Turkey’s Aviation Stocks Embark On a Rally That May Not Last

  • Second-quarter results seen ending gains after passenger data
  • Renaissance Capital sees significant changes to business plans

Turkish aviation stocks rallied after months of lagging the country’s main equity gauge, yet the respite may prove short lived.

National carrier Turkish Airlines and low-cost airline Pegasus capped the biggest two-day gains since 2013, according to data compiled by Bloomberg. The increases follow data that showed a drop in international passengers in July was smaller than a month earlier, even after a deadly attempted coup on July 15.

“This may have led people to start asking whether the worst is over, but I recommend caution,” said Selim Kunter, an analyst at Istanbul-based Deniz Invest, who has a hold recommendation on both airlines’ shares. “It may be too early to drive such a big conclusion from only one month of data given the sour prospects of second-quarter profit.”

A series of terror attacks has rocked the country in the past year prompting foreign tourist arrivals to drop for eleven months in a row, the longest streak on record. Turkish Airlines and Pegasus are expected to report another quarter of loss when they announce their earnings next week. Airport operator TAV Holding said July 27 that its net income plunged 67 percent in the second quarter.

Pegasus Hava Tasimaciligi AS climbed 10 percent to 13.09 liras at close in Istanbul, the biggest gain on record. Turk Hava Yollari Anonim Ortakligi, or Turkish Airlines, rose 5 percent to 5.73 liras. TAV Havalimanlari Holding and ground handling company Celebi Hava Servisi advanced 5.2 percent and 2.4 percent, respectively.

Even with the gains, all four companies have retreated more than 20 percent year to date, compared with a 9.5 percent advance in the Borsa Istanbul 100 Index.

Passenger Drop

The number of international passengers traveling through Turkish airports fell 26 percent in July from a year earlier, compared with a 29 percent decline in June, according to data from State Airports Authority DHMI.

Terrorist attacks and the failed coup, “resulting in a crackdown by the government on those suspected of sympathizing with its organizers, has added significantly to concerns about personal security for foreigners as well as Turks, especially those living abroad,” Alexander Kazbegi, an analyst at Renaissance Capital Ltd., said in an e-mailed note Aug. 4. “Unless these conditions change, we don’t see travel picking up in months to come.”

Kazbegi placed shares of Turkish Airlines and Pegasus under review on expectation of “significant changes in the companies’ business plans” after second-quarter results.

Russia Effect

President Recep Tayyip Erdogan’s visit to Russia on Tuesday, and his scheduled meeting with President Vladimir Putin, have also helped boost investor sentiment toward Turkey’s aviation stocks.

The meeting comes nearly nine months after Putin called Turkey’s downing of a Russian fighter jet near the Syrian border a “stab in the back” and imposed a series of punitive sanctions. That led to a 93 percent drop in Russian visitors in June compared with the same period last year.

While the meeting is “a positive development for the general well-being of the tourism sector,” its “material impact is close to zero as it makes up only a minor portion” of business for Turkish Airlines and Pegasus, Deniz Invest’s Kunter said.

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