Pegasus Airlines: FY operating loss now likely after more red ink in 2Q. Capacity growth slows

Pegasus Airlines is having a difficult year. Its 2Q2016 results revealed a year on year widening of its operating loss for the third successive quarter. A series of geopolitical and terrorist events in Turkey have weighed on demand for international travel in particular.

Although Pegasus slowed its capacity growth in 2Q, this did not arrest the trend of plunging unit revenue. In spite of low fuel prices, Pegasus has not been able to match the fall in RASK with a sufficient reduction in its unit cost.

In response to its weak 2Q and 1H results, Pegasus has issued a profit warning, lowering its guidance for FY2016 and implying an operating loss for the year. After a number of years of double digit passenger growth, it now targets an increase of only 5%-7% this year (it previously expected 13%-15%). A more cautious approach to growth makes sense in the current environment.