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Turkish Airlines & Pegasus jointly rebound

Analysis

In 2018 Turkey's aviation market confirmed its rebound from the setbacks of 2016, when geopolitical and terrorist events had weighed on demand, particularly in international markets. As in 2017, passenger growth outpaced seat growth in 2018, and this was led by the international market.

The healthy demand environment was positive for the unit revenues of the country's two leading airlines. Both the flag carrier Turkish Airlines and the ultra LCC Pegasus Airlines reported 2018 operating margins that were their best for some years and, again, very similar to one another.

For 2019, Turkey's airport authority DHMI forecasts that passenger traffic growth will be slower than in 2018, but still comfortably above the European average rate. With both the leading airlines apparently locked into the same profit cycle, it seems only the transfer of Turkish Airlines' hub from Atatürk to the new Istanbul Airport (again pushed back, now to 5/6-Apr-2019) could set them on radically separate margin trajectories.

That wild card aside, macroeconomic and geopolitical drivers are likely to determine whether or not Turkish Airlines and Pegasus Airlines can achieve further margin improvement this year.

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