Pegasus Airlines CEO Mehmet T. Nane evaluated of the company’s 2016 performance and its targets for 2017 and beyond at a recent press conference held in Istanbul. Mehmet T. Nane said “Despite all the challenges of the past year, we achieved operational growth in 2016 and we are hopeful for 2017, but the real growth will come in 2018 and beyond.”
Pegasus Airlines has evaluated its performance for 2016 whilst disclosing its targets for the future. Despite all the developments that have put pressure on the aviation sector in 2016, Pegasus succeeded in increasing its guest numbers by 8.1% to 24.14 million, and its turnover by 6.2% to TRY 3.7 billion. Pegasus CEO Mehmet T. Nane stated that the airline expected a cautious recovery in the aviation sector for 2017, but real growth would be experienced from 2018 onward.
Pegasus’ growth outperformed the sector in 2016
Speaking at the press conference, Mehmet T. Nane said “2016 was rather a difficult year for the sector. There were many challenges affecting air traffic during the year, the most significant of which were the events of July 15th. Despite this, we have worked tirelessly to increase our guest numbers and our revenue, and at the same time have kept our expenses under control with clever and sometimes ingenious projects. By the end of the year, we had provided our services to a total of 24.14 million guests comprising of 15.29 million on international routes and 8.85 million on routes in Turkey. While the market as a whole grew 5.8% on routes in Turkey, we at Pegasus successfully grew our guest numbers by 10.7% with our main hub being at Istanbul’s SabihaGokcen Airport. Similarly, while the international flight market shrank by 15.5% we recorded growth of 3.9%.”
Each seat is sold about 7 times a day
Mehmet T. Nane added “By continuing to use our 82-craft fleet effectively and productively, we increased our number of landings in 2016 to 166,691. We ensure that each of our aircraft is utilised on average 12 hours a day. So when one of our aircraft makes 7 flights in one day, we might sell the same seat around 7 times per day.
Mehmet T. Nane stated that with an average age of 5.7 years as of March 2017, Pegasus owns Turkey’s youngest fleet of aircraft. “We have also added the cities of Grozny, Samara, Nizhny Novgorod and Volgograd to our flight network, and now fly to a total of 7 destinations in Russia. We recently added a 12th destination to our flight network in the Middle East, that of Abu Dhabi, the capital of the United Arab Emirates. With these new routes, we have expanded our flight network to reach a total of 103 destinations in 40 countries.”
“The management decisions taken in 2016 will help us to actively prepare for the future.”
Mehmet T. Nane stated that they had taken some effective management decisions during the challenging year of 2016. “Our priority was reducing costs. We have instigated some ingenious projects that really give us the right to be called a low-cost airline. We have inaugurated strict optimisation of all our cost items. Through strategic steps such as bringing forward our Airbus orders, with their higher fuel efficiency, and rescheduling our Boeing deliveries, we have reformed both our cash flow and our fuel cost management. We have increased efficiency and savings in our flight operations by introducing the Electronic Flight Bag/EFB throughout the fleet. By ending the use of paper in the cockpit we have achieved our goals with regard to reducing in-flight weight and increasing operational efficiency.
Concluding the Aircraft Tracker project, which automatically monitors maintainance/fault status during flights in all our aircraft and helps us devise solutions before the plane even lands, allowed us to achieve important progress in operational continuity and maintenance/repair cost efficiency. We now use electronic flight maps for 60% of the airports we fly to. We will increase this rate to 100% in 2017, treating Pegasus cockpits as data centres. By using ‘big data’ in this way in the cockpit, we will achieve the most efficient flight operation conditions.”
Mehmet T. Nane continued “In 2016 and the first quarter of 2017 we assessed our existing fleet with regard to efficiency. First, we rented out four of our Boeing B737-800 aircraft to Pakistan Airlines (PIA) and two to Flynas on a wet lease. Then, on 20th March, we sold seven Boeing 737-800NG aircraft from among the company assets to Air Lease Corporation for a total of 178.7 million USD. The income that we receive from the sale, which is expected to be completed by the end of October, will be used to pay for these aircraft, which we have added to our fleet using financial leasing and to realise new investments. With this sale, we have accelerated portfolio replacement to ensure optimisation of fuel use within the scope of our 100-craft Airbus NEO agreement from 2012 and increased the number of new A320 Neo purchases planned for 2017 from 3 to 6. Thus our average fleet age will fall and we will achieve an improvement in aircraft operating costs.”
New investments to improve the guest experience
Mehmet T. Nane said that Pegasus is primarily guest-focussed, and stated that with their investments in technology they were aiming to give their guests a better guest experience. “Technology provides us with operational cost advantages while making our guests’ lives easier, thus increasing their satisfaction levels. We care about digitalisation in improving the guest experience. In this context, in 2016 we purchased Salesforce, which has an extremely competent infrastructure in the service area to manage guest notifications via a single channel and ensure more rapid and effective feedback to our guests. With Salesforce we have started to keep all guest complaints on a single platform, whether they were made via email, call centre, social media or to our website. With complaint management integration we aim to provide an instantaneous solution to more of our guests as much as possible.
The figures for January-February 2017 are quite agreeable. Our target-focussed actions achieved a 90% improvement rate and the flow of information between teams has speeded up considerably. The waiting period for complaints in in-house departments decreased by 32%.
We have been performing all of our own ground management operations at our main hub of Istanbul SabihaGokcen since May. With this project, we have achieved a major improvement in cleaning and reducing delays caused by ground services and boarding/de-boarding procedures. For example, when we evaluated our 7-month ground operation results, we saw an improvement of 30% in baggage waiting times and a 35% improvement in lost/damaged baggage cases. This is reflected in increased guest satisfaction and efficiency.”
Mehmet T. Nane stated that they care about offering guests choices at every stage of their trips. “We offer many additional products and services so that guests can personalise their flights as they wish and arrange their holidays according to their budget and preferences. We are there for our guests before, during and after their flights, and we continue to make investments in order to become a full travel brand offering services from A to Z.”
“We are hopeful for 2017 and expect growth in 2018”
Mehmet T. Nane disclosed that they aim to increase the number of guests carried by Pegasus in 2017 by between 5 and 7%, and expressed their hopes for 2017. “We have declared this year as one in which we will regain our figures from before the 2016 crisis. We have great faith in the Turkish economy and its tourism potential. That is why, though we see 2017 as a period of renewal, we expect the real growth to occur in 2018 and beyond.”
“Our affiliates have an important place in our expansion plans”
Emphasising that with its stakes in IzAir and AirManas, Pegasus is a regional player and he highlighted the part these affiliates have to play in Pegasus’s expansion plans.
Pegasus recently reached agreement with Air Berlin to purchase their 29.51% stake in IzAir for 1.2 million Euros. After this purchase has been approved by the Ministry of Transport and the competition board, Pegasus’ stake in IzAir will rise to 98.63.
What to Know Before You Expand Across Borders
By Sean King, Director of International Tax at McGuire Sponsel
The American retail giant, Target Corporation, has a market cap of $64 billion and access to seemingly limitless resources and advisors. So, when the company engaged in its first global expansion, how could anything possibly go wrong?
Less than two years after opening its first Canadian store in 2013, Target shut down all133 Canadian locations and terminated more than 17,000 Canadian employees.
Expansion of an operation to another country can create unique challenges that may impact the financial viability of the entire enterprise. If Target Corporation can colossally fail in its expansion to Canada, how might Mom ‘N’ Pop LLC fare when expanding into Switzerland, Singapore, or Australia?
Successful global expansion requires an understanding of multilayered taxes, regulatory hurdles, employment laws, and cultural nuances. Fortunately, with the right guidance, global expansion can be both possible and profitable for businesses of any size.
Any company with global ambitions must first consider whether the company’s expansion outside of the U.S. will give rise to a taxable presence in the local country. In the cross-border context, a “permanent establishment” can be created in a local country when the enterprise reaches a certain level of activity, which is problematic because it exposes the U.S. multinational to taxation in the foreign country.
Foreign entity incorporation
To avoid permanent establishment risk, many U.S. multinationals choose to operate overseas through a formal corporate subsidiary, which reduces the company’s foreign income tax exposure, though it may result in an additional level of foreign income tax on the subsidiary’s earnings. In most jurisdictions, multinationals can operate their business in the foreign country as a branch, a pass through (e.g., partnership,) or a corporation.
As a branch, the U.S. multinational does not create a subsidiary in the foreign country. It holds assets, employees, and bank accounts under its own name. With a pass through, the U.S. multinational creates a separate entity in the foreign country that is treated as a partnership under the tax law of the foreign country but not necessarily as a partnership under U.S. tax law.
U.S. multinationals can also create corporate subsidiaries in the foreign country treated as corporations under the tax law of both the foreign country and the U.S., with possibly two levels of income taxation in the foreign country plus U.S. income taxation of earnings repatriated to the U.S. as dividends.
Under U.S. entity classification rules, certain types of entities can “check the box” to elect their classification to be taxed as a corporation with two levels of tax, a partnership with pass-through taxation, or even be disregarded for U.S. federal income tax purposes. The check the box election allows U.S. multinationals to engage in more effective global tax planning.
Toll charges, transfer pricing and treaties
When establishing a foreign corporate subsidiary, the U.S. multinational will likely need to transfer certain assets to the new entity to make it fully operational. However, in many cases, the U.S. multinational cannot perform the transfer without recognizing taxable income. In the international context, the IRS imposes certain outbound “toll charges” on the transfer of appreciated property to a foreign entity, which are usually provided for in IRC Section 367 and subject to various exceptions and nuances.
Instead, the U.S. multinational may prefer to license intellectual property to the foreign subsidiary for a fee rather than transfer the property outright. However, licensing requires the company and foreign subsidiary to adhere to transfer pricing rules, as dictated by IRC Section 482. The U.S. multinational and the foreign subsidiary must interact in an arms-length manner regarding pricing and economic terms. Furthermore, any such arrangement may attract withholding taxes when royalties are paid across a border.
Are you GILTI?
Certain U.S. multinationals opt to focus on deferring the income recognition at the U.S. level. In doing so, they simply leave overseas profits overseas and delay repatriating any of the earnings to the U.S.
Despite the general merits of this form of planning, U.S. multinationals will be subject to certain IRS anti-deferral mechanisms, commonly known as “Subpart F” and GILTI. Essentially, U.S. shareholders of certain foreign corporations are forced to recognize their pro rata share of certain types of income generated by these foreign entities at the time the income is earned instead of waiting until the foreign entity formally repatriates the income to the U.S.
The end goal
Essentially, all effective international tax planning boils down to treasury management. Effective and early tax planning can properly allow a company to better achieve its initial goal: profitability.
If global expansion is on the horizon for your company, consult a licensed professional for advice concerning your specific situation.
Pandemic risks eclipse treasury priorities as businesses diversify investments to mitigate impact
The Covid-19 pandemic has shunted aside existing challenges to sit atop treasurers’ priority lists, according to “The resilient treasury: Optimising strategy in the face of covid-19”, a survey run by the Economist Intelligence Unit (EIU) and sponsored by Deutsche Bank.
The results show that treasurers are looking to diversify their investments in a bid to mitigate the pandemic impacts, including heightened liquidity, foreign-exchange and interest-rate risk. As many as 55% plan to increase investments in long-term instruments, with 48% increasing investments in bank deposits, another 48% in local investment products, and 47% in money-market funds.
“The Covid-19 pandemic has drastically altered business plans in 2020. It has placed a certain level of strain on treasury processes, but the challenge it presents has been managed by traditional treasury skills. It is clear that pandemic risk will be on the treasury checklist for years to come, but it is one of many risks the department faces and will continue to manage,” says Melanie Noronha, the EIU editor of the report.
Despite Covid-19 looming large, other challenges wait in the wings. Notably, the replacement of the London Interbank Offered Rate was identified by 38% of respondents as the main challenge of their function.
Technology, meanwhile, continues to be a pressing issue, with treasury teams becoming increasingly reliant on IT solutions. Here, data quality is rising up the list of concerns. Already highlighted as very or somewhat concerning in 2019 by 69% of respondents, the figure rose to 78% in 2020. Acquiring the necessary skill sets to realise the full benefits of this data and technology is also a continuing priority – with some progress registered from last year. In 2020, 30% of respondents say they have all the skills they need to manage technological change, up from 22% in 2018.
“Treasury’s focus on technology is not only helping teams operate more efficiently in a remote-working environment, it has long played – and continues to play – a key role in realising their long-term priorities,” notes Ole Matthiessen, Head of Cash Management, Corporate Bank, Deutsche Bank. The survey shows that
Release 1 | 2 managing relationships with banks and suppliers (highlighted by 32% of respondents) and collaborating with other functions of the business (also 32%) remain top of the agenda – and seamless digital systems will help give treasurers the bandwidth and insight to be more effective partners for both internal and external stakeholders.
Based on a global survey of 300 treasury executives, conducted between April and May, the survey explores stakeholders’ attitudes among corporate treasurers towards the drivers of strategic change in the treasury function – from the pandemic through to regulation and technology – and their priorities for the next five years.
Digital collaboration: Shaping the Future of Finance
By Ryan Lester, Senior Director of Customer Experience Technologies at LogMeIn
With heightened economic uncertainty and increased customer expectation becoming the norm in the banking industry, it is understandable that the sector is struggling to keep afloat. Due to its precarious nature, banking institutions are trying their best to ensure they remain relevant in the competitive landscape and guarantee that their customers continue to be a priority.
When it comes to the first half of this year, the pandemic has shown how easy it is for industries to fail. Customers and companies alike had to get used to the new normal, as physical locations started to close. The banking industry felt this first hand, as banks were made to restructure how their business ran, with restricted opening hours and a wider push to motivate people to use online banking.
While some had already embraced digital options prior to the pandemic, this proved to be a stark contrast to the elderly population, who frequently visited branches to access their finances. Moving forward, banks have to adopt new methods to ensure customers get the most out of our their accounts, without their experience suffering.
Heightened Customer Expectations
When the pandemic reached its peak, people were encouraged to use online banking, as telephone contact was under strain with long waiting times and pressure mounting on contact centre agents. According to Fidelity National Information Services (FIS), which works with 50 of the world’s largest banks, there was a 200% jump in new mobile banking registrations in early April, while mobile banking traffic rose 85%.
With branches remaining closed, customers were continuously being urged to limit the amount of calls they made to the most urgent cases and consider whether they could solve their answers through mobile online banking or checking the company website. Although already being adopted in pockets of the industry, this was a real catalyst that spurred banks to up their game on digital channels and with self-service tools.
Banks are challenged with precariously balancing customer needs with the cost of personalised support. With the demographic of customers changing over the last few years, customers are becoming increasingly younger and more comfortable with technology. Influenced by the “Amazon Effect”, their expectations have raised to an all-time high, placing record strain on the sector
Customer experience isn’t just about support anymore, it’s about serving your customer at every point in the journey. Companies have an opportunity to elevate the experience they provide by moving beyond one-and-done interactions to create continuous engagements with their customers. It is starting to become a primary competitive differentiator in the market and one that doesn’t have a lot of variation. Deploying AI chatbot technology will be able to strategically help banks improve customer experience and raise the level of support that agents provide.
Digital collaboration: Working around the Clock
The benefits of adopting digital channels and self-service tools are second to none. By implementing chatbots, fuelled by conversational AI, banks will be able to help serve a wide range of customer queries and ensure they are protected from fraud and scams.
Conversational AI is exactly what it sounds like: a computer programme that engages in a conversation with a human. When it comes to service delivery, conversational AI can be deployed across multiple channels to engage with customers in ways that effectively address evolving customer needs. At a time defined by COVID-19, self-service tools such a conversational chatbots can work around the clock to solve customer queries in a concise and timely way. Of course, self-service tools won’t completely replace human agents in the banking industry, but they will help companies re-distribute customer traffic and workflows in ways that enhance customer experience. Self-service tools fuelled by conversational AI can also improve employee experience because service employees can handle fewer, but higher-level service tasks that chatbots might escalate to them.
Adopting new tools to help facilitate consistent and concise answers and help maintain customer experience is on the forefront of many industry minds. Banks such as the Natwest Group have seen this first-hand and are testament to the benefits that a good digital experience can provide. Simon Johnson, Capability Consultant, Digital at NatWest Group highlights NatWest’s use of digital tools during lockdown, “Over the last few months, we’ve learnt how to use digital tools to help our employees remotely. From a banking perspective, there have been a lot of changes including base rates, waive fees and the best ways of contacting our vulnerable customers, ensuring we keep them protected from frauds and scams.
“By introducing our Bold360 chatbot interface, Ella, we’ve been able to get relevant information out quickly, apply the best practice and ensure that our customer journeys are being developed correctly. Due to the volume of questions, some of our customers were finding themselves waiting longer than usual. So digital channels become essential to helping reduce the wait time. Using Bold360, we were able to mitigate issues and answer questions in a more timely way through our chatbot.
“Moving forward, as we open more digital services, we are analysing our data to see if customer will return back to their usual way of banking, now that they’ve seen what a good digital experience can provide. Either way, with Ella, we are ready.”
Chatbots and Humans: The Best Option for Customer Service
Over the last year, banking institutions have recognised the power that digital collaboration can have to their success. Delivering exceptional customer service and support is key for any business wanting to stay competitive in today’s market and banks are especially challenged with precariously balancing customer needs with the cost of personalised support. Leveraging the right technology, such as AI-powered chatbots, will enable the banking industry to provide better support and a more robust customer experience in the long term. Other institutions must follow suit, or risk becoming obsolete.
What to Know Before You Expand Across Borders
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