Turkish Airlines, 2016 a difficult year

By Bjorn Fehrm

May 03, 2017, ©. Leeham Co: Turkish Airlines had its first growth setback in modern times last year.

The attempted state coup in Turkey in June hit passenger confidence and thereby its international traffic. After the political unrest, the international traffic, which accounts for 75% of revenue, decreased by 10% after years of double-digit growth.

The result was losses for the first time for the modern Turkish Airlines. Will this growth machine make a comeback?

Turkish airline’s rise

Turkish Airlines started as Turkey’s flag carrier before World War II. The airline, then called Türk Hava Yollari (THY), had a bad reputation until 1983 when a new government realized the airline would be the country’s ambassador to the world and modernized the airline. Turkish expanded internationally in the mid-1980s, and grew to more than 35 international destinations.

Gradually, the modern Turkish Airlines was built, with direct flights to the US starting in the mid-1990s. At the time, the domestic market was deregulated and carriers like Pegasus Airlines gradually gave Turkish hard competition for domestic travel.

The government privatized the airline from 2004 and a new entrepreneurial management started the growth of the modern Turkish Airlines. The expansion was focused on international traffic. Figure 1 shows the development of the world’s large airlines from 2002-2016.

Figure 1. Turkish market share development since 2002. Source: Turkish Airlines. Click to see better.

The chart shows the strong market share development of Turkish, Emirates, Qatar and the Chinese airlines in ASK (Available Seat Kilometers), at the cost of the world’s legacy carriers.

Figure 2 shows the growth compared with the largest European airlines (in million transported passengers). Turkish ranks number six among European airlines, with only Lufthansa, IAG and Air France-KLM being larger when counting main line carriers.

Figure 2. Turkish market share versus European airlines. Source: Wikipedia.

The development has been possible as Turkish has an advantageous geographical position, Figure 3.

Figure 3. Istanbul’s position between East and West and North and South. Source: Turkish Airlines.

The Istanbul Atatürk Airport is ideally placed to connect Europe and North America to South-East Asia and Africa. The only continents which are not easily reached are Australia and the southern part of South America.

The Gulf carriers have an advantage towards Australia but US West coast is a stretch for these carriers. Not for Turkish.

One shall also note the good coverage with narrow body aircraft. Turkish use Boeing 737-800s in daughter airlines Anadolujet and SunExpress which cover international low cost destinations (the 737 has a longer range with standard fuel than the Airbus A320, which is Turkish standard aircraft for domestic and shorter international traffic).

Network

Figure 4 shows Turkish network. The destinations are a mix of Domestic (49) and International destinations (246).

Figure 4. Turkish network 2016, with 246 international and 49 domestic destinations end 2016. Source: Turkish Airlines.

The list of destinations (Figure 5) is impressive. The network covers 119 countries.

Figure 5. Turkish destinations in 119 countries. Source: Turkish Airlines. Click to see better.

Turkish fleet

The vast network is served with a fleet of 324 aircraft, Figure 6. Main long-haul types are the Boeing 777-300ER and Airbus A330. Short haul is operated with the Airbus A320 for Turkish Airlines and Boeing 737 for international oriented daughters Anadolujet and SunExpress.

Figure 6. Fleet as of December 2016. Source: Turkish Airlines.

The fleet has grown quickly over the last years (Figure 7) to cater for the fast traffic growth. After the attempted state coup June 2016, the political unrest cut the international traffic and load factors suffered as the aircraft that arrived could not be filled.

Figure 7. Turkish fleet over the years with planned growth. The graph’s aircraft bars are stacked in alphabetical order, with 777-300ER and 777-F on top 2017. Source: AeroTransport Data Bank.

The incoming aircraft paired with a sudden and sharp decline in traffic caused a decline in revenue without a decrease in costs, Figure 8.

Figure 8. Operating revenue, costs and profits between 2011-2016. Source: Turkish Airlines.

The profits of up to 10% of revenue in last year’s were possible with a large international network with load factors approaching 80%, Figure 9.

Figure 9. Load factors between 2011-2016. Source: Turkish Airlines.

With up to 30-40 aircraft deliveries per year (Figure 7) that can’t be fully used due to a sudden drop in traffic, the only possible short term action is to lower the utilization, Figure 10.

Figure 10. Aircraft utilization between 2011-2016. Source: Turkish Airlines.

Rebuilding confidence

Turkish is now working to rebuild confidence for its international customers. The good years built a strong balance sheet (Figure 9), so there is time to regain the impetus.

Figure 9. Balance sheet development between 2011-2016. Source: Turkish Airlines.

Shareholder equity is 28% of balance sheet value.

With a brake on incoming aircraft and an international load factor which has stabilized at 73% for 1Q2017, the period of bleeding should soon be over. This presumes the country settles down to business as usual.

19 Comments on “Turkish Airlines, 2016 a difficult year

  1. Biggest benefit for Turkish Airlines will be the move to the New Airport. Ataturk simply cannot cope with the amount of people transiting there, huge ques everywhere and inside the lounge it doesn’t get much better. Until than, I’ll try to avoid THY.

  2. THY is suprisingly faithful to its four A340-300.
    The only widebodies in direct ownership, not planned to be replaced in the entire planning period up to 2023. Even more surprising, as the youngest is delivery date April 2000.

    • When I checked with Flightaware couldnt see the Turkish A340s flying anywhere
      The only recent flight I found (TK815)was for Istanbul-Amman, which are mostly A333/2 flights , so maybe its a backup plane ?

      • Last flight of TC-JII was April 30st, Germany to Istanbul.
        TC-JIH and TC-JDN flew to Djedda yesterday.
        TC-JDM went to Medina yesterday.
        But indeed, seems to be rather a back-up and special mission aircraft.

  3. It seems that the international load factors were already dropping in 2015, so it’s not just a result of the coup and the subsequent crackdown on dissent. However, the domestic load factors were still improving in 2015, and the fuel costs were much lower than in 2014, so that masked the international load factor drop.

    2016 saw both domestic and international load factors falling, and the company ended the year with red ink.

    There is lots of potential here, but the key is really that “the country settles down to business as usual.” At the moment, though, Kurdish issues, war in Syria and domestic dissent crackdown combine to make Turkey a less attractive tourism destination than it was five or ten years ago.

  4. Two critical issues, both really bad.

    ISIS and all its ramifications

    A dictatorship well on its way.

    I was shocked to see the expansion of powers go through.

    They certainly had plenty of experience with military dictators.

    Apparently if you think its your dictator that makes all the difference. So Erdowin joins the ranks of Putin, Duarte, Assad.

    None of that bodes well for Turkish airways which I was rooting for.
    Ataturk has to be rolling in his grave.

    • Agreed. It’s probably small, but there is a segment of passengers out there (to which I belong) that has stopped flying THY specifically because of Erdogan’s politics.

      • I don’t think it is small…I think lots of transfer passengers can potentially use TK or many others…price and quality made it a great choice for *Alliance flyers but now many, including myself, will choose differently now.

  5. I have a strong suspicion that poor Turkish Airlines for no fault of its own is in for a messy few years: The EU has done a 360 degree switch against Turkey which has seriously harmed a traditional tourist source, the relations with the US (and NATO) is in trouble over Turkish attacks on NATO trained and accompanied Kurdish troops and of course there is that dreaded prospect of the new Ottoman Sultan behaving as such and continuing the mass arrest of the nation’s educational and security forces. I have not been able to track down whether or not Turkish Airlines has been targeted in the crack-down – would not be surprised if it has been as technocrats are a primary target.

    • I believe it is actually Turkey’s government that forced the EU to make a 180 degree turn on it.
      No country with such an abysmal human rights record belongs to the EU.

  6. The president Erdogan is trying to create a strong position for himself. he has been cracking down on all tv stations, news papers and journalist not fully supporting him. Then he started calling all European states fascist, remains of Nazism. Now he is trying to mobilize Turkish emigrants to those countries for support, provoking. This has left EU citizens flabbergasted. Guess where the vast majority of tourists, exports, investments to Turkey come from. People are changing summer holidays back from turkey to Spain, Greece, Italy. And forget 10%..

    • But you can probably get a fantastic beach vacation package if you’re from Western Europe. Ryanair, take note. (And the Russians can probably come back with some deals. Saw Putin authorizing sale of an S400 system sale to Turkey.)

      • You can probably get an even better deal in Algeria, Nigeria or the Sinai peninsula in Egupt. Why do it though? Better to pay something extra and take a truly relaxing holiday in a safe destination.

  7. It’s amazing they didn’t lose 20% or more of their passengers, what with the coup. Kudos to Turkish for this performance! The Greeks? Not so much.

    • The Greeks? What does Greece has to do with TK’s loadfactors?

    • This really has very little to do with the Islamic extremism. The issues are pretty much local to Turkey.

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