A quickening pace of expansion, although not on the level of the Gulf carriers, can perhaps best be characterised now as ‘aggressive’, kicked off in 2008 when the carrier issued one of the world’s largest commercial aircraft purchase tenders at the time, for 105 aircraft valued at US$6 billion. This was given an added boost by investment last year in both widebody passenger and maindeck capacity as the Istanbul-based carrier moves decidedly further into the cargo realm. With a fleet of 170 aircraft with average age of only 6.5 years, including an existing freighter fleet of four A310-304Fs and two A330-200Fs with three more on order, Turkish serves 185 destinations of which 144 are international. This year the carrier forecasts it will carry 34.8 million passengers and 388,000 tonnes of cargo – an impressive jump of 24 per cent over last year’s cargo throughput of 310,000 tonnes with a cargo load factor of 72 per cent. While largely loss-making through much of its existence as a state-owned carrier, the now stock-exchange listed carrier (49 per cent state-held and 51 per cent openly traded), the carrier’s poignant moment was the commercial aviation crisis of 11 September 2011. Decisive moves by what many industry analysts credit as an entrepreneurial management of the time saw a sharp rebound in 2002 which has led to profitability ever since. The next turning point of course was privatisation in 2006 with Turkey’s government signaling last year it may reduce its share further. In fact, Turkish is the sixth most profitable airline in the world despite ranking farther down the list in terms of passenger-kilometres flown. Uniquely the carrier ranks number eight globally in terms of destinations covered, something the carrier’s CEO plans to make the largest globally by adding another 11 this year and expanding the fleet to 201 aircraft by 2014. So what was behind this amazing ascendency in the highly competitive commercial airline world? “Turkey is different from other places, because we have a nice Minister,” Turkish Airlines CEO Temel Kotil tells Payload Asia with a laugh. Kotil credits Turkish government moves to strip away excessive taxation and protectionism, for creating the environment possible for such aviation growth in the country. Certainly commercial aviation in the country has also benefited from political and economic reforms that have given the country its longest period of uninterrupted economic growth, which averaged six-seven per cent year-on-year from 2002-2007, with growth topping nine per cent last year. Turkey’s steady emergence as a global economic power is pushing its commercial aviation industry to new heights.
Strategic vision
But economic growth can only go so far without strategic vision. Kotil says a global view was crucial to enable the carrier to flourish. “It’s about network and village,” he says. “We used to be a traditional carrier to Europe and that is like a one way road, but if you make a village you create a passenger flow, so really we are building a system and that system feeds itself.” The basic core strategy is to tap Istanbul’s advantageous geographic position straddling the historic east/ west divide, alongside a key focus on transfer passengers by leveraging its Star Alliance membership as it funnels passengers from Europe, the Americas and Asia through the Middle East and Africa. This of course also opens up attractive cargo options. A key reason for Turkish’s growing success has been an emphasis on quality – something that the carrier in its earlier incarnation was not particularly noted for. But this is now of foremost importance Kotil notes, citing the anecdote of the historic Silk Road, of which Constantinople (now Istanbul) was a key city. “On the traditional Silk Road, the traders would sell their things as if they were buying it – basically selling to yourself. This is an excellent idea and is unbeatable,” he says. “You become producer and at the same time the buyer. As the producer you know what the buyer wants. Th at was the strategy and policy of trading on the Silk Road and we’re on the Silk Road today and it’s the same thing, we are producing it as if we are buying it, so this means the product becomes perfect.” He adds that it also has cost benefits, because it means “spend to make it good, but don’t spend unnecessarily.” Similarly, Turkish Airline’s senior VP for cargo, Soner Akkurt also highlights the advantages of Istanbul, Turkey’s commercial capital, because of the fact it uniquely straddles two continents, with one foot in Asia and the other in Europe. With the 17th largest economy in the world, Turkey is not only a producer but a growing consumer country as well, he notes. “Istanbul is beginning to exploit its position as a trading crossroads of the world in the same way that Dubai has done so energetically during the last decade, with the bonus for Turkish Airlines that the country also is a diversifying manufacturer.” “We are in between of main production and consumption areas of the world therefore, we are providing minimum transit times and reliable customer services,” he adds. Indeed, Istanbul’s central geographic location has powered its recent trade growth and has helped the shape of Turkish Airlines’ ambitious development strategy. This geographic position offers the shortest connections to important trade lanes and underpins the growth of Turkish Cargo, Akkurt notes. And like its passenger counterpart, Turkish Cargo takes the advantage of Istanbul’s hubbing capabilities, with the total amount of the transit cargo reaching 52 per cent of the total cargo carried in 2010, which is even higher than the percentage on the passenger side. “Our policy of ever evolving our network and fleet capabilities will improve this share of transit cargo more and more in following years.” The strategy is clearly one premised around organic expansion, with the aim to widen its services globally and as Kotil notes, to have the largest network in the global airline business sector. 
Cargo stands tall
And unlike some carriers where cargo is relegated to a more diminished role alongside the passenger business, Kotil affirms that is not the case with his carrier saying “cargo is dear to Turkish Airlines”. “We know the value of the belly cargo – without the belly we cannot run the longhaul aircraft – so this is why the cargo division is so dear. Their first duty is to fill up the passenger belly and then make sure additional cargo capacity is adjusted. A good number of companies have problems on the belly – we pay attention to the belly,” he says. Kotil adds that overall, belly and maindeck, make an 11 per cent contribution to the group’s business, something he would like to see reach 30 per cent. But he acknowledges this is a very ambitious target and at least for now, “it’s too far away from us”. He cites the example of Korean Airlines which does see a contribution from cargo in that range, but notes that while “it’s a good example, I didn’t say I can reach it!” As for one day moving up to larger capacity freighters beyond the A330 mid-range freighter he says, “there is no decision currently on a larger freighter, but we could go bigger because of course we intend to grow the cargo business.” Currently Turkish Cargo operates to 23 scheduled cargo destinations with its maindeck capacity. This includes: Cairo, Damascus, Amman, Tel Aviv, Amman, Algiers, Tbilisi, Dubai, Casablanca, Tirana, Cologne, Frankfurt, Maastrict, London, Paris, Madrid, Milan, Zurich, Alamaty, Tashkent, Shanghai, Hong Kong and New Delhi. And from July the cargo carrier has launched additional freighter services to Lagos, Budapest, Kabul, Riyadh and Mumbai. Fleet expansion Starting from last year, Turkish Airlines began investing in widebody aircraft which currently comprise around 20 per cent of the fleet, consisting of B777s and A330&A340s, which give the cargo division substantial passenger belly capacity. In order to meet demand of larger cargo volumes in cargo intensive destinations, Turkish Cargo uses its freighters, currently at six aircraft, as well as firm order of three more new generation A330-200Fs which will be delivered in years 2012-2013-2014. Since the fourth quarter of 2010, Turkish Cargo has focused more on the Far East and American destinations and started to widen its network capabilities in those regions, Akkurt says. This includes, from the second half of 2010, the placement of a new A330-200F with 70 tonnes capacity, on twice weekly freighter service direct to Hong Kong and Shanghai. In addition to freighter services the passenger schedule to those cities will rise from four to six and five to seven frequencies per week respectively, with the associated rise in belly capacity.
Healthy start to 2011
So far this year, Turkish Cargo has managed an impressive 17.4 per cent increase in volume over the same period last year. Second quarter figures – if the general industry trend is anything to judge by – may not be quite so impressive however. Of this total 89 per cent was international traffic while the remainder was domestic cargo traffic. The carrier also saw new destinations added in the first quarter, including: Los Angeles, Toulouse, Shiraz, Guangzhou and Valencia, following the addition of ten new passenger aircraft to the fleet. In terms of international cargo traffic, Akkurt said Frankfurt, Maastricht, New York, Hong Kong, Shanghai and Tel Aviv were the best performing routes during the first quarter this year. “In 2011, we are planning to add new freighter only destinations such as Kabil, Mumbai, Riyadh, Jeddah, Addis Ababa, Lagos, Dhaka, Singapore, Munich, Vienna, Budapest, Stockholm, Warsaw, Bangkok and Chennai. This year, we widen our services to North America continent and we will begin to operate scheduled flights to Los Angeles, Washington,” Akkurt says. “As a part of Turkish Cargo’s network policy, we are eager to develop our network capabilities as much as possible. We have a quite widespread cargo service in Europe and Middle East, so we are now focusing to deploy our forthcoming capacity mainly to America and Africa besides Asia.” Kotil adds that Turkish – from both a cargo and passenger perspective – is keen to further tap the Asia to Europe and Africa traffic. “To reach Africa is very easy using narrowbody aircraft and we are developing the market with a focus on Adis Ababa,” where the carrier has daily passenger flights with a freighter to follow he adds. Indeed, China is a big market for the carrier with 13 flights a week including three per week using B777 aircraft to Shanghai, Beijing and Guanzhou yielding about 75 tonnes of cargo as well operating A330s six times a week to Hong Kong. “We are in a very good position to carry people to Africa – we are carrying a lot of Chinese – and have good market share for both passengers and cargo from China to Africa via Istanbul,” says Kotil.
Challenges this year
Like many carriers with services to North Africa and the Middle East, the so-called ‘Arab Spring’ has seen air cargo traffic negatively affected in those regions. “As Turkish Airlines we had seen some volume decreases for the concerning destinations in 2011, yet this problem is a general problem for all the industry,” said Akkurt. He also notes that the load factor for North America is also down, but due largely to the addition of a second daily flight to New York, which he attributes to the fact it is not yet well known by cargo agents in that market. Akkurt says the positive trends of the second half of 2010 still persist, but acknowledges “there is some sign of deterioration due to the fuel price rise, unexpected turmoil in Middle East and natural disaster in Japan.” “We must have a positive attitude, but with precautions. The world economy is still fragile, but our industry is more fragile than the world economy.” He also notes the added pressure of rising costs – in particular rising fuel prices which he points out it will likely lead to inevitable increases in fuel surcharges – along with rising overcapacity problems in a number of markets. “This is a critical year, especially as we are aware of the situation that the rising fuel prices will deteriorate the profits margins for the next half of 2011. So, we have clear strategy for leaner cargo processes, to avoid costs, to deploy our capacity to rising markets where the yields are profitable,” he says. This includes a focus on Turkish Cargo’s growth trend with the opening of new routes and fleet expansion including a second A330-200F freighter and new 11 passenger aircraft up until the end of 2011. “The main focus for 2011 is to be a year of operational productivity and quality in addition to increasing global brand awareness for Turkish Airlines. New aircraft are going to join to the fleet, launching new destinations, renewing of facilities and frequency increases are going to take place.” Akkurt also foresees significant increases in passenger and cargo traffic in parallel to capacity increases with an estimated 35 million of passengers and 380,000 tonnes of cargo being targeted this year. This fleet expansion-driven growth will put obvious pressure on infrastructure and Turkish is confident that it can optimise its current cargo facilities at its Ataturk Airport hub. Currently running at about 80 per cent capacity, the cargo carrier says the facilities will hit maximum capacity within fi ve years. “Due to the structural constraints for further physical growth of the concerning airport facilities, we are looking forward to a new airport which will be built in the very near future. In the meantime we are working closely with airport and government authorities’ to build new cargo handling facilities of our own to handle this growth,” says Akkurt. The new airport with an annual capacity of 80,000 passengers and 500,0000 tonnes of cargo will be similarly located at Istanbul near the existing airport, according to Kotil.
Gulf competition
With increasing competitive pressure from Gulf carriers who have undertaken a policy of aggressive expansion and have now become the largest customers for long-haul aircraft, Akkurt feels their growth rate is sustainable – for now. “But as the capacity increases with new deliveries, it will be a niggling question whether the profit ratio will be still be enough to conduct growth,” he adds. “As Gulf carriers depend on more low fares and best connection between Europe and emerging economies of Asia, we witness big legacy carriers of Europe who are starting to forge more effective alliances. It’s very early to make a conclusion that the Gulf carriers will dominate international transit cargo and passenger traffic. I think for the long term the comparative advantage of the carriers lies on the alliance and product strategy they develop,” he says.
