Boundless ambition

The ever smiling, ever driven CEO and deputy chairman of Turkish Airlines, Dr Temel Kotil, is a supreme aerospace technocrat bent on ensuring his Istanbul-based carrier will have five per cent of the world’s passenger market by 2023.

by DOMINIC LALK FROM CHICAGO  

February 1st 2016

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If there ever was a man in the right place at the right time, it is Dr. Temel Kotil. The CEO and deputy chairman of Turkish Airlines, backed by a committed government and a newly arrived group of private shareholders (50.88%) is focused on a singular goal: transforming Turkish Airlines into the best airline in the world. Read More »

But then again, what airline in the world, including several Asia-Pacific carriers, doesn’t have the same goal, Orient Aviation asked in an interview at a recent meeting of Star Alliance airline members in Chicago.

'I invite any Chinese airline to fly to Istanbul. If they fly with me or not, it’s the same thing. At least they are flying to Istanbul and not through the gulf'

Dr Temel Kotil CEO and deputy chairman Turkish Airlines

“We will compete with anyone in the world. Turkish Airlines is the best airline in Europe that flies to the most countries in the world. Our target is to have the strongest network in the world, with more destinations than anybody else,” Kotil said. “Our boss is the passenger.”

“From my first day as the CEO of Turkish Airlines," he continued, “my vision was to make it the best in the world in all respects. We hope to achieve that objective by 2023, which is the centenary of the founding of our republic.”

By 2018, which is the scheduled date for the opening of the Istanbul New Airport, Turkish plans to hold five per cent of the global commercial aviation market, Kotil said.

Since taking over as CEO in April 2005 from his “good friend”, Abdurrahman Gündoğdu, Kotil has made significant progress towards his 2023 goal. In 2005, Turkish Airlines carried just over 10 million passengers a year on fewer than 100 aircraft. Its network was concentrated on Europe and the Middle East. Its load factor was below 70% and it flew “only a handful” of long-haul services.

Today, the airline forecasts it will carry 72.4 million passengers this year to 235 destinations in 113 countries on more than 300 aircraft. In 2015, Turkish Airlines took delivery of 35 new aircraft and opened 24 routes. This year, it will add six cities to its network and accept 40 aircraft into its fleet. Its latest long-haul destinations are Istanbul to Port Louis and Antananarivo on a three times a week triangular service.

Kotil’s 2023 goal is undoubtedly a challenge considering the sluggish European economy, the threats and fear of IS in Africa, Europe and the Middle East and, most importantly, mounting competition from Gulf airlines and long-haul low-cost airlines.

But Kotil is unfazed by these issues. “We are competing against ourselves, not others. If we offer cheaper and better services to passengers, they will choose us.”

Turkish Airlines, a Star Alliance member since 2008, carried 54.7 million passengers in 2014, an 11.3% rise over 2013. It boosted its passenger count to 61.2 million travellers by December 2015, up 11.8%.  

Of the 72.4 million passengers forecast for this year, 30.6 million will be on domestic and 40.8 million on international routes, with the rest made up of charter and hajj flights, Kotil said. This makes Turkish the sixth largest airline in the world by international passengers carried.

While passenger load factor is expected to remain stable at 78%, total Available Seat Kilometers (ASKs) will increase 21% year-on-year, to reach 186 billion, with capacity rising most prominently in North America (+31%), followed by Africa (27%), the Asia-Pacific (23%), Europe and the Middle East and Turkey.

Nevertheless, this is small change compared with the 2023 centenary target of 120 million Turkish Airlines travellers.

“China is important for Turkish Airlines,” Kotil said and explained the carrier’s growth on the Mainland was limited by air service agreements between Ankara and Beijing. Although Kotil views “any city in China with a population of more than one million as a potential destination for us,” he also acknowledged it could take several years before air service liberalisation was agreed between the countries.

Kotil favours Open Skies. “I invite any Chinese airline to fly to Istanbul,” he said. “If they fly with me or not, it’s the same thing. At least they’re flying to Istanbul. And not through the Gulf.”

Turkish Airlines has 34 weekly frequencies to Greater China, including daily services to Beijing, Guangzhou and Shanghai as well as six flights a week to Hong Kong. The airline also flies daily to Taipei and will increase the service to ten a week from July.

“The Hong Kong route is popular. We have load factors of 90%. We applied for double daily traffic rights, but they haven’t been granted yet,” Akin Çarkçi, general manager Hong Kong for Turkish Airlines, told Orient Aviation.

Turkish codeshares with Star Alliance partner, Air China, on the Mainland. “We love them, but we’re not sure they love us,” Kotil said. He does not think “they are motivated” to engage in deeper cooperation with Turkish or any other carrier at this time. They are too busy building new markets and expanding their existing ones, he said. “If they fly to Istanbul, that’s good, then we can fly to more places in China.”

Apart from China, Turkish is expanding in the Asia-Pacific with double daily frequencies to Bangkok and Kuala Lumpur from June and daily flights to Delhi, Mumbai, Ho Chi Minh City, Jakarta and Singapore.

But staple destinations in most other carriers’ networks, including Denpasar, Bangalore, Chennai, Phuket, Fukuoka, Nagoya and Yangon are absent from Turkish Airlines’ network. The Philippines is represented by a three-weekly Manila service, but this frequency is dwarfed by Turkish’s Middle Eastern competitors, which fly to Bangkok up to six times a day and have multiple daily frequencies to most cities in Asia, excluding the Mainland.

That said, Kotil firmly stated “the future is in Asia” and said down the line the world’s largest airports will be Beijing and Jakarta, followed by Istanbul. There was no mention of Dubai.

Africa also is an opportunity for Turkish Airlines. “African economies are growing. Passengers coming via Istanbul are growing. We’re offering much cheaper tickets than European airlines,” Kotil said. “In the near future, we will become the most important player in Africa.”

Turkish helped develop the international terminal at Mogadishu and flies daily to the Somali capital, and “is making a good profit”. Turkish uses its B737-800/900ER fleet to serve far-flung destinations such as Maputo, N’Djamena, Kano, Cotonou, Nouakchott, and Kigali.

Kotil has plans to fly to Australia, but is unable to do so for now as its long-haul fleet is built around the A330 and B777-300ER. The CEO said the viability of services to Australia was linked to its long-haul fleet development plan, which will be announced later this year.

Turkish has a fleet of 301 airplanes with an average age of 6.7 years, including ten cargo aircraft. The fleet grew from 261 to 299 in 2015, including a wide-body expansion from 55 to 73 and a narrow-body increase to 216 from 197.

By the end of this year, Turkish is forecast to have 339 aircraft: 240 narrow-bodies, 87 wide-bodies and twelve A330 freighters. The fleet is expected to grow to more than 450 aircraft by 2023, which will make it the same size as China Southern Airlines.

In 2013, it ordered 117 Airbus and 95 Boeing jets, with deliveries to 2021. Last December, it converted 20 A321neo and ten B737 MAX 8 options to firm orders, also with deliveries in 2021-22. The December top-up resulted in an order book of 92 A321neos on firm order plus 14 A319ceos, 30 A320ceos and 56 A321ceos (plus nine on order) already in its Airbus regional fleet. Turkish has signed a $1.8 billion deal with Pratt & Whitney for 184 PW1100G-JM geared turbofans to power its A321neos.

The Istanbul-headquartered carrier has a backlog of 20 B737-800s and 75 B737 MAX 8s, as well as nine additional B777-300ERs; a total of 32 of the long-haul workhorse. It already operates a fleet of 86 B737-700/-800 and -900ERs.

As Turkish’s order log reflects, it is well positioned for short-haul growth. For its long-haul ambitions, it needs to make a replacement and expansion decision for its A330 and B777 fleets soon. Kotil said he was studying the B777X, B787 and the A350, but said “he wasn’t motivated” to acquire the A380.

Istanbul is an ideal transfer point on global routes, reducing flight time and introducing the flexibility of using a variety of aircraft of diverse capacity, he said. Using Atatürk International Airport, Europe’s third busiest after London Heathrow and Paris Charles de Gaulle and ahead of Frankfurt Airport, as a hub allows Turkish Airlines to utilize a narrow-body fleet, a considerable cost advantage that contributes to its competitive effectivesness.

However, the carrier’s growth is closely linked to the expansion of Istanbul’s airports - Atatürk International, Sabiha Gökçen International Airport and under-construction Istanbul New Airport.

Its current global hub, TAV-Airports-operated Atatürk, is congested. It serves 61.2 million passengers each year, almost double its design capacity of 32 million.

Construction on Istanbul New Airport is underway to meet the airline’s growth targets after TAV lost the bid to the Limak-Cengiz-Kolin-Mapa-Kalyon OGG consortium. In June 2014, Turkey’s then prime minister and now president, Recep Tayyip Erdogan, laid the foundation stone at the new airport and announced “Istanbul is marking a historic day. Turkey is marking a historic day. The biggest airport in the world is going to rise here.”

TAV is investing another $100 million in the expansion of Atatürk to boost capacity by 10 million annual passengers, a decision that has raised questions about the practicability of three major airports in Istanbul.

“We will be ready to move [to Istanbul New Airport] in March 2018,” Kotil told Orient Aviation . When fully operational, the $22 billion facility will have a carrying capacity of 150 million passengers annually, simultaneously servicing 271 aircraft via 181 aerobridges and six runways. It will be six times larger than Atatürk, Kotil said. Turkish plans to increase its daily departures to more than 2,000 at the new airport.

The only other airports constructed on the same scale are Dubai’s Al Maktoum, or Dubai World Central, and Daxing International, south of Beijing.

To facilitate the move, and take some of the initial edge off operations, Kotil asked to defer 17 A321neo deliveries from 2017-2018 to 2021-2022, after striking a similar deal with Boeing.

When installed at the new airport, Kotil said Turkish’s immediate goal was to boost frequencies on trunk routes to Europe and offer passengers more choice and flexibility. “We fly to Frankfurt, London, Paris and Rome four or five times a day. But we should have seven or eight daily,” he said. Similar frequency increases are possible on long-haul services, notably New York, he continued, but emphasized Turkish’s core strength will be a very dense regional network within a four-hour radius from Istanbul. To put this in perspective, Turkish now serves 14 airports in Germany, more than flag carrier Lufthansa.

Kotil said after the opening of New Istanbul Airport, the airline would remain committed to its second Istanbul hub at Sabiha Gökçen International Airport, in the east of the city. “Sabiha Gökçen is an entirely different operation on its own,” he said. It will be upgraded with a second runway and expanded for regional growth, rather than long-haul.

Turkish Airlines also is developing the nation’s capital airport, Ankara Esenboğa International Airport, into its third hub. “We want to make Ankara a hub for scheduled domestic and international operations,” he explained. It bases 35 aircraft in the city.

Cargo will continue to play an important role in Turkish Airlines’ development. Turkish Cargo is recording consistently robust profitability figures for its freight operations. In 2015, its cargo business grew 8.1% to 705,000 tons carried, as its African operations grew 61%, followed by South America (+19.7%) and North America (+16.2%). Only Europe slipped, at a rate of -1.7%. In 2016, Turkish Cargo will harmonize its fleet following the replacement of its two remaining A310Fs with off-factory A330Fs and predicts cargo/mail carried will increase by 13%, reaching 815,000 tons.

When quizzed about the competition from the Gulf, Kotil either genuinely does not see the Middle Eastern carriers as a threat or he is a good actor. “I believe that Dubai, Doha and Istanbul will be able to co-exist as three major international hubs for transiting passengers, he said.

Each hub had its own features and importance in the region. Turkish Airline’s model is slightly different than the Gulf airlines, given its significant reliance on short- and medium-haul sectors. Turkish also has shied away from first class and has opted for a more leisure oriented customer offering with its 2009 premium economy Comfort Class.

Turkish has not reported a net loss under Kotil’s leadership. In 2014, it posted a net profit of $845 million. Last year, the numbers are expected to have reached over $1 billion. In the first nine months of 2015, the airline’s net profit was $877 million.

In 2016, Turkish expects its staff to increase by 19%, along with an 18% rise in fuel consumption compared with 2015. In the meantime, the carrier is targeting a 1.5% decrease in ex-fuel unit costs for the year.

However, the airline might still feel the pinch from competition from the Gulf and central Europe. Why else would it anticipate a 3% decrease in passenger unit revenue in 2016 in its January budget update to Borsa Istanbul, if not for fear of falling yields in an oversaturated market, asked Orient Aviation.

The Turkish CEO just smiled. “Big economies overheat and smaller economies like Turkey are emerging,” he says. “There is excess capacity. Demand is not diminishing, the demand is there.”