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Digital Transformation Quickens Pegasus’s Competitive Advantage

Issue 2 - 2019
Digital Transformation Quickens Pegasus’s Competitive Advantage
In this exclusive interview Güliz Öztürk, Chief Commercial Officer – Pegasus Airlines discusses how the company is focusing on technology as a driver for sustainable growth, profitability and guest experience, channelling investment and innovation into every aspect of business operations. The A321 aircraft will be a game changer for Pegasus. In the coming year, the switch to these new and more fuel-efficient aircraft will keep costs low. With the youngest fleet in Turkey and one of the youngest in Europe among LCCs, Pegasus has benchmarked six new tech pillars with other airlines. Progressing towards this vision the company is engaged in projects focused on using innovative technology to grow and to improve the overall travel experience. Güliz Öztürk also discusses a variety of successful industry ‘firsts’ such as the implementation of New Generation Kiosks that offer will provide autonomous improvements, as well as a project that will allow ‘paperless’ flight, departing from Sabiha Gökçen Airport by the end of 2019
Aviation Turkey: First of all, as a role model that has been serving in the aviation sector for many years, contributing to the development of gender balance in aviation, what would you like to say, within the framework of your experience, on the formation of Pegasus Airlines and its development over the years particularly together with the liberalization efforts encountered in aviation at the beginning of the millennium?

Güliz Öztürk: Pegasus Airlines was the first airline to launch a full low-cost model service in Turkey, revolutionising Turkey`s airline sector. Our scheduled services were founded in 2005 with the belief that `everyone has the right to fly`, with an affordable pricing strategy reflecting this motto to democratize and transform travel in Turkey and far beyond.

Since then we have established ourselves as Turkey’s leading low-cost airline and one of the region’s frontrunners since the liberalization of the skies at the beginning of the millennium. We continue to offer affordable flights while keeping the quality of our service high through continued investment in our new fleet and state-of-the-art technology and providing a wide range of excellent connections and personalized services.

Throughout our growth, promoting gender balance has been important to us as aviation is still is a predominantly male-dominated industry. We have been working to do our part to redress this imbalance, with a high ratio of women across every segment of our business.

Moreover, our growth has been marked with many milestones significant not only for us as a company but for the industry and Turkey as a whole. In 2012, we made the single largest-ever aircraft order in Turkish civil aviation history at the time of approximately US$12 billion (list price) for 100 new Airbus aircraft. We pioneered the use of Sabiha Gökçen Airport as our hub in Istanbul by transforming it into a primary hub offering fantastic links to the Asian side of Istanbul and nearby catchment area. In fact, we created a completely new catchment zone around Sabiha Gökçen Airport, straddling two continents.

More recently, in 2018, we launched our new digital transformation program, to power Pegasus into the future and to secure a competitive advantage with technology as a driver for sustainable growth, profitability and guest experience. We are channelling investment and innovation into every aspect of our business operations as well to constantly keep improving the guest travel experience at every level from A – Z.

We currently have a growing network of 111 destinations, including 35 in Turkey and 76 other international destinations in 42 countries across Europe, Russia and the Caucasus, the Middle East, North Africa and Asia. Our expansion in the region continues.

Aviation Turkey: Pegasus Airlines ended 2018 successfully by increasing its turnover by 55% compared to the previous year. Within this context, can you evaluate 2018’s results for us according to the number of passengers, profitability and other financial targets as well as realized figures?

Güliz Öztürk: Despite challenging conditions, 2018 was another record year for us with improvement in every key metric. We carried 30 million guests on our domestic and international routes equating to a year on year growth of 8%. Despite increasing capacity, we also grew our load factors 1pp to reach 85%.

As you mentioned, our revenue increased by 55% to TRY8.3billion in 2018, and despite rising fuel costs, we managed to maintain our profitability with an annual net profit of TRY507million for 2018.

Passenger yields also improved year-on-year both on domestic and international routes, with domestic up 21% year-on-year to TRY100.8 million.

Pegasus’ EBITDAR also increased by 57% to 2.050 TRYmn in 2018 with the margin up 0.3pp to 24.7%. Additionally, we achieved an historic record for our annual ancillary revenue per passenger, up 18% to reach €11.9 in 2018, with this upward trend continuing this year.

Aviation Turkey: As stated in your report, CASK (Cost per Available Seat Kilometers) 2018 was better than your CASK target, excluding the fuel. What would you like to say about this achievement obtained in 2018?

Güliz Öztürk: We achieved a flat CASK in 2018 FY despite the price of oil and FX headwinds. Our EUR CASK non-fuel was down by 8% to 2.34 EURc which was a great success positioning us as having the 3rd lowest CASK in Europe (excluding fuel). Some of the reasons for this success include increasing our average daily aircraft utilization to 12.6 hours in 2018 from 12.1 hours in 2017; optimizing the fleet through the sale of B737-800 and increasing the share of A320 NEOs which provide up to 15% greater fuel efficiency; together with a management focus on cost efficiencies throughout the business via the ‘4C’ strategy (Cask, Cash, Capacity and Customer).

Aviation Turkey: What would you like to say for 2019 Q3 in terms of turnover, profitability and other financial targets as well as the number of passengers?

Güliz Öztürk: According to our current projections for 2019, we anticipate a 6%-8% year on year capacity increase (ASK) by the end of the year. By year’s end our domestic yield is expected to show an annual increase by 25-30 TRY and our international yield, an annual increase of 1-2 Euros. Thus, the outlook for Q3 2019 is still projected as upward growth.

In 2018, one of our most notable achievements was our historic record for annual ancillary revenue per passenger (up 18% to €11.9) and continuing on this upward trend, we anticipate that for the full year 2019 our ancillary revenue per passenger will reach 13-14 Euros.

Aviation Turkey: Pegasus Airlines flies to 111 destinations in 42 countries. What will new lines will be initiated in the upcoming period? How will these new lines affect competitiveness in the “low-cost airlines” market? Could you please inform us about the current status and developments within this context?

Güliz Öztürk: Today, we fly to 111 destinations, including 35 in Turkey and 76 on international networks in 42 countries across Europe, Russia and the Caucasus, the Middle East, North Africa and Asia. So far in 2019, we added eight new international routes: namely Baku (from Izmir), Basra, Casablanca, Eindhoven, Manchester, Riyadh, Venice and Ras al-Khaimah (from 30 October 2019).

Our biggest source of growth is the new markets that we are penetrating in Russia, the Middle East, North Africa, the Caucasus and Eastern Europe where LCC penetration is still low, where there are more flexible visa regulations and geographical and cultural closeness.

To expand our network, our focus is to increase frequencies and to add new destinations in these regions next year and beyond with our growing fleet of new aircraft as fast as we can obtain traffic rights from the Civil Aviation Authority. Our long-term ambitions are to continue to grow across our network including boosting point-to-point flights between regional cities as our position as a leading network low-cost carrier strengthens.

We will also continue to develop international airline agreements. We currently operate eight partnerships including our new agreement with Emirates; in addition, with S7 Airlines, Nile Air, KLM Royal Dutch Airlines, Flynas, Alitalia, Qatar Airways and Delta Air Lines.

Aviation Turkey: Pegasus Airlines continues to renew its fleet with the inclusion of new A320 Neo aircraft. Could you please inform us on the current fleet status and the new aircraft that will join the fleet?

Güliz Öztürk: We are transforming our fleet and currently have the youngest fleet in Turkey and one of the youngest in Europe among LCCs with an average of 5.2 years as of August 2019.

Powered by our 100-strong order of next-generation Airbus aircraft (which was the largest order of aircraft in Turkish civil aviation history at the time in 2012), our 83-strong fleet is currently comprised of 39 Boeing B737-800s, one Boeing B737-400, 12 Airbus A320-200ceos and 31 Airbus A320neos.

As of August 2019, we have received all nine Airbus A320neo aircraft due to be delivered this year and we took delivery of our first of our new Airbus A321neo aircraft on 11th September 2019 and the second in the last quarter of this year. The A321 aircraft will be a game changer for us as they seat up to 239 guests.

In the coming year, we will be continuing our switch to these new and more fuel-efficient aircraft which help us to keep our costs low for our guests. Nine Boeing B737-800s will be decommissioned in 2019. 20 A320neo aircraft will join the fleet and six Boeing 737-800s will be decommissioned by the end of 2020 according to our original fleet plan.

Aviation Turkey: Increasing fuel costs have a negative effect on airfares and profitability. What are the policies of Pegasus Airlines towards cost-effectiveness and high profitability? What efforts are being focused upon for the positive reflection of these strategies on airfares?

Güliz Öztürk: Increasing the efficiency of our operations is of course a major concern for us, especially considering rising fuel costs and currency fluctuations. As you are aware, we are gradually transforming our fleet to Airbus. One of the major benefits of these new aircraft is their efficiency as they are powered by the more environmentally friendly CFM Leap-1A engine. Not only do these engines reduce fuel per seat mile costs by 15% compared to their counterparts, they emit less CO2 and are also quieter.

The past few years have also demonstrated our focus on our 4Cs strategy for cost-effectiveness: Cask, Cash, Capacity and Customer. By reducing CASK in various ways such as renegotiating supplier contracts and optimising labor and marketing and simplifying processes we are achieving the best possible cash management and utilizing capacity as efficiently as possible by delaying aircraft deliveries, wet leasing and selling aircraft. Having said this, the biggest driver to our success in capacity management, was our “international switch strategy”, where we have grown our international network in double-digit numbers, starting from mid-2018 and continuing in 2019.

Since launching our digital transformation program in 2018, this is also a major focus for us, both in terms of cost efficiencies and improving our guests’ travel experience from the beginning to the end.

The costs we save and increased efficiencies we achieve through the combination of such policies are transferred to our guests through lower airfares and better deals on travel services.

Aviation Turkey: “Technology” and “Digitalization” concepts have been used more often recently in aviation. Within this context, Pegasus Airlines has positioned itself as “Turkey’s Digital Airline”. What studies have been conducted in the field of digital transformation and please touch on your future vision in this field? What advantages do these efforts provide to Pegasus Airlines customers? How would you evaluate the efforts of Pegasus Airlines in this field when compared with global companies?

Güliz Öztürk: Our mission is to become one of the world’s top three airlines in terms of technology and leading the sector as ‘Turkey’s Digital Airline’. We have set three new focus areas: Alignment, Disruption and Big Data, and identified and benchmarked six new tech pillars with other airlines. Progressing towards this vision, we have developed a huge number of current and future projects that utilize technology to grow and to improve the travel experience of our guests, as well as projects that generate efficiencies for our internal stakeholders – both our employees and shareholders.

Some of our key projects which include some ‘world firsts’ are the Express Baggage and New Generation Kiosks, meaning our guests who have checked-in online can drop off their bags more quickly. We have been the first airline to launch this service for domestic routes in Turkey and the first airline to launch it at Sabiha Gokcen Airport, thus offering our guests a faster, practical and seamless journey from ticket sale to the delivery of bags. Our Express Baggage service allows our guests to tag up to 2 bags each that are within the weight limit of their purchased ticket and send them directly to the aircraft.

We have also implemented New Generation Kiosks in July 2019 that offer passport scanning technology, to check in and label luggage and purchase additional baggage allowance, using new generation payment systems. The improved Express Baggage units will provide autonomous improvements that will allow the passenger to use the “drop and go” feature. This is the first bag-drop unit in the world to operate in this way.

From February 2019, we have begun to test Travel Technology using the New chip ID card on Turkish routes at gate 208B, in a joint project with Istanbul Sabiha Gökçen – those with the new Turkish ID card who have completed their online check-in for domestic routes can directly board flights without a boarding card. This project is a global first, and we plan to implement it on all domestic flights departing from Sabiha Gökçen Airport by the end of 2019, allowing our guests to fly “paperless”.

We also use the latest mobile technologies in our operations to increase efficiency and boost employee satisfaction. Since 2016 we’ve had a paperless cockpit via our Electronic Flight Bag Project. We’ve introduced some new programs such as the PiN (Pegasus Intranet), where all personnel can manage and receive daily requests, SmartCabin that facilitates the job of the cabin crews and SmartOps which enables pilots to manage their operational processes efficiently and on-time.

These are just some examples of how we’ve been using technology to improve the experience of both our internal and external stakeholders.

Aviation Turkey: We know that Pegasus Airlines places great importance on pilot training and executes a “Pegasus Pilot Training Program”. What are the details of your studies and programs regarding pilot training? How many new pilots do you plan to recruit in the coming period?

Güliz Öztürk: As we continue our growth in parallel with the increasing size of our fleet and rising market demand, we have an increasing need for raising and integrating qualified people into our cockpit teams. In June 2019, we announced that we are looking to hire 150 new pilots to join our cabin crew.

To inspire the next generation, we are enrolling young people who have grown up with the dream of becoming a pilot into our Pegasus Pilot Training Program, currently only available for the citizens of Turkey.

We offer our cockpit team the chance to work part-time, and receive European-level salaries, substantial benefits and continuous opportunities for self-development through training that focuses on safety and quality. We also offer the Commander Upgrade to First Officers with sufficient experience, Self-Type Rating training for candidates with experience in different types of aircraft, Type Rating and Line Training with guaranteed employment to inexperienced candidates.

While building cockpit teams, we are actively seeking to create equal opportunities for all pilots and pilot candidates regardless of gender or race. We actively encourage more female pilots to join our cockpit crew as well as attracting international talent and at the start of this year, we opened our cockpit team for applications from Expat Pilots.

Aviation Turkey: Does Pegasus Airlines have a plan to open a Pilot Training Academy to meet both its own needs and that of global pilots as well?

Güliz Öztürk: We have an agreement with flight training schools and universities to recruit young pilots-to-be to join our team upon completing their training programs. We work closely with them to acquire the best talent. Currently, there are no immediate plans to open our own Pilot Training Academy, but this could be an option in the future.

Aviation Turkey: What would you like to say about the labor force participation rate (female-male ratio), and the level of female employees in professional groups within Pegasus Airlines? What are your corporate activities towards the development of gender balance in aviation?

Güliz Öztürk: Striving towards gender balance of our employees is very important to us. We are proud to say that as of September 2019 we have 1,904 female staff (32% of our total workforce) across every department of the business, which includes 44 female pilots and 258 in our head office (42% of total HQ).

Moreover, in August 2016, Pegasus Airlines became the first airline in the world to join the Women`s Empowerment Principles (WEPs) platform, illustrating the importance we place on the role of women in business and equality. With our participation in the platform, we have demonstrated our intention to incorporate and implement the Women`s Empowerment Principles in every aspect from our management board to our supply chain.

As a member of the Gender Balance Development Commission of the General Directorate of Civil Aviation, we have also initiated efforts to raise awareness about aviation opportunities among women, and to increase the quantitative and qualitative role of women in aviation.

Within the scope of the Manifesto of Supporting Gender Equality created by PWN Istanbul, which was established to accelerate the achievement of gender balance in society and business life, Pegasus Airlines General Manager Mehmet T. Nane is participating as a PWN Equality Ambassador and has undertaken to volunteer to raise public awareness on the issue.

I’m currently holding the co-chair position of the Women in Sales (WiS) platform, which was established in 2019 to ensure the balance between women and men in company sales departments.

Aviation Turkey: In relation to the previous question, is it possible that Pegasus Airlines, which has positioned itself as ‘Turkey’s Digital Airline’, is able to consider itself as a ’Women Friendly Airline’ company with its position in terms of the number and level of female employees and future gender balance efforts?

Güliz Öztürk: Absolutely. As our policies and corporate activities above demonstrate, we attach great importance to furthering the role of women in business and aviation. We will be continuing these activities and developing them in the coming years.

Aviation Turkey: Finally, would you like to convey any message to our readers?

Güliz Öztürk: Our airline is founded on the vision that everyone has the right to fly, and we work hard in every aspect of our business to democratize travel and provide our guests with the lowest fares, a seamless and easy travel experience and lots of choices with personalized services and a wide network – to make this vision a reality. As such we look forward to welcoming both our current and new guests to Pegasus Airlines to enjoy the freedom of low-cost travel


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