Turkey moves to mark its place in skies with ambitious plans

Strategic company

Turkey is aiming to make a major mark in the skies with ambitious plans to build the world's largest airport and a vast expansion of the national airline as it seeks increasingly to build on its strong emerging status to become a global player.
Boasting an airport twice the size of Heathrow and a fleet of modern aircraft, Turkey could pose a threat to struggling European airlines as well as fast growing Gulf carriers.
Key to the plans is the construction of a six-runway airport in Istanbul eventually capable of handling 150 million passengers per year.
The Turkish government has launched a tender to build the 7-billion-euro ($9.4 bn) airport that from 2016 would position the country to become a major hub for traffic between Asia, Europe and increasingly Africa.
"The construction of the giant airport is a clear sign telling the airlines to grow and keep up," Emre Akcakmak, a senior analyst from Sweden-based East Capital, said.
Flag-carrier Turkish Airlines (THY) is expected to make use of the opportunity by nearly doubling its fleet and expanding the destinations it serves by 50 percent.
The airline, twice selected as the best European airline, posted a 20-percent rise in passengers last year to 39 million.
It aims to reach 46 million passengers in 2013, generating a turnover of $9.7 billion (7.2 bn euros).
However it badly needs the new airport as Istanbul's two current airports are nearly stretched to capacity.
THY is widely expected to add to its fleet of 204 Airbus and Boeing planes by placing an order for about 150 new fuel-efficient aircraft, securing a place among the world's top 10 airlines.
That would allow the airline to expand the number of destinations it serves to 300 by 2020, banking on its location at the crossroads of Europe and Asia, as well as good access to Africa.
"We are making superb use of an excellent geography. We can fly most places in profitable, narrow-body single-aisle planes," company CEO Temel Kotil said.
That shows in its operating margin. A key factor of profitability for airlines is the amount of seat capacity offered, and the percentage of those seats occupied.
In the first nine months of 2012 THY boasted an operating margin of 10.4 percent, which left the European majors in the fumes.
Lufthansa posted an operating margin of 2.8 percent for the period, followed by British Airways-Iberia owner IAG at 1.5 percent.
Air France-KLM was in the red for the period.
"THY can fly up to 40 countries in three to four hours, it will always have the unique advantage in the West," said Guntay Simsek, an aviation columnist for Haberturk daily.
"But it is in the Eastern market that THY will really find itself tested with competition, particularly against Emirates and Etihad," he added.
That is because THY is not the only airline looking to bank on good geography.
Emirates Airlines has been one of the world's fastest growing, catapulting itself into the third-largest by capacity, using Dubai as a hub for Asia-Europe traffic.
It recently concluded a global alliance with Australia's Qantas to strengthen that role.
The airline, which does not report quarterly results, carried 34 million passengers in its 2011-2012 operating year and posted an operating margin of 3.9 percent.
Another Gulf contender to the trans-continental travel market is Qatar Airways, which is pondering buying a stake in troubled Czech Airlines.
Then there is Abu Dhabi's Etihad, which is eyeing stakes in India's Jet Airways and the ailing Kingfisher.
"Europe might have been the driving force of the world's aviation but that position is now long gone," aviation expert Kurt Hofmann said.
He said European airlines found the quick rise of airlines like THY and Emirates hard to believe, but that their rise should come as no surprise as the region is filled with governments who know "the importance of a strong carrier."
Turkey's government is targeting rapid economic growth -- it wants the country to become one of the world's top 10 economies in a decade -- and aviation is a priority sector.
In addition to the airport project, the government in recent years has slashed taxes on air tickets and fuel, while EU airlines have been hit with additional charges.
THY, which is still 49-percent owned by the state, does not have bans on night flights at its hubs either.
It is the state support that concerns European rivals, according to a European diplomat who wished to remain anonymous.
"As THY is considered a strategic company, the government is helping it in a way that would be impossible if Turkey were a member of the European Union," he said. "That's not fair competition".
But THY's expansion would not be without risks, however, as it would need to fill the seats on all those new planes or its profitability would be eroded.
"It is both a big potential and a danger when the goals are set so high," Hofmann said. "But THY can do it."