The accelerated weakening of the Turkish lira in recent days came after the country's two leading airlines announced encouraging financial results for the second quarter.
In the case of budget operator Pegasus, foreign-exchange effects were specifically cited as having had a positive impact on its operating result. Flag carrier Turkish Airlines meanwhile said that "despite the strong global competitive environment, economic and political uncertainties in the nearby region, and severe operating conditions due to the fuel price and currency fluctuations", it expected to continue a trend of "sustainable growth".
Granted, those assessments came before the lira's downward trend gained momentum, but they still reflect the fact that Turkey's airlines are well-versed in mitigating the impact of declines in the value of their local currency.
It is easy to see why.
Data from XE.com shows that 10 years ago, in mid-August 2008, one US dollar was worth around TL1.84. By the beginning of 2014, it had reached around TL2.02. As 2017 began, it was around TL3.70, and had inched to TL3.80 at the beginning of this year.
Around 9 August, the lira suddenly began steeper declines. By 13 August it had weakened to TL7.02 per US dollar, as new US sanctions – imposed over the detention of a pastor accused of supporting a failed coup in 2016 – were adding to existing investor concerns regarding double-digit inflation in Turkey. The latter situation was being augmented by doubts over president Tayyip Erdogan's monetary policies.
By 15 August, the lira had regained some ground, but it was still at around TL6.09 per US dollar, significantly down on a week previously. Analysts were predicting no speedy reversal of the situation, particularly as a tit-for-tat sanctions fight looked increasingly likely.
In this fraught environment, the latest results filings from Turkish Airlines and Pegasus give some indication of how their exposure to the lira is limited.
In the first half of this year, the lira accounted for just 14.1% of Turkish Airlines' revenues, down from 20.3% last year.
Some 37.3% of its revenues were in US dollars, down from 40.9% in the same period of last year. A further 20.2% came from currencies at least 85% pegged to the dollar, up from 11.9% last year.
Meanwhile, 22% were in euros, with 5% from pegged currencies, up from 21.4% and 3.1% respectively.
The flag carrier's points of sale help to explain this diversity in currencies. Just 16% of its revenue came from sales in Turkey during the first half, outpaced by Europe at 29%. The "Far East" accounted for 13%, the Middle East 9%, "America" 10% and Africa 5%. "Internet/call centre" sales generate the remaining 19% of revenue, with 55% of them being from non-Turkish sources.
The carrier also has a "flexible hedge strategy" in place, albeit one that is being gradually decreased in terms of the proportion of currency covered.
Turkish did not detail the currency composition of its cash or total liabilities. It did, however, provide a currency breakdown for "financial lease liabilities", which account for more than half of its overall liabilities. Those are split 22% US dollar, 41% euro, 34% Japanese yen and 3% Swiss franc.
In the case of Pegasus, which does not have the same diversity in points of sale thanks to its short-haul focus, 38% of first-half revenues were in Turkish lire, down marginally from 40% in 2017. Some 30% were in US dollars, flat on the same period of last year, with 29% in euros, up from 27% in 2017.
Some 56% of Pegasus's costs were meanwhile in US dollars during the first half, up from 54% year-on-year. Euros accounted for 22% of costs, up by one percentage point from the previous year, while its Turkish lira expenses accounted for 20%, down from 23% in 2017.
Of its currency risk strategy, Pegasus said in its first-half 2018 report that alongside a wider hedging effort, "international ticket revenues collected in [Turkish lire] are converted to US dollars daily in the spot market. Up to 25% of domestic ticket revenues are also converted to US dollars depending on currency position."
As regards liquidity, Pegasus states that on 30 June 2018 none of its financial debt was in Turkish lire – 57% was in euros and 43% in US dollars.
In terms of its cash, 81% was US dollars, 14% euros and 5% "Turkish lira and others".
Should the lira's recent aggressive depreciation turn out to be more than a days-long blip, the next round of quarterly financial reports will show whether Pegasus and Turkish have the requisite revenue and cost streams to mitigate its decline. Indications are that they might have.
The potential economic and political consequences of the current situation continuing beyond the short term, however, could be far more threatening to their prosperity.
Fallout from the failed coup attempt in 2016 – when disruption and security concerns caused Turkish travel demand to fall off a cliff – will still be fresh in the minds of both operators.
Source: Cirium Dashboard