LONDON — Turkish carriers are going places fast. The national flag-carrier, Turkish Airlines, has expanded so quickly over the past decade that it has almost single-handedly outstripped capacity at Istanbul’s Atatürk International Airport.
The country’s second-largest operator, low-cost carrier (LCC) Pegasus Airlines, is also growing at a rate of knots; it is embarking on a major refleeting exercise, swapping 60 Boeing 737s for an order of up to 100 Airbus A320s. In July, it became the world’s first operator of the CFM International LEAP-1A powered A320neo.
But how will Turkish carriers cope with the geopolitical events buffeting their nation? An attempted coup d’etat in in July was the latest in a series of violent events to rock Turkey this year. A bomb and gun attack by terrorists on Atatürk International killed 41 and wounded 230 in June and was just the latest in a series of attacks in the country. That has caused a slump in tourism numbers as western European visitors stay away.
Compounding this has been the dispute between Turkey and Russia following the shooting down of a Russian strike aircraft by Turkish fighters late in 2015. That led to Russia banning charter holidays to Turkey, one of its most popular foreign vacation destinations. Of Turkey’s 11 million tourists last year, 4.5 million came from Russia.
The two countries have patched up their differences in recent weeks and flights are beginning to flow again, but these events have had an effect on Turkish carriers. Announcing its Q1 2016 figures in late spring, Pegasus reported its loss for the period had more than tripled to $61 million compared to the same period a year previously. It described the quarter as “difficult.”
In a statement to Airways, Turkish Airlines said that the Russian dispute had affected LCCs and charter carriers rather than it.
More generally, said a spokesman, “Terrorist attacks (…) regrettably have become a general situation across the globe in recent times and have unavoidably caused psychological pressure on travellers around the world.”
To cope with downward pressure on demand Turkish had implemented “dynamic capacity management for this newly-emerged environment.”
Domestic traffic had not been affected by the political problems, he said, adding that the Turkish government had recently announced an action plan to support tourism and attract travelers back to the country.
There would be no change in Turkish’s medium- or long-term goals, he said.
The prospects of Turkish and Pegasus recovering from these recent blows depends to a significant extent on the actions of the Turkish government, believes Saj Ahmad, chief analyst at UK-based consultancy StrategicAero Research. And those actions to date did not fill him with optimism.
President Recep Tayyip Erdoğan and his government are widely perceived to be bringing the Islamic religion into Turkish politics – a concept banned by the founder of the modern Turkish state, Kemal Atatürk, in the 1920s and hitherto enforced by the Turkish armed forces, which saw themselves as guardian’s of Atatürk’s legacy.
However, July’s failed coup has allowed President Erdoğan to purge the military of anyone deemed hostile and secular government seems to be slipping away.
This, says Ahmad, poses potential long-term problems for tourism and Turkey’s airlines: “Erdoğan and his Islamic-led party want to inject a sharia-based legal framework. That will certainly put the brakes on people coming to Turkey, if people feel they run the risk of dressing in an inappropriate way, or saying something inappropriate.”
He noted that Turkish’s yields are down, “not least because Turkish is discounting flights to entice customers – and with the likes of Emirates, Etihad and Qatar Airways all themselves offering great tourist alternatives, it’s not hard to see that Turkish is finding it tough to maintain a pricing edge over rivals.
“Turkish is likely banking on a demand resurgence to Turkey once things stabilize in the country – even if that happens, there is no guarantee that stability will bring tourist flooding back, and therefore by extension, yield growth is anything but assured.”
Turkish’s CEO Temel Kotil has recently said that his airline will continue to go for growth, by instituting more destinations and higher frequencies. How viable is that as a policy?
“It sounds great on paper and even better in the real world when you have no competition,” said Ahmad.
“Frequency growth is certainly the mantra for the likes of Emirates for example, but neither Dubai nor the wider UAE has had any domestic terrorism to worry about. Stability goes a long way to providing credibility. Turkey, as a country, right now lacks both stability and credibility.
“I disagree that Kotil’s strategy will pay off and I certainly see Turkish starting to roll back its capacity growth if demand doesn’t improve in the second half of the year.
“Turkish certainly has the ability to get back into the black, but much will hinge on whether capacity growth is curtailed. If it isn’t, I see them carrying a loss this fiscal year.”