Pegasus agreed to buy a Czech airline whose flying can't pay its interest

A busy year that left almost nothing from flying

If you have flown from Prague to a Greek island or a Turkish beach resort, there is a fair chance you sat in a Smartwings seat. According to fl360aero.com, the Czech airline flies to 80 destinations in 20 countries, and Zdopravy.cz reported that its passenger numbers in 2024 climbed back above their level before the pandemic. Smartwings, a.s. (a.s. is the Czech form of a joint-stock company) took CZK 24.8bn in revenue in 2024, up 20.4% from CZK 20.6bn a year earlier. The figures cover the company on its own, under Czech accounting rules, for the calendar year, in Czech koruna.

Then comes the line that matters. Operating profit, what is left once fuel, crews, aircraft, airport fees and everything else it takes to fly have been paid, came to CZK 10.1m. A year earlier it was CZK 430m. The airline kept so little of each koruna of sales that its operating margin rounds to 0.0%.

Against that sits the interest bill: CZK 151m in 2024. Interest cover, operating profit divided by interest cost, was 0.07×. In plain words, the flying paid for a sliver of the interest, and the rest had to come from somewhere else.

In December 2025, Turkey's Pegasus Airlines agreed to buy Smartwings and Czech Airlines for EUR 154m, according to fl360aero.com, and the deal was completed in October 2026. That sets the question for this piece. Why did a year of full planes leave the airline unable to pay its lenders from flying, and what kept the business standing anyway?

Revenue jumped and operating profit nearly vanished

The sales line looks healthy over the last few years. Revenue was CZK 21.0bn in 2022, slipped to CZK 20.6bn in 2023 and jumped to CZK 24.8bn in 2024. That is CZK 4.2bn more business within a year.

Profit went the other way. Operating profit fell by CZK 420m, a drop of 97.6%. EBITDA, which is operating profit with depreciation added back and a rough gauge of the cash the operations throw off, fell from CZK 451m to CZK 39.0m, down 91.4%. The operating margin narrowed from 2.1% to 0.0%, a loss of 2.0 pp.

It would be wrong to say 2023 was a fat year. A margin of 2.1% is thin by any standard, and airlines are a thin-margin trade at the best of times. What changed in 2024 is that the thin cushion disappeared just as the airline grew.

For scale, the median operating margin of 5 Czech companies used as a benchmark, from software maker JetBrains to furniture retailer ASKO and tabloid publisher Czech News Center, was 9.5%. I would not hold an airline to a software house's standard. JetBrains, for example, kept 13.6% of its revenue as operating profit, and it does not buy jet fuel. Still, a gap of 9.5 pp to that median shows how little room Smartwings had left when costs moved against it.

The interest was paid from below the operating line

Here the accounts hold their real puzzle. Net profit, the bottom line after interest and tax, came to CZK 156m in 2024. That is down 45.8% from CZK 288m, but it is far higher than the operating profit of CZK 10.1m. For that to happen with an interest bill of CZK 151m, the financial and other items below the operating line must have brought in more than the interest cost on their own.

That changes how the year reads. The airline did not pay its lenders from flying. Something else paid them and still left a profit. The accounts do not split that financial result into its parts. For a carrier of this kind the usual candidates are currency gains, because airlines tend to pay for fuel and leases in dollars while selling tickets in koruna and euro, along with interest charged to group companies or dividends from subsidiaries such as Smartwings Slovakia, Smartwings Poland or Smartwings Hungary. Each would explain the gap. Only currency gains depend on the exchange rate, and the exchange rate owes nobody a repeat.

The net margin tells the same story more compactly. It fell from 1.4% to 0.6%, a drop of 0.8 pp, and even that smaller figure rests on income that has nothing to do with carrying passengers.

The cash line moved in yet another direction. Cash rose by CZK 460m to CZK 658m at the end of 2024, up 232.2% from CZK 198m. Total assets, meanwhile, shrank from CZK 6.9bn to CZK 6.6bn. An airline collects the fare when the ticket is sold and pays for the flight when it flies, so a December balance can be swollen by summer holidays already booked and paid for. That is a plausible reading, not a proven one. Cash of this kind belongs, in effect, to passengers who have not yet flown, and it is not the same thing as cash earned.

What the passenger counts and the buyers say

The operating figures from outside the accounts confirm the airline was busy. According to fzone.cz, Smartwings carried 20.1% more passengers on its scheduled and charter flights in 2024 than a year before. Dopraváček reported that the group flew 53,338 flights in 2024 with an average load factor, the share of seats sold, of 86.1%. Planes that full are not the problem.

Put the passenger growth next to the revenue growth and a clue appears. Passengers rose 20.1%; revenue rose 20.4%. If fares had climbed in 2024, revenue would have run clearly ahead of the passenger count. It did not. The airline sold more seats at roughly the same average price, while the costs behind each seat kept rising. That is the squeeze in its simplest form, and it fits the collapse in the margin.

There is a second business inside the airline. Zdopravy.cz reported that in 2024 Smartwings also carried 1,850,000 passengers on ACMI flights for other carriers. ACMI stands for aircraft, crew, maintenance and insurance: Smartwings hires out a plane with its crew to another airline, which sells the tickets. The contract fixes the price in advance. That brings steady revenue, but it also means a cost surprise during the season lands on Smartwings, not on the customer.

The takeover itself shows what outsiders valued. According to Notes from Poland, citing Rzeczpospolita, Pegasus beat Poland's LOT at the last minute by bidding EUR 10.0m more. That figure is reported, not confirmed by either company. Competition concerns also shaped the deal. Zdopravy.cz reported that on the Prague to Antalya route Smartwings held between 45.0% and 55.0% of passengers in summer 2025, and that as a condition of the takeover it may operate at most 17 frequencies on that route. Rivals had objected to a Turkish airline owning the leading Czech carrier on a key route to Turkey.

None of those reports speaks of profit. They speak of seats, routes, slots at Prague airport and market share. Zdopravy.cz puts the group fleet at 49 aircraft in 2026. That is what Pegasus bought: reach in Central Europe, not an income stream.

Full planes, flat fares and costs that do not wait

The mechanism is not mysterious. An airline's costs come in large, stubborn blocks: fuel, aircraft rentals, airport and navigation charges, crews and maintenance. Most of them are fixed before the season begins, and several are priced in dollars. Fares, on the other hand, are set in a fight with every other airline selling the same beach. When the planes fill but fares stay put, revenue grows and the margin still shrinks.

Depreciation offers a hint about how the fleet is held. It came to only CZK 28.9m in 2024, after CZK 20.7m in 2023, which is tiny for an airline of this size. That is what you would expect if most aircraft are leased rather than owned by the company itself; the accounts do not say. Under Czech accounting rules a leased plane usually shows up as rent inside operating costs, not as depreciation and interest. So the thin operating profit already carries the cost of the fleet, and the interest of CZK 151m comes on top of it.

Fuel remains the swing factor. In 2026, Euro.cz reported that Smartwings had cut some connections, citing jet fuel prices at historic highs above USD 170 per barrel. That is a later period and says nothing direct about 2024. It does show that the pressure which emptied the operating line in 2024 has not gone away, and that the airline's response, when fuel bites, is to fly less.

The interest-cover question follows directly. A business with cover of 0.07× pays its lenders from cash it already holds, from new borrowing, or from income outside its main trade. In 2024 Smartwings had the cash, CZK 658m at year end, and it had the financial income. Neither of those is a plan.

What would settle the question

Some figures would show whether 2024 was a bad season or a new normal.

The operating line for 2025 comes first. If the summer of 2025, the one in which Smartwings held so much of the Antalya route, lifted operating profit back towards the CZK 430m of 2023, the 2024 collapse was a cost shock the airline passed on in time. If it did not, the business has a pricing problem, not a fuel problem.

Then there is the breakdown of the financial result. A profit carried by currency gains is luck that can turn. A profit carried by dividends or interest from group companies is money moving around the group, which tells you little about the airline's own flying.

And there is the cash. I would watch the year-end balance against advance bookings. If cash keeps rising while operating profit stays near zero, passengers who pay early are quietly financing the airline.

The board has turned over too. In October 2026, the month the takeover was completed, a new chair, a new vice-chair and a new member joined the board of directors. Their plans for the airline are not yet public, and their first full year of figures will say more than any announcement.

What it means for passengers and my verdict

For holidaymakers, the economics point one way. An airline that keeps almost nothing from a full plane has little room for cheap fares, and its new owner will want the routes to pay. The Antalya cap of 17 frequencies keeps some competition on a route Czech families know well, at least for now. Where routes do not pay, Euro.cz has already shown what happens: connections get cut.

For anyone running a business with heavy fixed costs, the test is simple. Divide your operating profit by your interest cost. Then do it again with operating profit noticeably lower and loan rates a few points higher. If operating profit no longer covers the interest, your lenders are being paid by something other than your core business, and you should know exactly what that something is.

Smartwings in 2024 flew like a growing airline and earned like one that only just broke even. Its lenders were paid from income below the operating line, and its year-end cash was swelled by money passengers had already paid for flights not yet flown. Pegasus agreed to pay EUR 154m for the seats, the slots and the reach, and the profit is something the new owner will have to build itself.