OBG talks to Temel Kotil, CEO, Turkish Airlines

Interview: Temel Kotil

Are Turkish carriers facing increased competition in the domestic market from international players?

TEMEL KOTİL: We have two markets in which we compete. One is the Turkish market, including domestic point-to-point traffic, and the second is the global transfer market. In the former, we have about 60% of the market and this is growing because Turkey has a healthy economy, which is encouraging more people to travel – both internally and internationally. In terms of international competition, we are not facing other airlines directly at home, but are rather competing on a network-wide basis – so the Turkish Airlines network is competing with the networks of other airlines.

Competition does not focus on a single product, but a mix of offerings. For instance, it is not only about competing for passengers flying between Europe and Turkey, but also those travelling between Europe and other destinations via Istanbul. Our network consists of several regions, so that overall success depends on the mixture of elements, but is not fully dependent on any single one. This arrangement also protects us from a downturn or problem in any single region.

Given the high costs of fuel and the volatility of the lira, how will Turkish Airlines fulfil its goal of posting sustainable 15% growth through 2015?

KOTİL: We faced the fuel problem in 2008 when the prices were already high. This is unfortunate, but it is a reality: when fuel prices go up, all the costs go up. It is a fact of the economy and affects all airlines. However, even though costs rose, income also grew and 2008 was our best year. We were listed as the sixth-most profitable firm in terms of operational income, and we were the sixth-biggest airline at that time.

Fuel prices went up, so fares went up, but as our overall costs were more favourable than our competitors, we were able to raise fares and still attain a good margin of profit. We are facing a similar situation now, so it depends on the strategy for controlling other costs that makes a difference when fuel prices fluctuate.

Whenever the lira fluctuates, it hurts us. A steady exchange rate is better. Some 80% of our income is dollars and euros, so the lira fluctuation is not affecting the income. But our accounting is in liras, which means our debts in euros and dollars become problematic.

Because we have debts in foreign currencies, and must account for those in Turkish liras, we are seeing effective income losses at the bottom line. So, we focus on producing more cash, which maintains operational profits and results in a stronger position.

How much of an effect does the government’s foreign policy have on the growth of Turkish Airlines?

KOTİL: One area where the government has a dramatic effect is in issuing visas and relaxing visa requirements.

For instance, the Russia-Turkey market is massive, and even before the visa regulations were relaxed there was significant travel between the two countries. However, all Turkish visitors to Russia used to have to apply for a visa and wait about two weeks before travelling.

Today, we can just go and enter Russia without any delay. The same is also true for Russian visitors to Turkey and other countries, particularly in the Middle East, which supports the growth in that market.

The relaxation of visa requirements has made Turkey an important place to come and do business. That means more people are coming here, increasing the passenger loads. As loads rise, we will be able to handle a rise in frequency more easily. It improves the product and boosts the effectiveness of the whole network.

Ties between Turkey and the European markets are robust. The strongest has traditionally been the Germany-Turkey market, but today the Italy-Turkey and the Spain-Turkey markets are catching up to the pole position. The Russian market will most likely be the strongest in the near future. Airline business is shifting, but the biggest growth is in the niche markets, because the smallest increases have a greatest impact there. The Africa-Turkey market is booming and expanding massively as Turkey opens embassies on the continent.