlines

Pegasus Airlines: a true LCC growing traffic and earnings at a winged gallop

Shares in Turkish LCC Pegasus Airlines commenced trading on 26-Apr-2013 after an IPO that raised TRY649 million (EUR277 million). The IPO prospectus reveals that Pegasus is not only Europe’s second most profitable airline (based on 2012 operating margin), but also one of its fastest growing (2008-2013 CAGR in passenger numbers of 33% p.a.). Its unit costs (CASK) place it with Wizz Air and Ryanair as one of Europe’s three truly low-cost carriers.

Although Turkey was not immune to recession in 2009, air traffic continued to grow and Pegasus is still on a structural volume growth path not led by the economic cycle. Such a path does not guarantee earnings growth and Pegasus made a loss in 2011. Nevertheless, its low costs and strong presence in fast-growing Turkey and Central/Eastern Europe, should allow it to grow earnings in the future. Indeed, its breakeven operating result for the core business for the traditionally loss-making first quarter (reported 09-May-2013), with RASK up sharply and CASK falling, augurs well for FY2013.

Wizz Air to significantly boost LCC penetration in Bosnia and Herzegovina

Wizz Air has unveiled plans for significant expansion in Bosnia and Herzegovina, an under-served market that has traditionally fallen outside the spotlight of low-cost carriers. The Bosnian market has not had much attention in recent years but is poised to see a sudden surge of capacity as Wizz Air plans to connect the country with several new destinations including Malmö, Basel Mulhouse and Gothenburg.

The expansion from Wizz Air would provide Tuzla, the third largest city in Bosnia and Herzegovina, with scheduled commercial service. LCC expansion may also follow for the country’s other airports including in Sarajevo and Mostar.

LCCs currently account for less than 20% of seat capacity to and from the southeastern European country. But the recent launch of services by Turkish LCC Pegasus has already doubled LCC capacity in the market. Wizz Air’s entry will push the LCC penetration rate up further, approaching 30%, with more increases possible in 2014 as Wizz and other European LCCs ponder further expansion in Bosnia and Herzegovina.

United ends 2012 as world's biggest airline, Emirates third. Turkish and Lion Air the biggest movers

United Airlines, following its merger with Continental, has ended 2012 as the world's biggest airline measured by available seat kilometres for the current week, ahead of second placed Delta, whose capacity fell 0.3% year on year, according to Innovata. Fast growing Dubai-based carrier Emirates is the world's third biggest airline by this measure, and could be in second place by the end of 2013 if the past year's growth rates are maintained.

Southwest Airlines remains easily the largest LCC, while Lion Air and Jetstar have each climbed the LCC top 10, to sixth and seventh places respectively, overtaking Westjet. Atlanta Airport (just) remains the world's largest, ahead of Beijing Capital Airport, in terms of seat throughput for the week, but this ranking seems certain to reverse in 2013.

The biggest movers in the overall World Top 50 list include Turkish Airlines, which jumped seven places to rank 15th globally, while Indonesian carrier Lion Air vaulted eight places to enter the global Top 40 for the first time. Iberia and India's Jet Airways fell four and seven places in the 2012 rankings, respectively.

Global Airline Alliances collectively grew capacity at higher than the world rate, with SkyTeam expanding fastest of the three majors, although Star Alliance remains easily the largest.

Pegasus Airlines continuing to expand in Eastern Europe

Pegasus Airlines is continuing with its Eastern European network expansion heading into the winter 2012/2013 schedule with three new routes to be launched in Oct-2012. A fourth route, to the Middle East, will also be launched in late Oct-2012.

The privately-owned Turkish LCC already operates an extensive European and domestic Turkish network with services to Eastern Europe and the Middle East growing rapidly. Pegasus has also been seeking to increase its Central Asian network but is facing difficulties receiving the rights to expand in this area.

In Oct-2012, Pegasus will be launching services from Istanbul Sabiha Gokcen to Belgrade (Serbia), Batumi (Georgia) and Lviv (Ukraine) in the first half of the month, followed by service to Dubai in the latter half.

World's largest airlines cautious with capacity. Some big moves in global airline rankings

Emirates is close to overtaking American Airlines and becoming the third largest airline by available seat kilometres (ASKs) after the Dubai-based carrier's massive 19% increase in capacity over the last year. Emirates' current capacity is close to 30% above levels of just two years ago, according to Innovata. Over the same period, American has cut capacity by about 8% while larger rivals United Airlines and Delta Air Lines have slashed ASKs by over 16%, according to Innovata. Interestingly, were American Airlines to combine with US Airways it would become the world's biggest airline - some 4% larger than Delta by ASKs based on Innovata capacity figures for Aug-2012.

The other big movers over the past two years include Ryanair, which has leapfrogged China Southern and US Airways into the Top 10, and Turkish Airlines, which has soared into 17th position (from 27th two summers ago) thanks to an astonishing 52% increase in ASKs. easyJet has also moved up several places to be just outside the Top 20, while Japan's ANA and JAL have fallen outside the top 20 grouping.

Pegasus Airlines bets on liberalisation in Turkey’s international market with 100-aircraft order

Turkish low-cost carrier Pegasus Airlines is placing a big bet that Turkey’s market will liberalise over the next decade, enabling the carrier to expand its fleet to between 100 and 140 aircraft. Pegasus currently operates 43 narrowbody aircraft and has been negotiating since last year with Airbus and Boeing an order for 100 A320neos or Boeing 737-800 MAX. Pegasus CEO Sertac Haybat said on the sidelines of last week’s CAPA Airlines in Transition CEO Summit in Istanbul that he expects the 100-aircraft order will be placed within one month and deliveries will be spread out over six to seven years.

My Haybat expects the new aircraft will primarily be used to accelerate expansion of Pegasus’ international network, including to new destinations in the Indian subcontinent that are not within range of its fleet of current generation 737-800s. But he acknowledges international expansion will only be possible if bilaterals are liberalised.