Pegasus Airlines: 1Q loss grows; pricing comes under pressure from capacity growth and macro factors

In 1Q2016 Pegasus suffered another fall in its operating margin, after being one of only a very small number of listed European airlines to experience margin contraction in FY2015.

The main cause of this slide in profitability for Pegasus is unit revenue weakness, which is partly due to external macroeconomic and geopolitical factors, and partly due to its own rapid capacity growth. Low fuel prices have not been a sufficient influence for Pegasus to lower its unit cost enough to offset falling unit revenue. Low fuel prices have actually even contributed to low unit revenue - by encouraging competitor capacity growth.

Pegasus' unit cost is around one third below that of its biggest competitor Turkish Airlines and one of the lowest in Europe. This gives its business model some robustness against weak pricing, but this environment also places greater pressure on its cost base.