Put on your seatbelts, here we goJune 23, 2015 9:00
Turkish Airlines Can Ride Out Turbulence
The airline said there had been little impact on May 15 from a strike in protest over pay and previous sackings.
May 16, 2013 2:57 by Reuters
By Una Galani
The last thing that Europe’s overcrowded aviation sector needs right now is Turkish Airlines. The ambitious flag carrier is doubling its fleet and splashing out on costly marketing in a bid for a slot in the global top 10. As investment stories go, it sounds pie in the sky. But the shares have performed well and a continuing discount suggests there is more to go for.
Travelling on Turkish Airlines was once so bad that locals joked that its initials THY (Turk Hava Yollari) stood for They Hate You. Today, the award-winning airline has become a symbol of Turkey’s wider vision for growth that capitalises on Istanbul’s position as a gateway between east and west. Istanbul’s new airport, due to open in 2017, will be one of the biggest in the world.
The strategy of exploiting Istanbul as a hub has precedent. The big Gulf carriers – Emirates, Qatar Airways andEtihad – have achieved success as each of their home cities have become a nodal point between east and west. Almost a quarter of passengers that fly with Turkish Airlines only enter the country to fly out again. And while Turkish Airlines doesn’t have the deep pockets of its Gulf peers, it does benefit from a large domestic market of 75 million people.
What’s more, the airline’s plans look realistic. The aim to more than double its passengers to 90 million per a year by 2020 implies a 10 percent compound annual growth rate, compared to 16 percent between 2004 and 2012, say analysts at local brokerage IS Investment.
Assuming the demand will come as forecast, the challenge will be to harness it without letting costs rise or quality slip. The power of the main union looks weak after a strike on Wednesday failed to disrupt services and analysts expect it to stay that way. Chief Executive Temel Kotil has denied reports of a boardroom struggle and will take a short break to look after his sick father. It will be important for him to return quickly.
Turkish Airlines shares have risen 204 percent in the past year but they still trade at only 8.2 times forward earnings. Its long-mooted partner Lufthansa, which has been forced to suspend its dividend and cut costs, trades on almost 13 times. And fast-growing Air China trades at around 12 times. The drag is uncertainty over the government’s 49 percent stake. But signs of operational success should both narrow the discount and make it more likely that the overhang will be removed.