Growing in Turkey

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While the expansion plans of carriers in the Arabian Peninsular may have been grabbing the headlines over the last couple of years, near neighbour THY Turkish Airlines has been quietly building a strong position of its own.

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And with significant orders in place with both Boeing and Airbus, the carrier is breaking out of the 60-70 aircraft fleet size range that has been the norm for the last ten years, and expects to join the 100 aircraft-plus club by 2008. This is being matched by a significant route expansion, including not just European capital cities that were not already on the radar, such as Dublin, Venice and Helsinki, but a host of destinations in the former Soviet Union and Central Asia.
The carrier’s president, Dr Temel Kotil, says that the rapid expansion is in large part a response to a fast growing Turkish economy, following a financial crisis in 2001.  The economy grew by 7.8% in 2002, 5.9% in 2003 and 9.9% in 2004. The 2004 figure was the highest rate among OECD countries. Growth this year is expected to be around 5%.
Dr Kotil says that this has resulted in a significant increase in business travel – figures from the World Tourism and Travel Council (WTTC) indicate that business travel in Turkey grew by 10.4% last year.
The carrier’s operating margin stands up well against its peers in Europe, coming in at 13% for the September quarter. Financial analysts don’t tend to cover THY, but one suggested that the carrier may be benefiting from the fuel surcharge-driven rise in revenues seen among European mainline carriers. Even if this does have a part to play, however, THY appears to be outgunning many of its European peers.
After a successful part-privatisation at the beginning of 2005, when just under a quarter of the company was floated on the Istanbul Stock Exchange, Dr Kotil says the airline is now a “state-owned private company.”    
The carrier’s chief financial officer, Rengin Akillioglu, is proud of the fact that financing for THY’s 2006 fleet deliveries has been arranged at below LIBOR without any sovereign guarantees – a first for THY.
The carrier has been largely beyond the range of European low-cost carriers, who largely have their bases in northern and Western Europe. It has, however, been competing against European leisure carriers flying tourist traffic into Turkey.
The relatively high proportion of tourist/VFR traffic compared to major European carriers may mean that yields are relatively low, but Dr Kotil says that this is not a major handicap. “Yields are low, costs are low. The ratio between the two is good,” he says. The carrier claims that its operating costs come in at 6.65c/ASK (available seat kilometre) compared with an average of 8.84c/ASK average for the Association of European Airlines.
Dr Kotil, who comes from an engineering background, and headed the airline’s maintenance arm prior to his promotion in April 2005, is keen to emphasise that cost control, and cost cutting, have played a large role in the carrier’s turnaround since 2001.
He explains that to some extent THY is playing catch up with the market, and benefiting from a period of prolonged economic stability. “Since 2002 we have had three excellent years,” he says. “We have faced problems keeping capacity up with demand.”
An economic downturn in Turkey in the early part of this decade hit the carrier badly. “There was a lack of investment at that time. It was difficult for management to make decisions” explains Dr Kotil. There hasn’t been any significant renewal of the fleet since the late 1990s, with the average fleet age currently at 9.3 years. By 2008, this will be down to around 6 years.

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