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Turkish Airlines

Turkish airline defies current economic climate

Unal Basusta, eTN Ambassador  Nov 16, 2008

ISTANBUL, Turkey (eTN) - In a year when the aviation industry suffered billions in losses and many carriers went bankrupt worldwide, Turkish Airlines defied the odds by earnings a huge profit, the company recently reported.

Turkish Airlines (THY) reported a net profit which it said represented a rose 244 percent percent increase over last year’s figures. to 668 million lira ($415.4 million) in the first nine months of the year, Sales jump 24 percent to 4.42 bln lira In 2008 and it had positive expectations to carry 24 million passengers for the year as a whole.

Unlike most of Turkey's state-owned enterprises, where political sensibilities usually outweigh market considerations, though it is state-controlled, THY did without the government support that kept some airlines in other countries afloat. Its efforts to make itself more responsive to the market were reflected in its $125 million profit for 2006 and $247 million profit in 2007. As THY profit seems sustainable because the company restructured itself liberated from the government intervention. That was not same for the Alitali and Olympic while they were draining their respective governments and EU coffers.

For the unions being agreeable has been also a major factor for the THY growth. The savings strategy followed by the THY administration includes the optimization of destinations, airport operations, among others. They lightened up their aircraft by using dishes made of thinner porcelain so their aircraft burn less fuel.

The number of business class passengers that flew THY was up by 26 percent and that of transit passengers by 42 percent, and 15 percent in total passenger numbers in the first half of 2008. "This is the result of quality service and having many destinations on our flight schedule. THY's Star Alliance membership has contributed much to our rising brand name; the company has become more preferred by passengers," THY CEO Temel Kotil stated.

As to whether the growth of other Turkish carriers poses any threat to THY's profit margins, Kotil said there is no effect on THY's market share as its most crucial revenue comes from transit passengers. He continued: "As long as others grow, THY will also benefit. No one but us can carry transit passengers. People fly through Ä°stanbul, and this is a very promising market in which we compete with worldwide companies. We expect the number of transit passengers to reach 1.5 million by the end of this year. The 42 percent growth in the number of transit passengers is a success unique to THY."

THY offers its business and economy class transit passengers with a wait option of at least eight hours and 10 hours, respectively, to take a city tour or rest at a hotel. Kotil underlined: "This has attracted many passengers. Our campaign provided increased customer satisfaction. Since this is a new project, it hasn't yet been reflected much in our profits. But it provides a base passenger segment. We will expand this campaign to all business class passengers regardless of duration of wait; thus we believe this will bring more customers to THY in the future." He also added that this project is both to the advantage of THY and the city of Ä°stanbul, noting: "The Greater Ä°stanbul Municipality and the Ministry of Culture and Tourism also support us. They provide THY passengers free entrance to museums."

Another way THY lures tourists is with its catering services. Kotil says that 5 percent of their expenses are set aside for this service. "The average amount allocated by other airlines for catering is 1 percent. Our goal is to attract more passengers," he notes.

The estimated amount of loss of the aviation industry in 2008 is estimated at approximately $5.5 billion, according to the IATA. "Last year saw a loss of $6.5 billion, and 2008 is still a hard time for the airline industry. But this is not the case for THY. Our company will maintain its five years of growth. A company with a growth trend can survive crises. Employing new staff, buying new aircraft, the fact that THY has a young fleet, our control over costs secure for us a safe spot. We expect year-end figures for 2008 to be good. THY will probably be one of the leading companies worldwide with its operating profit in addition to a high rank in the European market with our total profit figures. Since our rivals are larger companies, their total profit will be larger than ours despite the low ratios [between the amount of seat sales and profit]; yet we expect a high total profit," Kotil underlined.

The THY general manager also commented on the expectations of the aviation industry in 2009. According to him, 2009 will bring more difficulties next year as the crisis and an economic downturn persist. He adds: "THY will grow further, though. Our executive board has decided to add new destinations. There will soon be flights from Ä°stanbul to San Paolo."

Kotil emphasizes that although THY will not delay its current plans and strategies to 2009, it will try to increase productivity. He notes that with an increase in the number of flight attendants and pilots (there will be no increase in the number of other staff), they will increase productivity.

He also says: "Our newly established company, THY Geliştirme AŞ [THY Development Inc.] will continue to work hard to provide productive ways and lead us to grow and increase our profit margins more."

Kotil thinks that THY's growth trend will be as good as this year in 2009. He says that due to Turkey's geographical position, THY can have as many as 180 destinations. "Central Asia, Russia, North Africa and the Middle East are our main markets. In the middle of this huge market, THY will take advantage of the country's position. Although Greece's main carrier, Olympic Airlines, has the same geographical advantage, the capacity of our company is in a better position to make use of this advantage. Our goal is to be the bridge between the Far East and European markets.”

THY was ranked as the world's 25th (total profit) and 21st (operating profit, $463 million) highest profit-earning aviation company with a net yearly profit of $247 million in 2007, according the Air Transport World's annual report. Kotil asserted that THY's ranking will reach single digits as of year-end 2008.

Seat capacity at 21,588 so far, expected to rise to 22,150 in 2009. Since 2004, seat capacity had increased by 72 percent as of July 2008.

At the end of 2008, the average age of the fleet will be around six years. Due to a fleet extension, the total number of personnel increased by 5 percent from July 2007 to July 2008, while cockpit and cabin personnel increased by 16 percent during the same period.
In the Turkish market, domestic and international traffic grew by 3 percent and 10 percent, respectively, for the first half of 2008 compared to that of 2007. By the year-end period, they are expected to increase by 14 percent and 6 percent, respectively.

THY carried 12 million passengers in the first half of 2008, a 15.4 percent increase over 2007. By the end of 2008, a 20 percent increase is expected in the number of passengers. The number of business class and transit passengers grew by 26.5 percent and 42.9 percent, respectively, in the first half of 2008 compared to the previous year.

Total revenue rose by 19 percent in the first half of 2008. Passenger revenue has the largest share with 86 percent, of which 25.1 percent is from domestic flights. Meanwhile. total operating expenses for personnel and fuel, respectively, rose from 24 percent to 26 percent and from 23 percent to 34 percent in the first half of 2008 over the first half of 2007.

Turkish Airlines is Turkey’s flag carrier and it is based in Istanbul. The carrier operates a network of scheduled services to 123 international and 32 domestic cities, serving a total of 155 airports, in Europe, Asia, Africa, and the United States.

The flag carrier has embarked on an ambitious expansion program to become one of Europe's leading airlines, with plans to buy up to 105 wide-bodied and single-aisle aircraft from Boeing and Airbus over the next few years. The airline is also seeking acquisitions in the region.

As of April 1st 2008, Turkish Airlines has became the full member of Star Alliance. Turkish Airlines passengers will be able to reach 965 airport in 162 countries, earn miles, spend miles at any member airline, use over 790 lounges around the world and benefit other such services.

Turkish Airlines also earned the title of Europe’s airline with the least amount of lost luggage.

Turkish airline defies current economic climate
Photograph by Don Veto

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