After an unprecedented network cut, THY appears to be on the growth path once again

14 May, 2017

In the winter 2016/2017 schedule the Turkish Airlines (THY) Group implemented an unprecedented year-on-year cut in capacity. According to data from OAG, its total seat numbers were 4.7% lower than in the previous winter schedule. In ASK terms, Turkish Airlines reported a 6.1% year-on-year cut for the winter months (November 2016 to March 2017).

Normal seasonal fluctuations in demand require lower capacity in the winter compared with the summer, but this was the first time that THY had cut is capacity in the winter relative to the previous winter. This cut was a response to a financial loss in 2016, itself the result of a slump in demand for air travel to/from Turkey, coupled with over expansion (see ‘Turkish Airlines: unprecedented loss provokes slowdown in expansion and int'l transfer strategy’)

With the start of the summer 2017 schedule at the end of March 2017 Turkish Airlines has returned to growth, albeit at slower rates than in the past. A CAPA analysis of OAG data published in April 2017 (Europe summer 2017 airline capacity outlook: fifth successive summer of above trend seat growth) indicated that Turkish Airlines' total seat capacity in summer 2017 was planned to be 2.5% higher than in summer 2016.

In early 2017 THY Group announced an ASK growth target of 3% for 2017. The cuts of the winter period are being followed up by a modest return to growth, but this planned full year growth rate is low compared with 11% in 2016 and 14% in 2015. After suffering a decline in load factor in 2016, THY is planning for a 1.5ppt to 2.5ppt improvement in 2017, suggesting that traffic growth will exceed capacity growth.

According to the airline’s CEO Bilal Ekşi, demand has increased ahead of THY's expectations and the ASK growth rate in 2017 will now likely exceed 3%. Moreover, the size of the group's fleet is now expected to remain stable this year, rather than shrinking as previously planned.

As part of its strategy, THY is adding capacity in Southeast Asia as it upgauges Singapore from the Airbus A330-300 to Boeing 777-300ER and launches Phuket. It will have more than 33,000 weekly seats to nine destinations in Southeast Asia by the end of July 2017, representing a 10% increase compared to current capacity.

However, THY is still underserving Southeast Asia in comparison with its competitors in the Gulf. For example, Qatar Airways now has more than 100,000 weekly seats to/from 13 Southeast Asian destinations, and Emirates has more than 150,000 weekly seats across 12 (soon 13) Southeast Asian destinations. It also has a relatively small network compared to its peers in North Asia and South Asia, but only in Southeast Asia does it have the opportunity to expand and close the gap. Southeast Asia is a generally liberal market, whereas THY is unable to expand in China and India due to bilateral constraints.

THY’s cut in seat numbers last winter displayed a much greater sense of capacity discipline. After 13 previous consecutive years of double digit growth, the airline still has a strong growth instinct. Nevertheless, even if it raises its 2017 growth targets, a return to double digit growth seems unlikely in the short term.

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