A LITTLE over a year ago, Gulliver gave a downbeat assessment of the prospects for Turkey’s aviation sector. Having enjoyed a decade of uninterrupted growth of more than 10% a year, Turkish Airlines, the country’s flag-carrier, was grounding aircraft and closing routes amid growing unrest at home and violence across its border with Syria. Concerns about regional security were also making life difficult in the United Arab Emirates (UAE) and Qatar, two other countries that have built aviation empires by connecting far-flung parts of the globe through their hub airports. Yet whereas the Gulf carriers remain in the doldrums, Turkish is gaining altitude again.

There had been just cause for concern about Turkey at the end of 2016. The year unleashed a failed military coup, a resultant purge of dissenters, and a wave of attacks mounted by Islamic State terrorists. When Istanbul’s Atatürk Airport was struck by bombers in June, even transit passengers started to avoid the country. The result was that 9m fewer people travelled with Turkish in 2016 than was originally expected, dragging the flag-carrier to its first annual loss in recent memory.

The first quarter of 2017 offered little reprieve, with the airline suffering another heavy loss. But, as confidence grew that Islamic State was in terminal decline, its second quarter results came close to breakeven. That paved the way for what chief executive Bilal Ekşi described as a “very fantastic” turnaround in the third quarter. While the late summer months are typically the strongest for airlines, Turkish made an astonishing 2.4bn lira ($693m) in the third quarter, surpassing its annual takings in all but one of the past ten years. At the close of 2017, it was confirmed that passenger numbers had almost regained their double-digit growth pace, climbing 9.3%. Whereas in 2016 it was forced to lease out surplus planes, now it has too few to cope with demand.

Mr Ekşi puts the improvement down to a mixture of smart network planning—shifting capacity from weaker to stronger markets—and camaraderie among the workforce. He proudly recalls how one trade union tore up an offer of 4% wage increases, insisting that 2.5% would be adequate. “The amount [saved] is not big, but the motivation and the emotion is amazing,” he says. “All around the world, unions are requesting more. Our employees stand behind their airline.” Such sacrifices undoubtedly helped. But, in truth, it was geopolitics that drove the recovery. Reeling from territorial losses in Syria and Iraq, Islamic State has been unable to perpetrate major atrocities in Turkey for more than a year. In 2016, by contrast, it slaughtered hundreds of Turks. The laptop ban introduced by America in March 2017 also fizzled out before it caused too much damage.

Even so, the region’s other big carriers—Emirates of Dubai, Etihad of Abu Dhabi and Qatar Airways—also benefited from improved regional security and America’s U-turn on the laptop ban. Yet they have not enjoyed the same rebound: Etihad shrunk last year for the first time in its history; Qatar Airways said it would lose money in 2017; and Emirates, the strongest of the bunch, is talking up the need for consolidation. Each faces its own headwinds—worst of all a Saudi-led airspace blockade of Qatar—but the shared mood is stagnation.

If one variable separates the Gulf carriers from their Turkish rival, it is domestic traffic. All four airlines rely heavily on sixth-freedom flows: passengers who start and end their journeys in foreign countries. Dubai, Abu Dhabi, Doha and Istanbul thus serve as junction boxes for global travel, connecting cities around the world with one geographically central stop. The hubbub creates a powerful network effect, allowing the airlines to reach many more destinations than could be supported by their countries’ own citizens and visitors. But piggybacking on the global economy exposes their airlines to foreign fortunes. Turkey, with a population of 80m, dozens of international airports, and its broad range of tourism markets, is alone in having a domestic hedge. Sixth-freedom flows account for half of its traffic, versus 80% at the Gulf carriers.

When Turkish moves from Atatürk Airport to the Istanbul New Airport later this year, Mr Ekşi promises to immediately increase capacity. By contrast, each new delay to Abu Dhabi’s Midfield Terminal and Dubai’s Al Maktoum Airport—two other next-generation hubs—is met with quiet relief by their future home carriers. Their patience will run out eventually. But not before the global economy gives them wings.

Source: economist
Turkish Airlines bounces back to growth