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Bilal takes Bul by the horns

Posted 6 June 2018 · Add Comment

Moving to the Istanbul New Airport will help Turkish Airlines forget its recent troubles and once again focus on profitable growth, chief executive Bilal Ekşi tells Martin Rivers.

Bilal Ekşi knew he was in for a rough ride when he took on the role of Turkish Airlines (THY) chief executive in October 2016.
His predecessor, Temel Kotil, had won countless accolades during his time in office, presiding over a decade of rapid expansion and rising prestige for the super-connector airline. By the time of Kotil’s departure, however, events were conspiring against both the flag-carrier and its home nation.
A failed coup d'état, a wave of terror attacks by Daesh, and a regional slowdown in demand were setting the scene for THY’s first annual loss in recent memory. The outlook was so poor that 30 aircraft were grounded and 22 routes suspended when Ekşi took over the helm – a dramatic retreat for an airline that had achieved double-digit growth in each of the past 10 years.
And yet, just 12 months on, THY surged back into the black with a 2017 third-quarter net profit of 2.4 billion lira ($693 million). The flag-carrier’s share price has now more than tripled from its recent low, building confidence as management prepare for an historic move to the Istanbul New Airport.
“Actually, the third-quarter result was very fantastic. It is the record for the last decade,” said Ekşi, the former director general of Turkey’s Civil Aviation Authority.
“If you look at Turkish Airlines [performance during the] last 10 years, every year we are growing more than 14%. So, 2016, for us, was the exception, because of the security concerns. But, of course, we have learned a lot of things in 2016. And one of them is to make the network run in a very smart way.”
At the time of writing, many of the routes that THY suspended two years ago remain closed – among them Alborg in Denmark, Münster in Germany, Rotterdam in Holland, Genoa in Italy, Kermanshah in Iran, and Osh in Kyrgyzstan. However, rising demand has seen the flag-carrier re-open stations such as Bordeaux in France, and Gassim in Saudi Arabia. And other markets – such as Havana in Cuba, and Phuket in Thailand – have been launched anew.
Such proactive capacity management allowed THY to avoid shrinking, even during the downturn, with passenger numbers rising by a respectable 2.5% in 2016. That was followed by stronger 9.3% growth last year.
Combined with an increased reliance on wide-body jets – up from 94 to 105 units in an otherwise static fleet of about 290 aircraft – the changes have put the flag-carrier on track for a healthy full-year profit in 2017. And, while much of the credit goes to management, Ekşi stressed that all departments pulled together during the hard times.
He recalled with delight how one trade union had asked him to re-open pay negotiations, despite already agreeing to hikes of 4% every six months. Their new demand? Less money.
“They said to us they can accept 2.5% [wage growth], because they want to show they are helping our airline,” Ekşi smiled. “The amount [saved] is not big, but the motivation and the emotion is amazing. All around the world, unions are requesting more. Our employees stand behind their airline.”
Happily, sacrifices by the workforce coincided with a vastly improving geopolitical landscape. Having wrought havoc across the region in 2016 – including one deadly assault on Istanbul Atatürk Airport, THY’s home base – Daesh lost most of its territory in Iraq and Syria last year. Seemingly on the back foot, the terror group has not staged any large-scale attacks in Turkey since January 2017. Kurdish militant groups have also cut back their activities. And there has been no repeat of the 2016 attempted coup.
The overall effect has been that holidaymakers are now flooding back to Turkish resorts. Foreign tourist arrivals surged by 28% in the first 10 months of 2017. Officials hope to match the all-time high of 36.8 million visitors – reached in 2014 – this year.
Surging demand could not come at a better time for THY. In October, the flag-carrier will begin moving from capacity-constrained Atatürk Airport to the Istanbul New Airport – a mega-hub designed to be the biggest in the world upon completion.
Plans for a six-runway airport, capable of handling 150 million people a year, remain very much in the blueprint stage. Just two runways will be operational when the gateway opens its doors. But, because they are parallel – unlike the two at THY’s current hub – the benefits will be immediately felt. “[At] Atatürk we have the two runways but they cross each other,” Ekşi explained. “When the wind is [coming] from the south, the capacity drops to half. For this reason, the new airport is offering us much [more] capacity than Atatürk from the first day.”
The new airport’s third runway should be completed in 2019, putting Istanbul on-track to becoming the world’s largest mega-hub. Only Dubai’s Al Maktoum International Airport is seen as a contender.
Ekşi admits that shifting bases will be a “stressful” experience for the flag-carrier.
Incheon International Airport Corporation and Copenhagen Airports have been appointed as consultants for the move, assisting with the development of an operations readiness and transfer (ORAT) plan. The precise details had not been finalised at the time of writing, but it is clear the consultants are recommending a “big bang” approach.
“This means changing the airport ORAT [in a] very short time,” Ekşi said. “We are discussing how many days – one day or one week or two weeks. It will not take more than 15 days.”
He noted that slots at the new airport will be shared liberally with foreign operators. Adopting such an open-door policy may increase competitive headwinds for THY, but management believe the indirect benefits of free-market access will outweigh the costs – particularly when it comes to bilateral restrictions. “Our competitors from the other countries can easily find slots in the [new] airport, and this means that they will offer more traffic rights to Turkey,” Ekşi predicted.
Turning to the fleet, the airline boss confirmed that long-awaited plans for wide-body renewal are taking shape. THY currently has just three firm orders for wide-bodies – all Boeing 777-200LRF freighters – but much larger commitments are in the works.
Last September, Mehmet İlker Aycı, THY’s chairman, announced that he was negotiating the possible purchase of 40 787-9s from Boeing. Four months later, he also signed a memorandum of understanding (MoU) with Airbus covering 20 A350-900s plus five options.
Ekşi stressed that neither deal has been firmed up. He said the board had issued a tender for 40 firm units plus 10 options – perhaps hinting at a split order between Boeing and Airbus, given the size of the latter’s MoU – and that deliveries should be completed by 2023. “There is not any decision right now,” he said. “Whoever is the less cost for Turkish Airlines, we will buy from them.”
Things are clearer on the narrow-body front, as THY already has firm orders for 92 A321neos, 65 737-8 MAXs and 10 737-9 MAXs.
Ten of those aircraft will arrive this year, followed by 35 in 2019, 42 in 2020, 35 in 2021, 30 in 2022 and 15 in 2023. The A321neo and 737-8 deliveries will span the full six-year period, while all of the 737-9s will arrive in 2019 and 2020.
At present, THY’s passenger fleet comprises 97 A320-family jets, 89 737s, 53 A330s, 33 777s and four A340s. The flag-carrier also operates 15 freighters. Across the broader group, 33 737s are deployed with low-cost brand AnadoluJet, and another 31 with SunExpress, a leisure-focused joint venture with Lufthansa.
SunExpress has its own orders for 32 737 MAXs, but AnadoluJet has no outstanding commitments. Asked about its plans, Ekşi speculated that some of the narrow-bodies being retired by THY over the coming years could be refurbished and placed with AnadoluJet. He said that Turkish Seat Industries, another group subsidiary, might be called on to reconfigure the aircraft.
Expansion by the low-cost subsidiary could, in turn, see the group deepen its presence in Ankara’s Esenboğa International Airport – particularly if AnadoluJet is granted independence.
“Today, AnadoluJet is the brand name of Turkish Airlines. It is a dedicated group but it is not a company,” Ekşi explained. “We are discussing [whether] to separate AnadoluJet as a company. It is under discussion and the decision is not yet given, but the board has requested us to make the evaluation. AnadoluJet, if it is separated to an individual company, can utilise Ankara as a hub.”
The Turkish capital already serves as a springboard for domestic air travel, owing to its location in the centre of Anatolia. But the city has relatively few international connections. Both THY and low-cost rival Pegasus Airlines – which also uses Esenboğa Airport – are eager to change that.
Even as he considers a broader nationwide strategy, however, Ekşi’s attention remains firmly focused on Istanbul.
The city’s location at the crossroads of Europe, Africa and the Middle East creates a powerful network effect for THY. Its geographical advantage is strengthened by the flag-carrier’s high proportion of narrow-bodies – opening the door to thin markets – as well as the allure of political relations with Turkey, an enticing prospect for investment-hungry African nations. The result is that THY now flies to 300 airports in 120 countries – more than any other airline – and management continue looking for new routes.
“We will open three to five new destinations for 2018,” Ekşi said, singling out Samarkand in Uzbekistan, and Freetown in Sierra Leone. “But, actually, if you look at the map, there is not much space! Mainly, we will increase the frequencies for existing destinations.”
THY’s appetite for foreign investments has also subtly shifted gears. While it plans to take a stake in Air Albania, the new Albanian flag-carrier being set up with Turkish assistance, no other projects are on the horizon.
“As of today, we have no such intention,” Ekşi said, when asked about media reports linking THY to various African start-ups. “Of course, some countries and some airlines are coming to us and they are offering us to establish a joint venture. If they request from us some help we are very keen to help them. But, as a policy, the joint venture and other establishment is not on the table.
“You know, establishing airlines is easy… but running airlines is not so easy! You should have enough population, enough network. Otherwise you can lose money very easily.”
That focus on commercial viability and financial health will be Ekşi’s guiding light as he leads the flag-carrier away from its darkest year in recent history. With the imminent opening of the Istanbul New Airport, its future once again looks bright.
 

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