HSBC: Turkish aviation faced a difficult 2025
thy
2025 established a lower base for the sector. Turkish aviation faced a difficult year marked by softer tourism volumes, yield compression, and geopolitical disruptions, while excess capacity weighed on pricing power. The earnings reset in 2025, combined with closing the gap between inflation and TRY depreciation leaves a cleaner starting point for 2026. Industry commentary suggests the supply-demand imbalance should gradually normalise this year as macro visibility improves.
Signs of improvement emerging into 2026. Forward bookings from core source markets (such as Russia and Germany) are encouraging, visa-free entry for Chinese visitors add long-haul support, and Turkish carriers have re-deployed capacity to better-demand markets (e.g. APAC) to capture growth. At the same time, moderating ex-fuel cost inflation and lower fuel prices contribute to a more supportive margin backdrop, while sector M&A (Smartwings, Air Europa) introduces strategic optionality. Fleet additions continue despite aircraft-on-ground (AOG) headwinds, supporting traffic growth into peak season and across key leisure markets.
TP revisions reflect company-specific dynamics. We lower TPs for Turkish
Airlines and Pegasus on more conservative yield assumptions than previously and competitive dynamics at SAW, while we raise the TP for TAV on stronger commercial momentum and a cleaner earnings profile. We make modest downward adjustments to our 2026 earnings estimates for the airlines to reflect softer yields, while lifting TAV estimates on higher commercial contribution. We retain Buy ratings across our coverage given attractive valuations vs global peers and potential upside catalysts from M&A execution and a possible Russia-Ukraine de-escalation. Valuation screens remain supportive, with all three names trading at material discounts to global LCC/FSC and airport averages, leaving the risk-reward skewed positively into 2026.
HSBC Global Investment Research
