Peter Marshall (PM). Guliz. Welcome. First and foremost, the key target for any CCO is to deliver growth. What do you think is deliverable in today’s climate? As an airline you have achieved much success. But COVID has taken its toll and the airline’s growth dynamic has been seriously cut back.
Guliz Öztürk (GO). I think to start with I can look from the industry perspective, we are really going through exceptional times, I have been with Pegasus for over 15 years now but I’ve been in aviation for about 30 years… This is something we’ve never experienced before; we’ve experienced lots of crises but this does not resemble any of them.
Our priority has always been the health and safety of our guests and employees and since the outset of the pandemic, we have implemented a wide range of additional Covid-19 health and safety measures across the board at Pegasus – from our offices and aircraft to the airports and ground handling, including signing the EASA-ECDC Aviation Health Safety Protocol (AHSP).
Due to the pandemic and the ongoing travel restrictions, we have experienced a significant contraction in our ability to generate cash from operations, naturally, as is the case with many companies around the world. We therefore have focused our efforts on reducing our cash outflows through cost savings, supplier contract renegotiations and postponing non-essential investments. Meanwhile, we are also expanding our financing alternatives; we tapped the local corporate bond market for the first time in February and further raised US$375mn through an inaugural Eurobond issuance in April. We received strong demand from investors in both deals.
In 2019, the last normal year before the COVID pandemic, we operated more than 500 flights per day. This figure fell significantly through 2020 during the pandemic, parallel to the decline in the willingness to travel and border restrictions imposed by the authorities. We have been doing everything possible as Pegasus Airlines to overcome this crisis with minimum damage. The pace of our recovery will depend on the evolution of the pandemic, pace of the vaccination rollouts and implementation of a widespread testing environment, and eventually the decisions of the authorities on the travel restrictions. In terms of projections for 2021, our base scenario foresees our international capacity reaching 65-70% of the 2019 levels and our domestic capacity reaching 90-95% of the 2019 levels.
PM. In today’s situation, those are decent numbers. Yet, in spite of the pandemic’s onslaught, Pegasus is still investing in new aircraft and continues to create important industry firsts. What is it about Pegasus’s DNA that makes it the business it is today?
GO. You’re right Peter, despite the crisis we are continuing to grow our fleet capacity and our network, as we continue on our course to recovery. Indeed, according to recent Eurocontrol data, Pegasus Airlines has been one of Europe’s highest volume carriers in 2021, ranked as the most active low-cost carrier in Europe in terms of number of flights between January to March, with an average of 252 flights a day. Most recently, for the week of 24-30 April, Pegasus was Europe’s busiest LCC with 236 daily flights, just 48% down compared to the equivalent week in 2019.
In terms of our most recent industry firsts, we are proud to be the first airline in Turkey, and one of the first in the world, to trial the IATA Travel Pass, after signing an agreement with IATA, as we believe this will play an important role in rebuilding confidence and reopening travel and tourism in a
more seamless, safe and secure way. We are also currently working on further measures to simplify the health-related barriers for international flights with new implementations that are being planned for the upcoming period.
We have also increased our fleet capacity by taking delivery of four new A320neos this year, including our latest on 28 April 2021, from our 100 Airbus aircraft order. As of May, we have a 94-strong fleet with an average age of 5.0 years. We’re on course to receive a total of eight new Airbus aircraft this year.
We currently operate 116 destinations in 44 countries, including 36 destinations on our domestic network in Turkey and 80 international destinations. We have most recently added Batumi in Georgia, Odessa and Kherson in Ukraine and Moldova’s Capital, Chișinău, to our network, and we’re continuing to add new direct flights between existing destinations such as between Manchester and Antalya, Kiev and Dalaman and Kyiv and Bodrum from May. Looking ahead to summer 2021, we will be launching flights to Shymkent in Kazakhstan and adding Antalya-Tbilisi and Gazipaşa-Kyiv flights to our network.
In terms of Pegasus’ DNA, our vision since we launched as a low-cost scheduled carrier in 2005, is that ‘everyone has the right to fly’. Our mission is to make flying accessible to all, whilst increasing value for our guests and transforming their travel experience. In addition to our low-cost model, our other key pillars include our digitalisation transformation that launched in 2018, our ‘sustainable environment’ approach and our work towards achieving gender balance at Pegasus and industry wide.
PM. Non-aeronautical revenues are a critical element to your airline’s income base. What new measures have you taken to realise new income streams?
GO. As an airline, ancillary revenues are an important part of our income base and we are continuously working on developing new income streams. To put that in context, pre-pandemic, our ancillary revenues per pax were at a record high in 2019 at 15 EUR compared to lower than 10 EUR in 2015. The share of ancillary revenues from total revenues was 26% in 2019. There is potential for this share to grow in the future parallel to the expected increase in penetration, change in passenger mix towards international passengers, where the demand for ancillary products is higher, and our dynamic pricing, CRM as well as upsell offers to stimulate demand.
In addition to our ancillary revenue generated via our range of additional products and services, from our new in-flight entertainment service, Fly and Watch, to the Pegasus café on-board catering, extra baggage and seat selection, we also develop revenue streams through corporate partnerships. Most recently we launched our Covid-19 Protection Plan Insurance with Gulf Sigorta, which covers any Covid-19 related medical expenses that may be incurred in Turkey when travelling from abroad. Some of our other such ancillary generating partnerships include Hotels.com, Airbnb, CarTrawler for car rental, ParkVia for airport parking and ING Bank.
PM. What kind of commercial strategy is possible when the climate is shapeshifting every day? What other change initiatives are actionable for an airline like Pegasus when you can effectively only plan weeks, not years ahead?
GO. We are in uncharted territory in terms of planning. It’s difficult to see a few weeks beyond in terms of demand and this affects both the production planning and pricing. Pre-covid, we had a strategy, but now it’s a daily tactical level, including daily evaluation of flights, weekly pricing, and demand and you can then shape the planning for the coming fortnight and months. Everything has changed, but we continue to adapt to this with an agile and dynamic approach.
Even with the uncertainty we’re navigating, we remain committed to our key strategic pillars and change initiatives, including our digital transformation, our work on gender balance, and our sustainability strategy, all of which we view as a core part of Pegasus’ and our industry’s future.
PM. Can you say a little more on gender balance?
GO. Yes. With regard to change initiatives and to gender balance, here we are proud to say that over 30% of our total workforce is female and we became the first airline in the world to join the Women’s Empowerment Principles (WEPs) platform, and in 2019, we were also one of the first airlines in the world to sign IATA’s ‘25by2025 gender balance pledge. These are amongst many other local initiatives in Turkey that we are actively involved in to increase the representation of women across the company and industry-wide.
In terms of sustainability, we now have Turkey’s youngest fleet, and one of the youngest in Europe, with 94 aircraft averaging an age of 5.0 years as of May 2021. We’re also on-track to operate a single, greener and more cost-efficient fleet of Airbus aircraft by 2025, to benefit our guests and the environment. This is one of many steps we are taking to reduce our fuel consumption and carbon emissions. For example, as part of Corsia and EU ETS regulations, we are actively involved in carbon emission offsetting and the emissions trading system. As a result of our ongoing efforts, we’re delighted that in 2020, we received an A- Score from the Carbon Disclosure Project (CDP), an increase from our B score for the preceding five years since we began voluntary environmental reporting through the CDP.
PM. What about marketing? How do you keep your company’s service and product front of mind these days? How do you use social and business media to effect?
GO. At the moment, digital is key of course. The regularly updated Pegasus Airlines website flypgs.com and the Pegasus mobile app offer a single user-friendly portal for bookings, online check-in, special offers, travel information and mobile, contactless boarding and more. This is all supported by both digital and offline marketing – from advertising and email marketing to social media and PR. At Pegasus we also analyse all the content shared on social media channels for guest requests or suggestions, and also quickly answer questions and resolve any issues, including through our new WhatsApp 24/7 customer service line available in Turkey. Our aim is to make initial contact within 15 minutes of any question, complaint or suggestion being posted on our social media channels.
PM. Personalisation is also becoming another key area for you, isn’t it?
GO. Yes, we have also started a personalisation journey for all communications. As an example, we have integrated our real-time capabilities and push notification technologies, which is a message that pops up on a mobile device, and to give you an example of two business scenarios, we started to send push notifications to customers saying that wearing masks are mandatory and we inform our customers about country regulations as well.
PM. Are you going to place even more emphasis on digitalisation in 2021? What have you already put in place and is a more robust ecommerce platform the right way to go for you to integrate yourself more into the customer journey and establish a much wider sales platform for product that you can offer to the different destinations you travel to?
GO. Yes Peter, this unprecedented period has definitely increased the shift towards digitalisation, which is one of the areas we have been prioritising at Pegasus since we launched our digital transformation in 2018. We are continuing with even greater momentum to incorporate it into every aspect of our business from A-Z, to add value and enhance the customer journey, with our three focus areas for the future being alignment, disruption and big data. From the perspective of the aviation industry, it has helped make travel safer, by enabling “travelling with minimum contact”. The past year, we have been expanding our self-service Express Baggage kiosks into new airports. We have also enabled fully contactless boarding for our domestic flights with our chip-ID Project, a world and national first, meaning Turkish nationals with chip-IDs can use it to check-in, scan and proceed straight to the gate without any kind of boarding pass. We have also seen significant growth of use of our mobile app.
Big Data and AI are other important topics. In the aviation sector, in addition to the data produced as an e-commerce company, there is a very high volume of flight-data produced on the ground and in the air. We have conducted a lot of research, including KPIs, to determine the actions that can be taken regarding efficiency. Now we are looking at AI to take things to the next level in order to process much higher volumes of data and provide a guide to actions to be taken to improve the efficiency of our operations and customer experience.
We are also working on new solutions that further simplify and make processes, such as seat selection and bag drop, easier for our guests. As a result of the pandemic conditions, we have also worked on informing our guests about the pandemic-related conditions and regulations of the country they’re travelling to ahead of their departure and we are constantly adapting to new regulatory issues. We hope that our trial of the IATA Travel Pass will further aid this.
PM. Developing this, how do you see new forms of collaboration with airports and brands now? Will your business model change?
GO. We remain committed to our low-cost model and generating value for our guests, including collaborations with airports and brands, as we continue to develop our network in our biggest growth markets. These markets include Russia, the Caucasus and Eastern Europe, MENA and Asia, and our focus is to continue increasing frequencies and adding
new destinations at airports that are feasible in these regions as fast as we can obtain traffic rights, and subject to the easing of Covid-19 related travel restrictions. With regards to airports in Turkey, we are focusing our efforts on growing beyond our main hub in Istanbul Sabiha Gökçen, and we are therefore increasing the number of our direct flights from our other hubs in Antalya, Ankara and Izmir.
PM. Finally, Guliz, if there was one – or more – things you want to achieve this year, what would they be?
GO. As the vaccine roll-out gathers pace and what we hope will be a continuation of the easing of the effects of Covid-19 around the world and a reduction of travel concerns and restrictions, there’s a lot of pent-up demand for travel. So we will be firmly focused on achieving a return to our pre-pandemic levels of growth from the third quarter of 2021 and welcoming back more of our guests as travel demand resumes.