Summary
- The Chairman and former chief executive officer (CEO) of Pegasus Airlines warned that the airline’s financial performance was unsustainable.
- The executive pointed out that cost-related pressures have gotten out of hand.
- Pegasus Airlines’ latest financial results warned that while its costs excluding fuel would continue growing, it would be able to maintain one of the highest EBITDA margins in the industry.
Mehmet Tevfik Nane, the current Chairman and former chief executive officer (CEO) of Pegasus Airlines, warned that the current financial development of the Turkish low-cost carrier was unsustainable as soaring costs have continued to erode its profit margins.
Industry-wide development
Nane, who spoke during an event organized by The Aviation Club UK, said that the airline was losing money and that its gross profit margins have eroded by at least 5%, according to a report by FlightGlobal. The Turkish executive noted that the whole aviation industry has been facing eroding margins, aircraft delivery delays, and inflation-related costs.
Photo: Pegasus Airlines
Nane stated that Pegasus Airlines’ financial situation was unsustainable. The Turkish low-cost carrier’s Q1 2024 results showed that while its quarterly revenues rose by 17% to €519 million ($556.1 million), its costs also grew by 26% year-on-year (YoY).
As such, due to operating expenses rising to €563 million ($603.2 million), the airline’s net loss for the period was €103 million ($110.3 million), compared to €22 million ($23.5 million) in Q1 2023. Meanwhile, Pegasus Airlines Q1 2024 operating loss was €36.8 million ($39.4 million), compared to €6.2 million ($6.6 million) during the corresponding period a year prior.
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Continuous cost pressures
Furthermore, the low-cost carrier warned that the cost environment has remained challenging. As a result, it has maintained its guidance that its cost of available seat kilometer excluding fuel (CASK ex-fuel) would rise by mid-to-high single digits in 2024.
Photo: Airbus
At the same time, Pegasus Airlines was confident that a strong peak season would still allow the airline to maintain one of the highest industry-wide earnings before interest, taxes, depreciation, and amortization (EBITDA) margins. The airline predicted that its EBITDA margin would be from 28% to 30% in 2024.
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The airline credited the spike in travel demand that occurred last year.
Industry-wide improvements
However, despite rising costs, aircraft delivery delays, and geopolitical conflicts causing uncertainty in certain regions, the International Air Transport Association (IATA) has maintained a positive outlook for the industry.
Photo: Ritu Manoj Jethani | Shutterstock
In its latest chart, IATA outlined that all regions would be profitable in 2024, with the association estimating that globally, airlines would earn a $30.5 billion net profit during the year. In 2023, the industry’s net profit was $27.4 billion.
IATA stated that some regions will continue struggling, pointing out that, for example, Latin America-based carriers have had mixed results, and the region should end 2024 with a combined net profit of $600 million. The association warned that some airlines in the region have been struggling financially, including Chapter 11 bankruptcy proceedings.
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At the same time, another chart published by the association revealed that airlines should end 2024 with around $996 billion in revenue. While that would bring the industry another step closer to passing the $1 trillion revenue mark, IATA warned that traffic growth during the year would subdue following two years of strong travel demand.
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