Turkish airlines and airports reap rewards from bet on pandemic recovery

Turkey’s aviation industry is booming as airlines and airports reap the rewards from years of investment and a bet that international travel would rebound from the pandemic more swiftly than rivals anticipated.

The country’s main airlines — flag carrier Turkish Airlines and low-cost airline Pegasus Airlines — ferried 115mn passengers last year, up 10 per cent from 2019, the year before the pandemic. This compares with global air passenger volumes, which are only likely to exceed pre-pandemic levels this year, according to trade group Airports Council International.

Istanbul airport was the busiest in the Europe region in terms of flight numbers last year, according to data firm OAG, while Turkish Airlines was the third-busiest airline, behind Ryanair and easyJet.

The rapid expansion of Turkey’s aviation sector compared with rivals has led the country to become a dominant player in the European market. The growth comes as the country’s airlines and airports have invested in upgraded infrastructure and fleets, and were quick to bring back capacity following the pandemic. Turkey’s buoyant tourism industry has also provided a boost.

“Turkish aviation was on the rise since before the pandemic . . . in terms of infrastructure and Turkish carriers [also] had the appetite to grow. And once we grew our capacity, we were getting the demand,” said Güliz Öztürk, chief executive of Istanbul-listed Pegasus Airlines.

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The rise of Turkish aviation stands in sharp contrast to the picture in western Europe, where parts of the industry are in retreat.

The region’s big national airline groups, British Airways owner IAG, Air France-KLM and Lufthansa, are still flying smaller schedules than in 2019, after cautiously rebuilding their businesses from the pandemic disruption.

Meanwhile leading airports have struggled to expand amid a growing focus on the impact of noise and pollution on local residents, and the broader carbon emissions from increased flights.

London’s Heathrow is focused on a scaled down growth plan after decades-long struggles to build a third runway, while the Dutch government has been pushing to lower the number of flights at Amsterdam’s Schiphol.

Istanbul airport is at the heart of Turkey’s aviation industry. The $11bn international transit hub, which opened in 2019, features a cavernous terminal, around the size of 200 football pitches. Some 76mn passengers passed through Istanbul last year, slightly lower than Heathrow’s 79mn.

The project, pursued by Turkey’s strongman leader Recep Tayyip Erdoğan, was controversial on environmental grounds, but it has been a boon to state-backed Turkish Airlines’ bid to widen its international scale.

“Turkey is a developing country with a demographic surge that could potentially become middle class and kick the entire country forward, so the policy settings are to set sail for growth,” said Andrew Charlton, consultant at advisory Aviation Advocacy.

Turkish Airlines boosted its available seat kilometres (ASK), a key industry metric for capacity, by about 25 per cent last year from 2019 as it expanded its route map and fleet of aircraft. Pegasus has similarly increased its capacity despite the pandemic by building its fleet.

Industry-wide ASK has shrunk 5.6 per cent over the same period as many carriers retrenched during the pandemic, according to the International Air Transport Association.

Turkish Airlines is plotting a further expansion after it ordered in December more than 200 Airbus aircraft, while Pegasus is expecting to receive 68 single-aisle Airbus jets geared towards medium-haul flights over the next five years.

The investments in Turkey’s aviation sector have not been limited to its flagship airport in Istanbul, the country’s biggest city. A second runway recently opened at Istanbul’s Sabiha Gökçen airport, while expansions are under way in the capital Ankara and tourist hotspot Antalya.

Serkan Kaptan, chief executive of TAV, which operates several major airports in Turkey, said the group had been “laying the foundations for growth . . . [through a] continuous investment programme [that stretched through] the pandemic”.

Turkey’s dominant tourism sector has also been a driver for the aviation sector. Tourism revenues, which reached a record $54bn last year, are forecast to hit $60bn in 2024, with a strong rise in foreign visitor numbers thanks to the weak currency.

The 80 per cent plunge of the lira against the dollar over the past five years has also helped the Turkish airlines, since they generate a significant share of revenue in foreign currencies.

“On the cost side they are benefiting from the cheaper lira. That makes them quite competitive when they try to compete with European carriers like Lufthansa”, said Sathish Sivakumar, head of European transport and infrastructure at Citigroup.  

In 2023, Turkish Airlines’ revenue rose almost 14 per cent to $21bn, placing it within the ranks of top-10 global air carriers by sales, according to FactSet data. Earnings before interest taxes depreciation and amortisation rose 11.7 per cent to $5.5bn.

Still, JPMorgan notes that it expects “operational performance to ease off the peak in 2024-25” as “rising competition [and] softening passenger growth” affect operating profits.

Turkey’s long-running inflation crisis has also increased airlines’ and airports’ non-fuel costs, which are often paid in local currency. Labour costs, for instance, have risen significantly in recent years as Erdoğan’s government has sharply increased the minimum wage.

A bitter row between Turkey and Israel over its offensive in Gaza and instability across the broader region have affected Turkish aviation.

Turkish and Pegasus have both suspended flights to Israel, which had been a popular route. The unrest in the Middle East also depressed Turkish Airlines’ ability to fill seats in late 2023, the airline said.

Despite the geopolitical jitters, European airlines have watched with rising concern the growth of Turkish and airlines in the Gulf which connect east and west via stopovers.

Airlines operating in the EU are subject to the world’s strictest environmental rules, as Brussels charges companies which pollute through its emissions trading scheme, and also plans to bring in a mandate to require airlines to use cleaner but more expensive fuels.

European airlines complain that there is a risk of “carbon leakage” if it is cheaper to break a journey in Istanbul or Dubai rather than fly from point to point on a European airline paying higher environmental taxes.

“More stringent regulation means you might drive people to areas where there is less regulation,” one European airline executive said.

“It is a concern,” said another. “We didn’t care so much about this in 2019 when the cost of polluting in the EU was cheaper, but now we are thinking ‘oh dear’.”