MIAMI — Turkish Airlines is planning to grow capacity by 21% in 2016, building upon its blistering growth of the last decade. At 18%, projected passenger traffic growth will lag slightly behind the increase in available seat kilometers (ASKs), but both figures will far outstrip projections for the global airline industry, which will grow at a rate of 7.1% in 2016 according to projections from the International Air Transport Association (IATA). To support this growth, Turkish Airlines will grow its fleet from 299 aircraft at the end of 2015 to 339 at the end of this year.
Turkish Diverges from the MEB3
Despite the frequent tendency of commentators, myself included, to lump Turkish Airlines into the same grouping as the Middle East Big 3 carriers (Emirates, Etihad, and Qatar Airways) as the MEB3 + 1, there are some fundamental differences in Turkish Airlines’ growth and success thus far. A key driver of course is the massive and growing domestic Turkish market, in which Turkish Airlines owns a commanding market share.
Those 54 million passengers will contribute almost 29 million of Turkish Airlines’ total traffic base of 72 million, and unlike the MEB3, Turkish Airlines can count on the other rapidly growing Turkish markets like Ankara, Adana, Izmir, and Dalaman to fill airplanes and feed long haul flights along with huge origin and destination (O&D) generate by the Istanbul metro area itself.
Beyond the variable endowments in their home markets, the MEB3 also operate a fundamentally different business model than Turkish Airlines. In fact, looking at seat-mile cost figures (cost per ASK or CASK), it almost appears that Turkish Airlines is a low cost carrier operating in a full service carrier’s skin. Relative to its peers in Asia, Europe, and even the Middle East proper, Turkish Airlines has a superior cost structure, and this makes its connectivity across the Istanbul hub highly competitive.
Some of this is driven by the difference in the operations. Istanbul for Turkish Airlines is an extremely busy hub as Dubai, Abu Dhabi, and Doha are, but the key difference lies in frequency. Thanks to the prevalence of widebodies for the MEB3, they operate fewer daily frequencies at their hubs than Turkish does in Istanbul. And this pays off for Turkish because it can spread fixed costs (ground agents, gate leases, etc.) over more flights and lower CASK overall. But it would be improper not to credit Turkish’s aggressive cost discipline as well – the management team has a laser focus on costs that some of the more laissez faire carriers in the region (Emirates excepted) simply don’t match.
That frequency differential is an artifact of Turkish Airlines’ network, which is both broader and thinner than those of the MEB3. Turkish serves 287 destinations as opposed to 164 for Emirates, 151 for Qatar Airways, and 90 for Etihad, which gives it a much broader network, particularly in Europe and Africa, than the MEB3. The other side of that coin, however, is that Turkish serves many (in fact a plurality) of these destinations with sub-daily service (in many cases with just 3 or 4 flights per week), so the frequency and commitment to a route isn’t as palpable as with the MEB3. But this divergence in strategy, coupled with the large Turkish market has allowed Turkish Airlines to surge ahead of the MEB3 in traffic and catapulted Istanbul Ataturk to become the third busiest airport in Europe.
But Faces Growth Constraints in Istanbul
The aforementioned Ataturk airport also represents the primary chink in Turkish’s armor. Thanks to the growth of the Istanbul metro area, Ataturk airport is now completely landlocked and bursting at the seams for both gate and runway capacity. There are some temporary stopgaps in place, such as a new international terminal and shifts in air traffic control (ATC) practices, that Turkish Airlines hopes will smooth things over. But realistically, Turkish’s full growth aspirations will not be realized until Istanbul’s new airport is opened in 2018.
In the interim, the facilities at Ataturk will perhaps be a drag on Turkish’s 2016 capacity growth plans, in particular with regards to increased frequency of existing routes and long haul growth that is apparently focused on the Americas, Africa, and Asia (and will thus require more space than narrowbody aircraft). One possible release valve is to shift some growth over to Sabiha Gokcen International Airport, Istanbul’s second airport on the Asian side of the metropolis. Turkish Airlines has also increased service at Sabiha Gokcen in recent years, but in a consistent theme for Istanbul’s airports, it too is bursting at the seams after growing from just over 1 million passengers in 2005 to 28.1 million (!!) in 2015. And the broader point is that while Turkish Airlines is growing at a breakneck pace, the facilities in its home base of Istanbul must cooperate.