Turkey's second airline, Pegasus, is predicating its fleet expansion plans on how rapidly it receives new traffic rights to countries in the former Soviet Union, the Middle East and North Africa, and acknowledges that its struggle to be taken seriously by the government is ongoing.
In December 2012, the privately owned low-cost carrier placed what was then the largest airliner order in Turkish history, for 75 Airbus A320neo-family aircraft – 58 A320neos and 17 A321neos – plus 25 options. The first seven aircraft are due to start arriving in the second half of 2016, with deliveries continuing to 2023.
Pegasus – which is based at Istanbul's smaller international airport, Sabiha Gokcen – launched its expansion drive under new ownership 10 years ago, and has a young fleet of 58 aircraft, 52 of which are Boeing 737-800s. If the airline is cleared to launch enough new routes, it will keep many of its current aircraft as well as the new Airbuses, giving it a potential fleet of as many as 127 aircraft by early next decade, chief executive Sertac Haybat tells Flightglobal.
However, if denied sufficient bilateral rights it will divest most of its existing aircraft – which are on a mix of financial and operational leases – at the end of the contracts, and surrender its options, leaving it with 75 new Airbus narrowbodies in 2023. "This is the flexibility we have and where we need to be," argues Haybat.
Since launching scheduled services in 2005 – its first 15 years were as a charter carrier – Pegasus has battled for rights to fly certain international routes governed by bilateral agreements with Ankara. Its foreign presence has grown: it has 59 routes beyond Turkey and, with 7.7 million international passengers last year, claims 10% of the country's international traffic.
However, Haybat maintains that overseas opportunities are harder to come by. "We are trying to get into North Africa, the Middle East, the CIS, but there are many bilateral issues," said Haybat in an interview at Pegasus's offices near Sabiha Gokcen. "It's a painful process, but we will keep fighting."
In Europe, the situation is different. Liberal environments in most of the continent have allowed Pegasus to develop an extensive network, particularly in Germany. "We have Europe pretty much covered – except for a couple of countries, we are not restricted – so we will add more frequencies. This summer, for example, we are introducing six flights a week to [London] Gatwick."
He adds: "It is not easy for us to grow internationally. On domestic, it is almost a liberal market, but Turkish Airlines dominates the bilaterals in the Middle East, Russia and North Africa, and this limits us. All these bilaterals are being enjoyed by Turkish Airlines, and there is no transparency over the process of how they are distributed between airlines."
One way Pegasus has got round the problem is by establishing an overseas operation under a Kyrgyz air operator's certificate, in partnership with local airline Air Manas. Pegasus Asia, based in Kyrgyzstan's capital Bishkek, has a 737-400 and -800, and flies to four Russian cities and New Delhi as well as Istanbul, tapping into demand from commuting expat Kyrgyz workers.
Establishing itself at Istanbul's Sabiha Gokcen – then a barely used, single-runway former military facility on the Asian side of the city – allowed Pegasus to grow almost by stealth. "At the beginning, Turkish [Airlines] didn't notice us. As we were flying [scheduled services] from Sabiha Gokcen, nobody believed we would be a success story," he says.
Following liberalisation of the Turkish market in the early 2000s, Pegasus – along with a number of other carriers – launched scheduled domestic services. "We were the fifth airline coming into the Turkish market. We had around 6% domestic share in our first year. Now it's 28% to Turkish Airlines' 53%. We are by far the second [biggest] carrier in Turkey," says Haybat.
Overseas services to "liberal" European countries followed in 2006 and Pegasus quickly built its network. It now offers double-daily services to Amsterdam, Cologne, Dusseldorf, Frankfurt, London, Paris and Rome.
The choice of airport was crucial to Pegasus's success, says Haybat: "The reason for our exceptional growth was that we started with the right model at the right airport. Sabiha Gokcen was deserted in 2005. Half of our launch campaign was to promote the airport." Divided by the Bosphorus, Istanbul is in effect two cities, with the Asian part comprising a catchment of nine million people.
Such was Pegasus's success in creating its new hub that Turkish Airlines two years ago established its own base at Sabiha Gokcen. "They announced they will not repeat the mistakes of the European legacy carriers so they started competing directly against us from here," says Haybat. Pegasus, he asserts, now has a 65% share of traffic from the second Istanbul airport.
Like its rival, with its base at the main Istanbul Ataturk, Pegasus’s business model is partly built around the connectivity opportunities at its hub. Unlike most low-cost airlines, Pegasus offers interlining, both domestic-international and international-international. Haybat says 28% of Pegasus's international passengers are in transit.
While it does not compete with Turkish Airlines on long-haul, Haybat insists that Istanbul's "strategic location" allows Pegasus "meaningful connections" to important population and business centres with its narrowbody fleet. "We can reach all European cities, all major Russian cities, most of central Asia, all of the Middle East and most of North Africa," he says.
One of Sabiha Gokcen’s advantages is its 24h operation, says Haybat. This allows Pegasus to fly to the east during the night and in daytime to Europe, where night-time restrictions apply. The proposed second runway at Sabiha Gokcen would give Pegasus room to expand and mean it would not have to consider relocating to Istanbul's planned new third airport, he says.
In other respects, Pegasus's unbundled model is typical of low-cost airlines. Onboard meals and snacks can be pre-ordered or bought on board. There is a 15kg free luggage allowance on domestic flights and 20kg on international routes, but the airline is looking at introducing a discount for passengers travelling without checked luggage.
The airline is majority owned by Esas Holding – controlled by entrepreneur Sevket Sabanci and his family – with 34.5% of shares floating on the Istanbul stock exchange. In 2014, its sales rose by 29% to TL3.1 billion ($1.19 billion), with net profits up 62% at TL143 million. Its new A320neos will be financed by a combination of operating and financial leases.
With its European routes established, Pegasus's main opportunity is now to the east. Whether its ambitions are realised – and these new aircraft join rather than replace the existing fleet – depends on the attitude of the government, says Haybat, an aviation veteran who has worked for Turkish Airlines and has an engineering degree from the UK's University of Manchester. "In an ideal world, we will be flying more to the Middle East, Russia and North Africa," he says.
Source: Flight International
