RESEARCH. Overcome your fear of flying. Turkey - Sector - Airlines. June 18, 2015

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1 Turkey - Sector - Overcome your fear of flying June 18, 2015 Passenger trends: Turkish passenger numbers grew by 8% YoY in 5M15 with the growth of 11% in domestic passenger numbers vs. 4% in international passengers. The growth was 7% at Istanbul Ataturk Airport (IAA) vs. 18% at Sabiha Gokcen Airport (SAW). I n 5M15, Turkish (THY) increased its total pax figure by 9% on annual basis while that of Pegasus (Pegasus) was 11% in 1Q15. We assume a 10% pax growth for THY vs. 12% for Pegasus in We maintain our projection of 10% passenger growth for the f ull year of 2015 in Turkey. We assume a 9% CAGR in Turkish air passenger traffic between E. Despite benefiting from Turkey s geographical position and the government s supportive approach to the sector, we believe sector growth may come under pressur e in 2016 rather than in 2015, as IAA and SAW (together covering 47% of total pax in Turkey) are close to reaching their full capa city. Work on an expansion of IAA started in late 2014, with a scheduled completion of 1H16, which is expected to boost capacity at the airport by 10mn. Meanwhile, the contract of the second runaway construction at SAW, which doubles capacity, is expected to be signed this year. Unit revenues and costs: From 2H13 to 1H14, we had seen a stiff competition in the sector, with the increased presence of THY at SAW, Pegasus hub, following the capacity constraints at IAA. Both airlines targeted to benefit from strong demand in domesti c market by offering lower prices. In addition, there was an increased competition from major Gulf and European carriers on international side as they introduced new capacities. There were other reasons behind the weakness in revenue yields such as the political tensions in Russia and Ukraine and depreciation in some local currencies worldwide. Accordingly, we observed a decline of 4% in the RASK (Total Rev enue/ ASK) for THY (USD) and 7% for Pegasus (EUR) in On the cost front, THY s CASK (Total Costs/ASK) declined by 3% (USD) an d Pegasus s CASK was down by 4% (EUR) in For 2015, we forecast the RASK to fall by 13% for THY (down by 12% in 1Q15) and by 1% (up by 7% in 1Q15) for Pegasus, respectively, while forecasting a 11% decline (down by 13% in 1Q15) in THY s CASK on lo wer fuel costs; yet a 3% increase (up by 1% in 1Q15) for Pegasus due to the exchange rate impact, changes in the fleet mix and r amp handling investments. Guidance: THY management targets US$12bn in revenues (GS forecast: US$11.2bn), carrying 63mn passengers (GS forecast: 60m) while guiding for an increase in its ASK to 157bn (GS forecast:157bn) with an 80.3% load factor (GS forecast: 77.9%). Pegas us foresees 17-19% growth in ASK and 15-17% growth in pax figures with the load factor expected to remain stable with flat yields. Our forecasts appear broadly inline with the management guidance except our lower 12% pax growth assumption. Pegasus management guides for a 3-4% increase in CASK in 2015 with our forecast of a 3% increase in CASK. We conservatively assume Pegasus s EBITDAR margin to be 18.5% in 2015 vs. the guidance of 19-21%. Themes in 2015: We currently identify two main themes surrounding airline stocks; oil prices and the EUR/USD rate. We believe that the market has overlooked the potential benefits of falling oil prices, and remaining overly skittish about the sliding EUR. Considering the c.60% hedging level for European carriers and near zero level for Gulf carriers, we believe Turkish air carriers with c.45% h edge ratio are well positioned to benefit from the demand in the sector given Istanbul s geographically advantageous position. Based on our assumptions, each $5/bbl change in Brent crude prices would have an impact of 10% on THY s 2015E EBITDA and a 12% impact on Pegasus s EBITDA while each 1% change in the EUR/USD rate would have a 5% impact on the 2015E EBITDA for THY and a 3% impact on Pegasus. Both Pegasus and THY have recently converted international ticket sales originating in Turkey to USD from EUR, those sales account for c13% and c15% of their annual revenue, respectively. THY has added an average of 30 aircrafts to its fleet each year since 2012, and plans to add 42 planes in 2015 (most of them in 1H15). That means related employees would be recruited f or the training purposes couple months ahead of the aircraft being delivered, which may put margins under pressure in Yet, we did not observed such a cost overruns in 1Q15 for THY (in fact, there was a 5.3% YoY decline in personnel costs in terms of ASK, see page 12). In addition, given the capacity constraints at IAA, THY will transfer 28 of its aircraft to SAW, and plans to increase its m arket share at Istanbul s 2nd airport to 25% in 2015 from 20% in 2014, adding to the already stiff competition there. We prefer THY over Pegasus on the back of i) potential competition from THY at Pegasus s main hub, iii) Pegasus s limited visibility on international expan sion and iii) the short term headwinds on cost side for Pegasus. THY looks cheap compared to peers on 2015 and 2016 P/E and EV/ EBITDA while Pegasus does not for Valuation: Given 1Q15 results and YTD traffic trends, we have revisited our forecasts with new assumptions for the macro-economy, oil prices (USD61/bbl vs. USD68/bbl previously) and exchange rates (2015 average EUR/USD now assumed as 1.11, vs previously), we have cut our 2015 EBITDA margin forecasts by 0.6 pps for THY and 2.4 pps for Pegasus. Our valuation for airlines is based on a target 2015 EV/EBITDAR multiple (7.0x for THY and 7.8x for Pegasus). Accordingly, we decreased our 12 month forward target sh are prices for THY by 5% to TL11.25, and by 20% to TL31.65 for Pegasus. We maintain our Outperform recommendation for the both stock. Risks: A slowdown in passenger growth momentum, weaker than expected unit revenues or a deteriorating cost base are the key risks for airlines. A potential sale by shareholders would lead to share price weakness for the carriers. 3M Avg Target Price Company Ticker Recommendation Mcap Volume (TL) Upside EV/EBITDAR P/E Old New (TLmn) (TLmn) Old New (%) 2015E 2016E 2015E 2016E 1M 3M YTD Pegasus PGSUS Outperform Outperform 2, % % 3% -20% Turkish THYAO Outperform Outperform 12, % % 1% -2% Source: Garanti Securities Baris Ince +90 (212) bince@garanti.com.tr BIST-100 Relative Performances Sales Contact: +90 (212) icm@garanti.com.tr

2 RECOMMENDATIONS & VALUATIONS THY Recommendation: OUTPERFORM. THY has differentiated itself on the basis of service quality and competitiveness in recent years. Istanbul s geographical advantage and the airline s relatively low labour costs (especially when compared to European carriers) enhance THY s competitiveness. As an emerging international travel hub, Istanbul is in the position of enabling the airline to boost its transit passenger numbers and better utilize the fleet (especially its narrow body aircraft) and seat capacity. With a young fleet (7 years on average), improved brand awareness and increased capacity, THY is in a position to capture market share from EU carriers, which struggle to offer high quality service and capacity additions with their relatively old fleets. THY shares have underperformed the index by 2% YTD and now trade at a 36% and 22% discount to its peer group on the basis of its 2015E P/E and 2015 EV/EBITDA. Risks. A decline in the economic activity, rising oil prices, Euro weakness against the Dollar and the Privatization Administration s sale of its stake in THY pose risks. Geopolitical tensions could also emerge as a risk. New 12 month forward target price of TL11.25/share vs. TL11.90/share previously. Our 12 month forward target share price of TL11.25 derived from our target EV/EBITDAR multiple offers 27% upside potential for THY. Our valuation for THY is based on the 2015E target EV/EBITDAR multiple. To reach our target Mcap, we adjusted net debt to 7x aircraft related rental expenses and current PDP receivables. We employed a 7.0x target multiple for THY, which is the historical average EV/EBITDAR multiple. THY Valuation Summary Target EV/EBITDAR mutiple (x) GS 2015E EBITDAR(TLmn) 4,984 4,984 4,984 4,984 4,984 Target EV (TLmn) 30,097 32,589 35,081 37,573 40,065 Adj. Net debt (TLmn) 19,560 19,560 19,560 19,560 19,560 Target Mcap (TLmn) 10,537 13,029 15,521 18,013 20,506 Outstanding number of shares (mn) 1,380 1,380 1,380 1,380 1,380 Target share price (TL) Current share price (TL) Upside potential -14% 7% 27% 47% 68% Source: Garanti Securities 2

3 Pegasus Recommendation: OUTPERFORM. Given its proven track record on growth, we believe that Pegasus stands out as a preferred play in an underpenetrated sector coupled with its ambitious expansion plans and effective cost management. As the number one LCC and second largest carrier in Turkey, Pegasus will be one of the key beneficiaries of increasing GDP and attractive demographics, which bodes well for discount carriers. Using Istanbul Sabiha Gokcen Airport (SAW) as its main hub, Pegasus differentiates itself from an ordinary LCC whose business models are based on only point to point travel; Pegasus operates like both a network and point to point carrier, thanks to Istanbul s geographical advantage connecting 50 countries within a 3 hour flight. Furthermore, we think Pegasus low cost management enables the airline to boast one of the lowest CASK levels on the back of its young fleet and low labour costs. Despite our conservative assumptions given the likely increased competition and cost pressures from exchange rates, the changes in the fleet and ramp handling investments, we believe the current levels offer a good entry point to accumulate the stock for the long-term investors. We maintain our recommendation for Pegasus as Outperform. Risks. The key risks would be an increase in oil prices, unrest in Turkey and neighbouring countries, stiff competition, limited international expansion and EUR weakness against the USD. About 14.5% of Pegasus shares were registered to the Central Securities Depository in mid-february 2015 with no intention for immediate sale, yet a potential stake sale could result in an overhang for the shares. New 12 month forward target price of TL31.65/share vs. TL39.80/share previously. We value Pegasus using a 2015E target EV/EBITDAR multiple. On our EV/EBITDAR multiple valuation, we apply a 2015E EV/EBITDAR multiple of 7.8x, in line with the historical average. Finally, to reach our target Mcap, we adjusted the net debt for 7x aircraft related rental expenses PDP receivables. Pegasus Valuation Summary EV/EBITDAR multiple (x) GS 2015E EBITDAR (TLmn) Target EV (TLmn) 4,816 4,981 5,147 5,312 5,477 Adj. Net debt (TLmn) 1,917 1,917 1,917 1,917 1,917 Minorities (TLmn) Target Mcap (TLmn) 2,907 3,072 3,237 3,402 3,567 Outstanding number of shares (mn) Target share price (TL) Current share price (TL) Upside potential 13% 20% 26% 33% 39% Source: Garanti Securities 3

4 PEER COMPARISON We present the multiples of international carriers in an attempt to put the valuations of THY and Pegasus into perspective. THY trades at a discount to its emerging peers on the basis of its 2015E on a P/E multiples, but Pegasus does not. On an EV/EBITDA comparison, THY trades at an average discount of 24% vs. 9% of Pegasus. EV/SALES EV/EBITDA P/E Company Country MCAP (US$mn) Full Service Carriers (FSC) Developed Deutsche Lufthansa AG GERMANY 6, Air France-KLM FRANCE 2, n.a 5.3 International Consolidated Group SA BRITAIN 15, Air Berlin PLC GERMANY n.a 83.4 n.a n.a Qantas Airways Ltd AUSTRALIA 5, Virgin Australia Holdings Ltd AUSTRALIA 1, n.a 14.8 Emerging Cathay Pacific Airways Ltd HONG KONG 9, Air China Ltd CHINA 24, Aeroflot - Russian OJSC RUSSIA n.a 5.3 Gol Linhas Aereas Inteligentes SA BRAZIL n.a n.a China Ltd TAIWAN 2, China Eastern Corp Ltd CHINA 21, China South City Holdings Ltd HONG KONG 2, Low cost carriers (LCC) Developed Ryanair Holdings PLC IRELAND 17, easyjet PLC BRITAIN 9, AirAsia Bhd MALAYSIA 1, Spirit Inc UNITED STATES 4, JetBlue Airways Corp UNITED STATES 6, Norwegian Air Shuttle ASA NORWAY 1, WestJet Ltd CANADA 2, Emerging Cebu Air Inc PHILIPPINES 1, Air Arabia PJSC UAE 2, THYAO multiples 4, Discount/Premium to Developed FSC 28% 16% 53% 41% -25% 1% Discount/Premium to Emerging FSC -59% -60% -22% -27% -36% -25% PGSUS multiples Discount/Premium to Developed LCC -59% -61% -7% -17% -7% -26% Discount/Premium to Emerging LCC -60% -62% -2% -16% 27% -6% Source: Bloomberg, Garanti Securities 4

5 The impact of lower oil prices and EUR/USD rate for Turkish air carriers in brief Fuel expenses represent the largest cost item for airlines. Fuel expenses account for around 40% of the total costs for both THY and Pegasus. Hedging. The airlines have an active hedging strategy for their fuel costs through swaps and options. The fuel surcharge is also a part of their policy. THY has currently hedged 45% of its fuel expenses for 2015 compared to 46% for Pegasus. THY s blended oil price is USD79/bbl under the assumption of an average Brent price of USD71/bbl vs. our blended price of USD74/bbl as we assume USD61 per barrel for Brent on average for According to our calculations, the blended price for Pegasus is USD77/bbl as the Company hedges itself at USD96/bbl. The airlines have an active hedging strategy for their fuel costs through swaps and options. Impact on financials. Our base case scenario assumes an average Brent price of $61/bbl in All else being equal, each USD5/bbl change in our assumption for oil prices results in a 10% change in the 2015E EBITDA for THYAO, or a 12% change in that of PGSUS. That translates into a 1.1 pps EBITDA margin difference for THYAO vs. the 1.2 pps difference for PGSUS. Meanwhile, each 1% change in the EUR/USD exchange rate would have a 5% impact on the projected 2015E EBITDA for THY and a 3% impact on the same multiple for Pegasus. Our sensitivity analysis regarding the the change in the 2015E average Brent price and EUR/USD rate is tabulated below. THY's fuel cost Pegasus' fuel cost 50.0% 45.0% 40.0% 35.0% 40.8% 33.9% 44.0% 42.9% 42.4% 34.9% 35.0% 34.7% 50.0% 45.0% 40.0% 35.0% 44.4% 43.9% 44.6% 44.7% 41.1% 36.6% 36.2% 38.0% 30.0% 30.0% 25.0% 25.0% 20.0% 20.0% 15.0% 15.0% 10.0% 10.0% 5.0% 5.0% 0.0% % as % of sales as % of cogs as % of sales as% of cogs Source: Garanti Securities Source: Garanti Securities 5

6 EUR/USD Assumptions EUR/USD Assumptions EUR/USD Assumptions EUR/USD Assumptions THY Brent Price Assumptions (USD) %ch 2015 EBITDA % -11% -21% -31% -40% -50% % -6% -16% -26% -35% -45% % -1% -11% -21% -30% -40% % 4% -6% -15% -25% -35% % 9% -1% -10% -20% -30% % 14% 5% -5% -15% -25% % 19% 10% 0% -10% -19% % 25% 15% 5% -5% -14% % 30% 20% 10% 1% -9% % 35% 26% 16% 6% -4% % 41% 31% 21% 11% 2% THY Brent Price Assumptions (USD) 2015 EBITDA margin % 10.2% 9.1% 8.0% 6.9% 5.8% % 10.8% 9.7% 8.6% 7.5% 6.3% % 11.4% 10.3% 9.2% 8.0% 6.9% % 12.0% 10.9% 9.7% 8.6% 7.5% % 12.6% 11.4% 10.3% 9.2% 8.1% % 13.2% 12.0% 10.9% 9.8% 8.7% % 13.8% 12.6% 11.5% 10.4% 9.3% % 14.4% 13.2% 12.1% 11.0% 9.9% % 15.0% 13.8% 12.7% 11.6% 10.5% % 15.6% 14.5% 13.3% 12.2% 11.1% % 16.2% 15.1% 14.0% 12.8% 11.7% Pegasus %ch 2015 EBITDA Brent Price Assumptions (USD) % 6% -6% -18% -30% -42% % 9% -3% -15% -27% -39% % 12% 0% -12% -24% -36% % 15% 3% -9% -21% -33% % 18% 6% -6% -18% -30% % 21% 9% -3% -15% -27% % 24% 12% 0% -12% -24% % 27% 15% 3% -9% -21% % 31% 18% 6% -6% -18% % 34% 21% 9% -3% -15% % 37% 25% 12% 0% -12% Pegasus 2015 EBITDA margin Brent Price Assumptions (USD) % 10.8% 9.6% 8.4% 7.1% 5.9% % 11.1% 9.9% 8.7% 7.4% 6.2% % 11.4% 10.2% 9.0% 7.7% 6.5% % 11.7% 10.5% 9.3% 8.0% 6.8% % 12.1% 10.8% 9.6% 8.3% 7.1% % 12.4% 11.1% 9.9% 8.6% 7.4% % 12.7% 11.4% 10.2% 8.9% 7.7% % 13.0% 11.7% 10.5% 9.3% 8.0% % 13.3% 12.1% 10.8% 9.6% 8.3% % 13.6% 12.4% 11.1% 9.9% 8.7% % 13.9% 12.7% 11.5% 10.2% 9.0% 6

7 June 18, 2015 Turkish Outperform (Maintained) Flying high We maintain our Outperform recommendation for Turkish with a 5% lower 12 month forward target share price of TL11.25, indicating 27% upside. There is almost no change to our EBITDA and net income forecasts for The stock trades at a 22% and 36% discount to its emerging peers, based on its 2015E EV/EBITDA and P/E. Weak pricing/traffic figures concerns to offset by solid cost discipline Despite the weakness in revenue yields in 1Q15, we have seen a good start to the year in terms of profitability thanks to not only lower oil prices but also strong cost management (EBITDA margin up by 290 bps in 1Q15). Pax growth came in at 8.7% YoY in 5M15 with a load factor of 77.6% (down 1.0 pps YoY). We attribute part of this underperformance to a high base and the harsh winter. The airline targets 15% pax growth (vs. our 10% forecast) with a 80.3% load factor (vs. our forecast of 77.9%) in We assume the growth will gain some momentum on the back of attractive fares and the addition of wide body aircraft to the fleet. The guidance provided by the airline was based on a fleet of 293 aircraft at the end of 2015; this has been revised up to a fleet of 303. Most of the new aircraft will have joined the fleet in 1H15, raising the prospect of further upside to our traffic assumptions. We believe that our projections are already included any potential cost overruns in relation to personnel expenses (given fleet additions, 16% increase in personnel number is guided) and unfavourable exchange rate movements as we assume flattish margins in 2015 although in 1Q15, we have seen a sharp decline in all cost items in terms of ASK except G&A and depreciation. THY plans to shift 28 of its aircraft to SAW in 2015 and increase its market share at Istanbul s second airport by 5 pps to 25%. We believe after the weakness in yields, we will see better yields from 3Q14 on the high demand and normalization of the base. We project 13% (12% in 1Q15) and 11% (13% in 1Q15) decline in RASK and CASK in The Company hedges 45% of its 2015 budgeted fuel consumption. Blended oil price is around USD79. All else being equal, each USD5/bbl and 1% change in our assumption for oil prices and EUR/USD result in a 10% and 5% change in the 2015E EBITDA for THY (see page 6). The Company has recently converted international ticket sales originating in Turkey to USD from EUR. Such sales account for c15% of its revenue. This will reduce the negative impacts of currency mismatch on operations. 40% and 16% of revenues were in EUR and USD, respectively, in 2014 while those of costs were 14% and 56%. Current Price TL 12M Target Price TL 8.85TL 11.25TL Potential Return TL 27% Current Mcap (TLmn) 12,213 Current EV (TLmn) 31,773 Current Mcap (US$mn) Price Performance (TL) Stock Market Data Bloomberg/Reuters: Relative Performance: THYAO 4,466 1 mth 3 mth 12mth -1% 1% 28% 81.7 YTD TL Return: -8% 1,380 Free Float (%): 51 Foreign Ow nership in Free Float : THYAO.TI / THYAO.IS 52 Week Range (TL): 6.08 / 10.2 Average Daily Vol (US$mn) 3 mth: Shares Outstanding (mn): Turkey - Equity - Airline Company Update BIST % Financials and Ratios E 2016E Net Sales (TLmn) 18,777 24,158 29,321 33,485 EBITDA (TLmn) 2,330 2,910 3,378 3,912 Research Analyst: Baris Ince EBITDAR (TLmn) 3,192 4,095 4,984 5, (212) Net Income (TLmn) 683 1,819 1,793 1,651 bince@garanti.com.tr EBITDA Margin 12.4% 12.0% 11.5% 11.7% EBITDAR Margin 17.0% 17.0% 17.0% 17.0% Sales Contact: P/E (x) (212) EV/EBITDA (x) icm@garanti.com.tr EV/Sales (x) EPS (TL) DPS (TL)

8 June 18, 2015 Turkish The Company in Brief Turkish is Turkey s flag carrier with a fleet of 277 aircraft as of May Following the SPO in 2006, the Government s stake was reduced to 49.12%; thus THY is considered to be a private company. THY became a full member of the Star Alliance in Shareholders Privatization Administration 49.12%, Free Float 51.88% SUMMARY FINANCIALS (TL mn) Income Statement E 2016E 15E/14 Net Sales 18,777 24,158 29,321 33,485 21% Operating Expenses -17,687-22,874-28,122-32,135 23% Operating Profit 1,090 1,284 1,199 1,350-7% Consolidated EBITDA 2,330 2,910 3,378 3,912 16% Consolidated EBITDAR 3,192 4,095 4,984 5,690 22% Net Other Income/ Expense % Profit (Loss) from Subsidiaries % Net financial Income/ Expense % Profit (Loss) before Tax 965 2,261 2,242 2,064-1% Tax % Net Income 683 1,819 1,793 1,651-1% Ratios EBIT Margin 5.8% 5.3% 4.1% 4.0% -1.2 pp EBITDA Margin 12.4% 12.0% 11.5% 11.7% -0.5 pp EBITDAR Margin 17.0% 17.0% 17.0% 17.0% 0 pp Net Income Margin 3.6% 7.5% 6.1% 4.9% -1.4 pp Balance Sheet E 2016E 15E/14 Current Assets 4,536 6,565 9,542 11,939 45% Cash and Cash Equivalents 1,382 1,674 3,308 5,216 98% Short-Term Trade Receivables 1,148 1,057 1,619 1,437 53% Inventories % Other Current Assets 1,663 3,381 4,103 4,686 21% Long Term Assets 20,867 25,311 27,335 29,743 8% Total Assets 25,402 31,876 36,876 41,682 16% Short Term Liabilities 6,653 8,505 10,572 11,799 24% Short-Term Financial Loans % Short-Term Trade Payables 1,451 1,539 2,087 2,093 36% Other Short-Term Liabilities 5,168 6,922 8,401 9,596 21% Long Term Liabilities 11,787 14,216 15,357 17,283 8% Long-Term Financial Loans 10,364 12,334 13,410 15,389 9% Other Long-Term Liabilities 1,423 1,882 1,946 1,895 3% Shareholders Equity 6,962 9,154 10,948 12,599 20% T. Liabilities & S.h Equity 25,402 31,876 36,876 41,682 16% 8

9 June 18, 2015 Turkish REVISIONS TO FORECASTS As shown below, we have fine tuned our forecasts based on the our new macroeconomic and traffic assumptions E 2016E # of total passengers (mn) - new # of total passengers (mn) - old Difference 0.0% 0.0% 0.0% -0.3% -3.4% -6.1% YoY 12.2% 19.6% 23.6% 13.3% 10.0% 13.2% Load factor - new 72.6% 77.7% 79.0% 78.9% 77.9% 78.4% Load factor - old 72.6% 77.7% 79.0% 79.7% 79.9% 80.0% Difference 0.0 pps 0.0 pps 0.0 pps -0.8 pps -2.0 pps -1.6 pps YoY (pps) -1.1 pps 5.1 pps 1.3 pps -0.1 pps -1.0 pps 0.5 pps ASK (mn) - new 81,167 96, , , , ,554 ASK (mn) - old 81,167 96, , , , ,989 Difference 0.0% 0.0% 0.0% -0.3% 1.9% 1.4% YoY 24.7% 18.4% 21.1% 16.3% 15.9% 16.4% RPK (mn) - new 58,918 74,705 91, , , ,107 RPK (mn) - old 58,918 74,705 91, , , ,000 Difference 0.0% 0.0% 0.0% -1.3% -0.6% -0.6% YoY 22.8% 26.8% 23.1% 16.2% 14.4% 17.1% RASK (US cents) - new RASK (US cents) - old Difference 0.0% 0.0% 0.0% -3.1% -14.2% -16.6% YoY 1.0% -1.6% -1.1% -3.8% -12.5% -4.3% CASK (US cents) - new CASK (US cents) - old Difference 0.0% 0.0% 0.0% -2.3% -12.2% -15.7% YoY 3.6% -6.0% 0.6% -3.3% -11.4% -4.2% CASK-ex fuel (US cents) - new CASK-ex fuel (US cents) - old Difference 0.0% 0.0% 0.0% -4.2% -11.6% -12.9% YoY -7.4% -10.0% 1.5% -2.6% -4.0% -3.6% ROAE - new 0.4% 23.3% 11.0% 22.6% 17.8% 14.0% ROAE - old 0.4% 23.3% 11.0% 21.2% 19.8% 17.8% Difference 0.0 pps 0.0 pps 0.0 pps 1.4 pps -1.9 pps -3.7 pps YoY (pps) -7.5 pps 22.9 pps pps 11.5 pps -4.7 pps -3.8 pps Average Brent price (USD) - new Average Brent price (USD) - old Difference 0.0% 0.0% 0.0% -3.4% -10.6% -16.3% YoY 38% 1% -3% -9% -39% 10% Source: The Company, Garanti Securities Revisions in model assumptions at a glance* *Figures are based on our own calculations may differ from company's figures *2014 old figures are our previous assumptions, new figures are actual 9

10 June 18, 2015 Turkish We are conservative compared to the management in our forecasts. 2015E Guidance Garanti Diff. Total Pax (mn) % -Domestic % -International % - Hajj and charter flights pax 1.0 Revenue (US$bn) % Total ASK (bn) % Load Factor 80.3% 77.9% -2.4% Source: The Company, Garanti Securities We have revised our Sales and EBITDA forecasts to take account of our new macro assumptions and traffic figures. Revision in Estimates THYAO OLD NEW % Change (TLmn) 2015E 2016E 2015E 2016E 2015E 2016E Net Sales 29,378 35,162 29,321 33,485 0% -5% EBITDA 3,574 3,874 3,378 3,912-5% 1% Net Profit % -11% EBITDA Margin 12.2% 11.0% 11.5% 11.7% -0.6% 0.7% Net Income Margin 6.0% 5.3% 6.1% 4.9% 0.1% -0.3% Target Price % Source: Bloomberg, Garanti Securities Bloomberg vs. Garanti Forecasts Our forecasts for both 2015 and 2016 are in line with the market estimates at the top line, but lower at the EBITDA level when compared to the market consensus. We believe the consensus has incorporated no potential cost overruns resulting from the high level of additions to the fleet or included the other income line into the calculation. However, our net income estimate is higher than the market in both 2015 and 2016, most probably owing to our estimate of higher FX gains and profits from associates. Our target price of TL11.25 is 2% higher than the Bloomberg consensus of TL Consensus vs. Our estimates THYAO Bloomberg Garanti Securities Difference (TLmn) 2015E 2016E 2015E 2016E 2015E 2016E Net Sales 28,484 34,446 29,321 33,485 3% -3% EBITDA 3,982 4,981 3,378 3,912-15% -21% Net Profit 1,731 1,475 1,793 1,651 4% 12% EBITDA Margin 14.0% 14.5% 11.5% 11.7% -2.5 pps -2.8 pps Net Income Margin 6.1% 4.3% 6.1% 4.9% 0.0 pps 0.6 pps Target Price % Source: Bloomberg, Garanti Securities 10

11 June 18, 2015 Turkish Turkish 1Q15 Results Review Turkish reported a net profit of TL373mn in 1Q15, better than the consensus estimate of a TL319mn net profit and in line with our estimate of a TL380mn net profit. The airline generated TL5,456mn of revenues in the quarter in between the consensus and our expectation. 1Q15 EBITDA was broadly in line with our estimate while exceeded the consensus by 23%. According to our calculations, the 1Q15 EBITDAR came in at TL594mn with a flattish margin YoY at 10.9%. The Company recorded TL642mn of net financial income in the quarter compared to TL130mn expense a year ago, mainly due to FX gains. Recall that, the airline s functional currency is USD and the Company had a TL9.3bn short FX position - mostly based in EUR and JPY - as of 1Q15. In 1Q15, based on the Company s calculations, unit revenues decreased by 11% YoY (2% excluding currency impact) while CASK declined by 13% YoY thanks to lower oil prices. CASK (ex-fuel) declined by 7% in 1Q15. According to the Company, on annual basis, 1Q operating profit was hit by US$89mn from currency and US$69mn from unit revenue (ex-currency) weakness vs. positive impact of favourable fuel prices at US$242mn. The Company shared some information regarding its regional yield development in 1Q15 vs. 1Q14. Accordingly, all markets generated negative contribution to revenue. Africa was the worst performer with a decline of 17% in RASK, followed by 14% in Europe&CIS, 12% in America and Asia&Far East. The declines were 6% in Middle East and 2% in Turkey, respectively. Turk Hava Yollari Summary Financials Change (mn TL) 1Q14 2Q14 3Q14 4Q14 1Q15 1Q15/1Q14 1Q15/4Q14 Net Sales 5,128 6,139 7,171 5,721 5,456 6% -5% Gross Profit 511 1,223 1, % -9% Operating Profit , n.m. n.m. EBITDA , % -9% EBITDAR , % -2% Net Other Income/Expense % n.m. Profit (Loss) from Subsidiaries n.m. n.m. Financial Inc./ Exp. (net) n.m. 77% PROFIT BEFORE TAX FROM CO , n.m. 70% Tax n.m. n.m. Net Income , n.m. 36% Net Cash -10,927-10,741-11,449-12,125-13,978 Working Capital Shareholders Equity 6,909 7,155 9,221 9,154 10,924 Ratios Gross Margin 10.0% 19.9% 26.2% 12.7% 12.1% 2.2 pp -0.6 pp Operating Margin n.m. 7.1% 16.1% n.m. n.m. n.m. n.m. EBITDA Margin 3.1% 13.5% 21.9% 6.2% 5.9% 2.9 pp -0.3 pp EBITDAR Margin 11.1% 16.3% 26.8% 10.6% 10.9% -0.2 pp 0.3 pp Net Profit Margin n.m. 6.5% 19.2% 4.8% 6.8% n.m. 2.1 pp 11

12 June 18, 2015 Turkish Revenue Development (1Q14 vs 1Q15) (USDmn) 2,500 2, , ,350 2, ,250 2,200 2,150 2,315 2,100 2,219 2,050 2,000 1Q14 Volume Decrease in Cargo and Other Rev. Unit Revenue (R/Y) Currency 1Q15 Source: Turkish Net Operating Profit Bridge (USDmn) Q14 Currency Unit Revenue (R/Y) Utilization L/F Ex-fuel Unit Cost (ex-currency exutilization) Fuel 1Q15 Source: Turkish CASK Breakdown (USc) 1Q14 1Q15 Change Fuel % Personnel % Aircraft Ow nership % Airports & Air Navigation % Sales & Marketing % Ground Handling % Passenger Services & Catering % Maintenance % General Administration % Other Cost of Sales % TOTAL % Source: Turkish 12

13 June 18, 2015 Turkish Scheduled Services Unit Revenue Development 7.11 RASK (USc) -11.2% RASK ex-currency (USc) % Q14 1Q15 1Q14 1Q R/Y (USc) -10.8% 8.70 R/Y ex-currency (USc) -1.5% Q14 1Q15 1Q14 1Q15 Source: Turkish Regional Yield Development in USD (1Q 14 vs 1Q 15) Source: Turkish 13

14 mn US cents US cent US cent US cent June 18, 2015 Turkish Quarterly Figures Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 RASK CASK 35.0% 30.0% 25.0% 20.0% % 10.0% 5.0% 0.0% 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 EBITDAR margin RASK-CASK (rhs) Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 non-fuel CASK 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000-1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 ASK Load factor (rhs) 84.0% 82.0% 80.0% 78.0% 76.0% 74.0% 72.0% 70.0% 68.0% Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 RASK/CASK EUR/USD - avg (rhs) Source: The Company, Garanti Securities Turkish Traffic Figures TOTAL May.14 May.15 YoY Apr.15 MoM 5M14 5M15 YoY Number of Landing 35,632 39, % 36, % 163, , % Available Seat Km ('000) 11,482,373 13,098, % 12,060, % 52,539,502 57,877, % Revenue Passenger Km ('000) 9,134,608 10,293, % 9,443, % 41,279,017 44,898, % Passenger Load Factor (%) 79.6% 78.6% -0.9p 78.3% 0.28p 78.6% 77.6% -0.9p Passengers Carried 4,735,840 5,404, % 4,955, % 21,354,513 23,212, % Cargo and Mail (Tons) 58,012 65, % 59, % 271, , % Km Flow n ('000) 67,040 72, % 68, % 310, , % Int-to-Int Transfer Passengers Carried 1,123,383 1,327, % 1,282, % 5,509,329 6,137, % Source: Turkish, Garanti Securities 14

15 mn US cents US cent US cent US cent June 18, 2015 Turkish Yearly Figures E 2016E E 2016E 20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% RASK E 2016E EBITDAR margin RASK-CASK (rhs) CASK E 2016E non-fuel CASK 200, , % , % , , % , ,000 60,000 40, % 77.5% , E 2016E ASK Load factor (rhs) 77.0% E 2016E RASK/CASK EUR/USD - avg (rhs) 0.00 Source: The Company, Garanti Securities THY Revenue by currency THY Expenses by currency Other, 30% 2014 EURO, 40% 2014 Other, 6% EURO, 14% TL, 24% TL, 14% USD, 16% USD, 56% Source: The Company data 15

16 June 18, 2015 Pegasus Outperform (Maintained) Still attractive, yet ST risks dominate the agenda Turkey - Equity - Company Update We maintained Outperform rating for Pegasus with a 20% lower 12 month forward target price of TL31.65/share, indicating 26% upside potential. We find the airline s growth prospects attractive, however, we doubt that Pegasus will be able to achieve cost efficiencies over its competitors in 2015 due to exchange rate pressure, changes in the fleet mix and initial ramp handling investments. Potential competition from THY could also pressure the airline. Despite aforementioned headwinds on cost side, we believe that the current levels offer a good entry point for the LT investors. The stock trades on par vs. peers, on its 2015E EV/EBITDA vs. 17% discount in We reduced our estimates mainly on profitability side rather than top line. The Company guides for stable yields compared to a c3-4% increase in unit costs. We trimmed our EBITDA and net income forecasts by a 18% and 35% for Margins would be under pressure this year Pegasus faced stiff competition from Turkish (THY) in 2014 with the flag carrier moving to form a second hub at SAW given the capacity constraints at its IAA hub. THY plans to increase its market share at SAW by 5pps to 25% in 2015 with 28 aircraft operating from the terminal - which will mean more pressure on revenue yields this year as well. In addition to exchange rate movements and the change in the fleet mix, initial ramp handling investments may burden Pegasus with additional cost pressures in the short term. With our conservative assumptions, we cut our EBITDAR margin forecasts by 0.8 pps to 18.5% (vs % guidance). On the other hand, Pegasus enjoys strong ancillary revenues at EUR10.2/pax (EUR9.3 in 2014), which are expected to remain between EUR10-12 in the next 2 years (we forecast EUR11.0/pax in 2016). We assume a 1% lower RASK in 2015, but, 3% increase in CASK. The airline guides for a stable yields and a 3-4% increase in CASK with a stable load factor. The Company targets 15-17% growth in pax figures in 2015 (vs. our 12%). Pegasus recorded a net loss of TL147mn from derivative contracts on fuel and the currency in As of 1Q15, Pegasus had a TL34mn liability under its equity in connection with its derivatives contracts to be released to the P&L in 2015 if realized, we conservatively reflected the amount of TL34mn to 2015E net income forecast (TL28mn in 1Q15). The Company hedges %45 of its 2015 budgeted fuel consumption. Hedged price is around USD96. All else being equal, each USD5/bbl and 1% change in our assumption for oil prices and EUR/USD result in a 12% and 3% change in the 2015E EBITDA for Pegasus. (see page 6).The Company has recently converted international ticket sales originating in Turkey to USD from EUR. Such sales account for c13% of its revenue. This will reduce the negative impacts of currency mismatch on operations. 39% and 15% of revenues were in EUR and USD, respectively, in 2014 while those of costs were 23% and 56%. Current Price TL 25.10TL 12M Target Price TL 31.65TL Potential Return TL 26% Current Mcap (TLmn) 2,567 Current EV (TLmn) 4,477 Current Mcap (US$mn) 939 Price Performance (TL) PGSUS BIST-100 Stock Market Data Bloomberg/Reuters: PGSUS.TI / PGSUS.IS Relative Performance: 1 mth 3 mth 12mth 3% 1% -14% 52 Week Range (TL): / Average Daily Vol (US$mn) 3 mth: 16.9 YTD TL Return: Shares Outstanding (mn): -24% 102 Free Float (%): 35 Foreign Ow nership in Free Float : 41% Financials and Ratios E 2016E Net Sales (TLmn) 2,394 3,082 3,564 4,113 EBITDA (TLmn) Research Analyst: Baris Ince EBITDAR (TLmn) (212) Net Income (TLmn) bince@garanti.com.tr EBITDA Margin 17.2% 13.4% 10.2% 11.3% EBITDAR Margin 22.1% 19.5% 18.5% 20.1% Sales Contact: P/E (x) (212) EV/EBITDA (x) icm@garanti.com.tr EV/Sales (x) EPS (TL) DPS (TL)

17 June 18, 2015 Pegasus The Company in Brief Pegasus is a low cost carrier with a fleet of 61 aircrafts as April Founded in 1990 to provide charter services, Pegasus s business model was changed following its acquisition by Esas Holding in The airline uses Istanbul Sabiha Gokcen Airport as main hub, and flies to 91 routes in 37 countries. Pegasus carried c.20mn passengers in In 2012, Pegasus placed an order for 100 aircraft (75 firm + 25 optional orders) to be delivered between 2016 and Shareholders Esas Holding 62.92%, Sabancı Family Members 2.57% Free Float 34.51% SUMMARY FINANCIALS (TL mn) Income Statement E 2016E 15E/14 Net Sales 2,394 3,082 3,564 4,113 16% Operating Expenses -2,118-2,834-3,407-3,905 20% Operating Profit % Consolidated EBITDA % Consolidated EBITDAR % Net Other Income/ Expense % Profit (Loss) from Subsidiaries % Net financial Income/ Expense % Profit (Loss) before Tax % Tax n.m. Minority Interests % Net Income % Ratios EBIT Margin 11.5% 8.0% 4.4% 5.1% -3.6 pp EBITDA Margin 17.2% 13.4% 10.2% 11.3% -3.2 pp EBITDAR Margin 22.1% 19.5% 18.5% 20.1% -0.9 pp Net Income Margin 3.8% 4.7% 5.3% 6.8% 0.7 pp Balance Sheet E 2016E 15E/14 Current Assets 1,227 1,509 2,319 3,032 54% Cash and Cash Equivalents ,579 2,165 84% Short-Term Trade Receivables % Inventories % Other Current Assets % Long Term Assets 2,278 2,026 2,160 2,297 7% Total Assets 3,505 3,535 4,479 5,328 27% Short Term Liabilities ,230 1,449 43% Short-Term Financial Loans % Short-Term Trade Payables % Other Short-Term Liabilities % Long Term Liabilities 1,674 1,511 1,898 2,439 26% Long-Term Financial Loans 1,441 1,187 1,574 2,116 33% Other Long-Term Liabilities % Shareholders Equity 1,146 1,161 1,351 1,440 16% T. Liabilities & S.h Equity 3,504 3,535 4,479 5,328 27% 17

18 June 18, 2015 Pegasus REVISIONS TO FORECASTS Revisions in model assumptions at a glance* E 2016E # of total passengers (mn) - new # of total passengers (mn) - old Difference 0.0% 0.0% 0.0% -0.8% -3.2% -4.4% YoY 33.7% 26.8% 23.9% 17.4% 12.3% 13.8% Load factor - new 74.9% 78.2% 80.2% 80.0% 79.4% 79.9% Load factor - old 74.9% 78.2% 80.2% 80.7% 81.2% 81.7% Difference 0.0 pps 0.0 pps 0.0 pps -0.7 pps -1.7 pps -1.8 pps YoY (pps) -0.8 pps 3.3 pps 2.0 pps -0.3 pps -0.5 pps 0.5 pps ASK (bn) - new ASK (bn) - old Difference 0.0% 0.0% 0.0% 2.2% 1.4% 0.9% YoY 26.6% 22.0% 22.7% 20.9% 16.5% 16.5% RPK (bn) - new RPK (bn) - old Difference 0.0% 0.0% 0.0% 1.3% -0.7% -1.3% YoY 25.3% 27.3% 25.9% 20.5% 15.8% 17.2% RASK (EUR cents) - new RASK (EUR cents) - old Difference 0.0% 0.0% 0.0% -2.7% -5.0% -4.4% YoY 2.6% 7.0% -7.4% -7.4% -1.3% 0.8% Ancillenary revenue/pax (EUR) - new Ancillenary revenue/pax (EUR) - old Difference 0.0% 0.0% 0.0% 1.7% -7.1% -3.7% YoY -0.6% 25.4% 8.8% 16.0% 7.8% 9.9% CASK (EUR cents) - new CASK (EUR cents) - old Difference 0.0% 0.0% 0.0% -3.1% -0.1% 0.5% YoY 6.9% -3.9% -9.1% -3.7% 2.6% 0.1% CASK-ex fuel (EUR cents) - new CASK-ex fuel (EUR cents) - old Difference 0.0% 0.0% 0.0% -9.6% -0.1% 6.3% YoY -1.6% -3.2% -10% -4.3% 10.1% 4.2% ROAE - new -8.6% 46.1% 12.4% 12.4% 15.1% 20.0% ROAE - old -8.6% 46.1% 12.4% 20.1% 18.9% 21.2% Difference 0.0 pps 0.0 pps 0.0 pps -7.6 pps -3.8 pps -1.3 pps YoY (pps) n.m 54.6 pps pps 0.0 pps 2.7 pps 4.9 pps Average Brent price (USD) - new Average Brent price (USD) - old Difference 0.0% 0.0% 0.0% -3.4% -10.6% -16.3% Source: The Company, Garanti Securities *Figures are based on our own calculations may differ from company's figures *2014 old figures are our previous assumptions, new figures are actual 18

19 June 18, 2015 Pegasus As shown above, we have fine tuned some of our forecasts based on the our new macroeconomic assumptions and new guidance. We have revised our traffic assumptions for the period, while lowering our RASK (EUR) forecasts by 5.0% and 4.4% for 2015 and 2016 while keeping our forecast for the CASK flat for 2015 but increasing it by 0.5% for Those imply a 1% YoY lower RASK for 2015, compared to a 2.6% increase in CASK in the same period; for 2016, we expect a 0.8% increase in the RASK and 0.1% increase in the CASK. The management aims to post a stable yield, while securing a 3-4% increase in the CASK figures in 2015, with no change in the load factor. 2015E Guidance Garanti Total Pax grow th c15-17% 12% Total ASK grow th c17-19% 17% Load Factor flat (c80%) 79% Yields flat flat Ancillary revenue per pax (EUR) CASK (EUR) grow th 3-4% 3% EBITDAR margin 19-21% 18.5% Source: The Company, Garanti Securities While we have slightly revised our sales, we have trimmed our EBITDA forecast by 18% for 2015 and 14% for 2016 given the anticipated further cost pressures from the exchange rate effect, change in the fleet mix and ramp handling investments. We have slashed our net income forecasts for on weaker profitability, losses from derivative operations and new exchange rate assumptions. Revision in Estimates PGSUS OLD NEW % Change (TLmn) 2015E 2016E 2015E 2016E 2015E 2016E Net Sales 3,532 4,302 3,564 4,113 1% -4% EBITDA % -14% Net Profit % -24% EBITDA Margin 12.6% 12.6% 10.2% 11.3% -2.4% -1.3% Net Income Margin 8.3% 8.6% 5.3% 6.8% -2.9% -1.8% Target Price % Source: Bloomberg, Garanti Securities 19

20 June 18, 2015 Pegasus Bloomberg vs. Garanti Forecasts Our forecasts are inline with the market consensus in terms of sales yet, lower in terms of EBITDA and net income in We believe that the consensus does not fully reflect the likely competition and further cost pressures. Different losses from derivative operations would be another reason behind the deviation between net income forecasts. Meanwhile, our target price of TL31.65 is 2% higher than the Bloomberg consensus of TL Consensus vs. Our estimates PGSUS Bloomberg Garanti Securities Difference (TLmn) 2015E 2016E 2015E 2016E 2015E 2016E Net Sales 3,603 4,389 3,564 4,113-1% -6% EBITDA % -4% Net Profit % 10% EBITDA Margin 11.4% 11.1% 10.2% 11.3% -1.2 pps 0.2 pps Net Income Margin 5.9% 5.5% 5.3% 6.5% -0.6 pps 1.0 pps Target Share Price % Source: Bloomberg, Garanti Securities Pegasus 1Q15 Results Review Pegasus reported a net loss of TL74mn in 1Q15, lower than the consensus estimate of TL43mn net loss and our estimate of TL20mn net loss. The Company generated TL583mn of revenues in the quarter in line with both our own and the consensus estimate. EBITDA was weaker compared to both consensus and our forecasts, yet, losses from derivative operations and higher effective tax rate were the main reasons behind the worse than expected botomline. Based on our calculations, EBITDAR margin turned to positive at 2% in 1Q15. The Company recorded TL82mn net other income which is driven by FX gains in the quarter vs. TL13mn expense a year ago. Recall that, the Company s functional currency is EUR and it has TL842mn long position - most of which based in USD. Pegasus recorded TL28mn losses from derivative operations. There was tax expense of TL34mn (vs. TL10mn income in 1Q14) and minority interest of TL6mn (vs. TL2mn in 1Q14) in the quarter vs. TL46mn loss before tax. 20

21 June 18, 2015 Pegasus According to our calculations, domestic RASK (in TL) decreased by 3% YoY in 1Q15 (vs. 6% decline in 1Q14) while that of international was up by 9% in EUR terms (vs. 18% decline in 1Q15). On cost front, CASK increased by 1% in EUR terms in 1Q15 after 3% decline in 1Q14. Nonfuel CASK rose by 9% in 1Q15 due to the increased leasing expenses. On the other hand, ancillary revenues per passenger increased by 13% to EUR10.2 and ancillary revenues accounts for 22% of total revenues in 1Q15 similar to 1Q14. Pegasus Hava Tasimaciligi Summary Financials Change (mn TL) 1Q14 2Q14 3Q14 4Q14 1Q15 1Q15/1Q14 1Q15/4Q14 Net Sales , % -12% Gross Profit n.m. n.m. Operating Profit n.m. n.m. EBITDA n.m. n.m. EBITDAR n.m. -85% Net Other Income/Expense n.m. n.m. Financial Inc./ Exp. (net) n.m. n.m. Tax n.m. n.m. Net Income n.m. n.m. Net Cash Working Capital Shareholders Equity 1,070 1,117 1,340 1,161 1,111 Ratios Gross Margin n.m. 17.2% 30.6% 5.7% n.m. n.m. n.m. Operating Margin n.m. 10.1% 26.4% n.m. n.m. n.m. n.m. EBITDA Margin n.m. 15.3% 30.2% 3.9% n.m. n.m. n.m. EBITDAR Margin n.m. 21.1% 34.7% 11.6% 2.0% n.m pp Net Profit Margin n.m. 10.9% 22.6% n.m. n.m. n.m. n.m. 21

22 June 18, 2015 Pegasus CASK non-fuel Analysis (EUR cents) Q1 CASK non fuel Escalation on TL cost base (*) Structural changes (**) Fx & Other 2015 Q1 CASK non fuel Source: Pegasus 1Q EBITDAR Evolution (TLmn) Source: Pegasus 22

23 mn EUR cents EUR cent EUR cent EUR cent June 18, 2015 Pegasus Quarterly Figures Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 RASK 40.0% % % % % 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 CASK % -20.0% EBITDAR margin RASK-CASK (rhs) Q12 2Q12 3Q12 4Q12 1Q13 2Q133Q134Q13 1Q14 2Q14 3Q14 4Q14 1Q15 non-fuel CASK 8, % , % , % ,000 4,000 3, % 76.0% , % , % Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q % Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q ASK Load factor (rhs) RASK/CASK EUR/USD - avg (rhs) Source: The Company, Garanti Securities Pegasus Traffic Pax (mio) Seat (mio) Load factor (%) Cycle Pax per cycle ASK (mio) Block Hour Utilization Destinations Flow n Source: The Company data 1Q15 1Q14 YoY 4,52 4,08 10,8% 5,81 5,18 12,1% 77,8% 78,7% -0,9% ,3% ,3% ,4% ,5% 11,6 10,9 5,7% ,3% 23

24 mn EUR cents EUR cent EUR cent EUR cent June 18, 2015 Pegasus Yearly Figures E 2016E E 2016E 25.0% 20.0% RASK CASK % % % 0.0% E 2016E EBITDAR margin RASK-CASK (rhs) E 2016E non-fuel CASK 35, % ,000 25, % 79.0% 78.0% , % , % ,000 5, % 74.0% 73.0% E 2016E 72.0% E 2016E 0.00 ASK Load factor (rhs) RASK/CASK EUR/USD - avg (rhs) Source: The Company, Garanti Securities Pegasus Revenue exposure Pegasus Expenses exposure Other, 5% Other, 2% TL, 19% EURO, 23% TL, 41% EURO, 39% USD, 56% USD, 15% Source: The Company data 24