Pegasus Airlines must not let worsening quarterly profitability become a new trend

Pegasus has one of the lowest levels of unit cost among European airlines. It has successfully used its low cost base to offer low fares, thereby stimulating strong double digit growth in passenger numbers, both in the Turkish domestic market and on international routes. An IPO in 2013 strengthened its balance sheet and provided liquidity to help fund an order book that includes 75 A320neo family aircraft.

However, after increasing its annual operating profit in 2013, a pattern of deteriorating profitability began in 4Q2013 and has continued into 1Q2014 with a significant widening of losses. The weaker TRY played a part in this and the winter quarters are seasonally weak for demand and profits, so they do not always indicate full year trends. Nevertheless, this reversal of profit trends cannot be dismissed so easily.

Rival Turkish Airlines is growing capacity in Pegasus' main hub at Sabiha Gökçen, placing significant pressure on yields, and this increases the need for Pegasus to seek further cost savings.