Across the Aisle from the CEO of Turkish Airlines About Tremendous Growth and Airport Constraints (Part 1)

A couple weeks ago, the CEO of Turkish Airlines, Temel Kotil, was in Boston to speak at Harvard Business School. No, I wasn’t there, but I guess he had some extra time on his hands while in town, because I was asked if I had any interest in talking to him on the phone. Of course, I did.

Today I’m posting the first part of our conversation, which I really enjoyed. The back half, where we address how Turkish is different from the Gulf carriers and the importance of efficient partnerships (or lack thereof, United), will go live on Thursday. Let’s get things rolling…

Planeline

Cranky: I’d like to start by talking about Turkish Airlines today. Obviously the last couple of years you’ve had a strategy of fast global growth. Where are you today in that plan? Is there still much more or are you starting to see things moderate?

Turkish CEO Temel Kotil: Still we are a baby, you know? We are about 2.1 percent of the market share worldwide. Number of destinations we are going, internationally, to 236. And number of flights per day is about 1,200. With destinations, we can be double. We are halfway in our growth. You will see Turkish coming over the next ten years growing like before, at a similar rate. Our average is 17 percent in 10 years.

Cranky: That’s average per year?

Temel: Yes. This year we’re growing 21 percent in [available seat kilometers].

Planeline

Cranky: Of course, that’s a lot of growth and the bigger you get, 20 percent growth means a lot more flights every year. How do you work with this considering some of the geopolitical concerns? You’re surrounded by countries with terrorism issues. You’re surrounded by other countries with economic issues thanks to oil prices going low. How has that changed your growth strategy or has it?

Temel: Actually, with the number of destinations, we are very well positioned geographically. We are not focused on Europe only as we had in years past. The Middle East is strong. AfricaAcross the Aisle from Turkish Airlines is growing fast. And also the African market is not hurting from anything. And on the Atlantic, we have 8 destinations in the US and 9th one coming.

As you said, the problem with Syria, if that hurts us, fine. Or not fine… but it’s not the largest market. In the Russian case, the ruble is going down very badly. We are in 10 cities in Russia. We had 6 flights per day in Moscow. We went 6 to 5 daily but we’re going back in the summer. We’re able to maneuver. We have just 1,200 flights a day. If there’s a problem in one location, I can move other places very easily.

Cranky: You can change where you put airplanes with the exception of Turkey itself. Are there any things in Turkey that concern you? There has been some instability with protests and issues with bordering countries. Is that a concern to you?

Temel: If you know the numbers with tourism, it’s still solid. Last year Istanbul increased 7 percent, worldwide average is about 4.7 percent. And Istanbul hosted about a million tourists. It’s damaged the numbers of course, but our transit ratio is already 55 percent internationally, almost half the income. We’ve surpassed Frankfurt and we’re supposed to pass Charles de Gaulle, Paris. I believe maybe tourism is not as perfect as it used to be. In the Russian case it’s because of some restrictions between Russia and Turkey. But we have Saudis that come in big numbers on the Black Sea as a tourist. Still, the Turkish economy I think is still functioning good. We grew 21 percent. That’s a big number.

Planeline

Cranky: So maybe the bigger concern is the airport itself? I know you have a huge new airport in progress in Istanbul. What’s the state of the airports today? Do you have room or is it constrained?

Temel: Actually constrained. It’s been constrained the last 10 years, and it’s my 11th year as a CEO, you know? The international terminal is expanding by 30 percent in capacity. So we had terminal problems but the terminal problem was solved. On the runway, they’re still improving the escape routes and increasing the throughputs, and I believe we’ll see an additional 20 percent increase. But our 21 percent growth isn’t just at Ataturk [the primary Istanbul airport today].

At Ataturk we have about 10 percent. We’re growing very heavily at Sabiha Gökçen which is also crowded. But if you know, they’re building another runway at Sabiha Gökçen. And also we’re focusing on Ankara very heavily if you know. This means with all that growth until 2018, which is the scheduled opening date of the new airport, 26 of February 2018, I think we can cooperate.

Temel Kotil Turkish Airlines

Next year we grow only about 10 percent, not that much. And 2018 we shift to the new airport. Ataturk is not the finest airport in the world, but it’s working. And we subsdize its physical shortcomings with additional labor force with our joint venture ground services company…. When the new airport opens, it will be great.

Cranky: When the new airport opens, will both the other airports close?

Temel: Actually, Ataturk is supposed to be closed. When the new airport opens, Ataturk becomes non scheduled only…. Only charter, cargo, and business jets can come. But Sabiha they’ll continue even enlarging.

Planeline

Cranky: You mentioned Ankara. Do you see Ankara as having an ability to become more of an international hub of sorts?

Temel: Our logic is we have a production machine. So we can scale up with any number we want because… we have the ecosystem in place already to grow. And we have a good amount of cash if you know it. We’ve raised close to $4 billion over ten-plus years. This means we want to keep the opportunity everywhere.

So Ankara, if it became a natural hub, it’s the capital. AnadalouJet is already a brand there. It has 30+ aircraft, not so small. They’re connecting to other cities in Turkey. By nature I can’t go international from there. Sabiha will be a big hub, we are happy there. Later on, Izmir, Antalya. So you see that Turkish Airlines is hungry for success. We’re never satisfied. Hopefully that’s a good thing.

But when we’re growing this much fast, there are problems, of course. But thanks to god we have enough cash we can run projects on safety, training, service quality. We can spend any amount to fix a problem from growing this much fast. Scale isn’t hurting us. As I said, we have the ecosystem. Just one single example. We have 10 simulators for pilot training, and we’re putting together an additional 48…. In order to support this growth, really we can do some crazy things.

Planeline

Come back on Thursday to read part 2, where we talk about why Turkish is different from the Gulf carriers. We’ll also dive in to Turkish’s partnership strategy and more.

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20 Responses to Across the Aisle from the CEO of Turkish Airlines About Tremendous Growth and Airport Constraints (Part 1)

  1. SingBlue says:

    Flew with them in January, aware that Atatürk was somewhat notorious for weather delays – and indeed the week before I flew they had huge problems.

    Their in-flight product is excellent, and on a par with some of the ME carriers and stronger European legacies.

    Operationally they suck badly. I was flying return from Saudi Arabia to Manchester (UK), and both legs are around 4 hours flying time. Their scheduled turnaround time at Manchester was less than 1 hour, and with Atatürk being mega-busy, the IST-MAN leg on my outbound was an hour late arriving. With a 55 minute connection on my return at IST, this didn’t bode well.

    Needless to say I missed that connection on the return, and was sent from pillar to post from customer service desks (where upon facing irate customers who’d been stiffed worse than we were, service agents response was to simply walk off).

    Was re-booked onto the next flight which was 6 hours without a problem, but Turkish has to decide whether it’s a full service operator or LCC because right now it’s doing neither justice.

  2. Jeremy says:

    Flying TK80 SFO-IST in May and really looking forward to it.

  3. Max G Kluth says:

    Cranky, two cranky questions:

    Why is, in the graphic that shows within today’s “Across the Aisle from Turkish Airlines”, why is the man still smoking, when almost all air travel nowadays is smoke free, and one would not want to show bad examples anyway? And why is only the man smoking, and not the woman as well?

    Please re-arrange…

    Maxe…

  4. Chris C says:

    My wife and I flew Turkish Air last Spring IAD to IST with an additional trip from Istanbul to Athens. The in-flight service was superb. The quality of the food and service was excellent. I was surprised that they managed a complete meal service in the one hour flight to Athens.

    The service issues were ground side and structural. Attaturk Airport is way over capacity. It affects not only delays in takeoffs but other services. It took almost 2 hours to clear immigration and customs and that was with almost all the booths staffed.

    Structurally, by designing Istanbul as their hub, it makes it a longer trip to go to other European airports, Flying to Istanbul and then on to your destination adds time that even their sterling in-flight service won’t compensate for.

  5. Jack from SFO says:

    I agree with the other comments: Great in-flight product, but their technology needs to be improved.

    I had to call them to get seat assignments (not available online in the US, apparently) and the phone agent didn’t inspire confidence. Later, one of our flight times got moved, and there was no notification email or anything—I just happened to notice it when I logged into their very confusing website.

    On the return leg of our trip (Antalya to Ataturk to SFO) there was a snowstorm in Istanbul, resulting in many long delays and cancellations. That was fine—I know that happens. But what was astounding was how long it took for them to rebook us, which they had to do three times, thanks to all the delays). It would take the agents about 20-25 minutes of typing into the terminals, making multiple phone calls on the desk phone, make other calls using cell phones, talking to people on a walkie-talkies, and consulting other agents before changes could be made. The agents did a great job dealing with the many irate customers, but I couldn’t help but think how outdated and overtasked their technology must be if it took that much effort to do a simple rebooking. Maybe they can subsidize their technology shortcomings with additional labor, too.

    • Jack from SFO says:

      Oh I have to add, though—the price was right! And as an SFO-based star-alliance user, I’m sure there’s a good chance I’ll end up on them again. And the lounge at Ataturk was awesome!

    • CF says:

      Jack – Agree on that. It’s not just tech though, it’s policy. We’ve had Cranky Concierge clients who got stuck in a snow storm and they refused to let us rebook or even rebook at the origin city. They made everyone go to Istanbul and deal with long lines for rebooking there, missing potential reaccommodation options. Bad policy.

      • TC99 says:

        Did you inquire about this policy since you have first hand knowledge of these issues? I guess I will “tune in” to find out…

        • CF says:

          TC – I didn’t, though I’m kicking myself for not asking it. I was keeping it to higher level strategic questions, but once he started talking about the efforts at Ataturk, I should have gone into that line of questioning.

  6. npw99 says:

    For some time Turkish has seemed to fit in with the ‘extrapolate growth’ business model where cash plus management drawing lines pointing up equals strategy. It’s even worse when a government starts nodding things through.

    I’m not convinced at all – they may add planes and routes, and have a spanking new airport to move into, but they lack the culture that is needed to glue it all together. Reading the comments makes this even more evident. Hubris.

    NB I was especially pleased to hear you ask the political turmoil question, and I was unconvinced by the answers. The same goes for the Gulf carriers. Turkey, Qatar etc are too geopolitically involved in the mess in Syria and Iraq for comfort, and operationally I’m not sure Turkish have the safeguards necessary to deal with such a security situation. With the PKK active again (as seen in several murderous attacks on Turkish cities), alongside the threats from within Syria such as Islamic State, I won’t be flying with them anytime soon.

  7. iahphx says:

    Did you ask him where the money comes from to support this expansion?

    Because Turkish seems almost “conservative” in its expansion — compared only nearby Emirates, Etihad and Qatar — they tend to get forgotten about in the discussion of whether these airlines are real “for-profit” enterprises. I haven’t read much about Turkish, but I’m skeptical. First, I can’t believe their market could possibly absorb all the new Middle East seats that have come into the marketplace in recent years. Second, nobody seems to ever retrench and take a pause even when really bad things happen in the region. Like take Turkey now. I visit regularly, but I wouldn’t want to visit now. I wouldn’t say the situation in Istanbul is “dangerous,” but I wouldn’t call it safe, either. There must be hundreds of thousands of tourists booking away. Heck, the USA gov’t is so concerned about the situation there that they slapped me with an “SSSS” airline security designation after my last visit. Meanwhile, there’s more political risk (Erdogan, Russia) and their neighborhood is in tough financial straights due to the plunge in oil prices. And they’re still expanding? Really? I don’t think anything like that would happen at a for–profit airline.

    • CF says:

      iahphx – To me the biggest difference is that Turkey is a huge market.
      None of the Gulf carriers have that, but Istanbul is enormous. The fact that 45% of the international traffic is local says a great deal.

      • npw99 says:

        A huge market? They have a domestic market of almost 80 million people with a GDP per capita close to that of places like Cuba and Gabon.

        Their recent growth spurt is spluttering, and they have, as iahphx suggests, a decent chunk of political risk thanks to Mr Erdogan, Syria, the Kurdish problem, Mr Putin’s attentions, the impact of oil price falls on neighbouring economies, and the EU (moribund growth plus an utter unwillingness to let Turkey join the EU club).

        I love Istanbul, but when given the choice of a cheap stopover there with my family (saving $$$) on a Singapore-London flight my wife and I hesitated for 0.25 seconds before looking elsewhere.

        • CF says:

          npw99 – I’m not concerned with the entire country. Istanbul has more than 14 million people making it one of the most populous cities in the world.
          Its GDP is nearly $350m and its future prospects are strong if politics doesn’t screw it all up. Dubai has 3 million people with a GDP of $82 million.

          http://www.brookings.edu/research/reports2/2015/01/22-global-metro-monitor

          If we’re talking about the Gulf carriers and Turkish, then Turkish certainly has a better home market from a demographic and economic perspective.

          • npw99 says:

            No argument there! Although there’s a burgeoning middle class in the large Anatolian cities too. (And it’s worth noting that many of those 14m in Istanbul are dirt-poor recent migrants from the interior, reliant upon buses more than air travel. It’s not London…)

            The Dubai comparison is interesting. For Europeans, Istanbul is seen as a cultural and historical city break, with some mass-tourism spots (attracting Russians) on the Aegean. It’s widely associated with the situation in Syria and with the refugee crisis. Geographically it’s seen as the edge of Europe, so perhaps not as much of a stepping stone to distant places as something a bit further away.

            Dubai is seen as a glamorous, sun-drenched off-season shopping resort (at least by footballers/soccer players and their wives), which is also far enough from home to be a significant stepping stone to far-flung destinations. It’s also considered to be less associated with Middle Eastern trouble spots.

            And thanks for dealing with some of these topics on CF – not all of us read it for updates about flight connections in Denver!

      • iahphx says:

        I don’t disagree that Turkish has a better business model than the Mideast Three, but I’m still very skeptical that it would be a profitable business model in the current environment (especially with the Mideast Three continuing to add so many seats). What do we actually know about Turkish’s finances? Are they a “real” company, or another vanity project of a government? The idea that a Turkish airline would be expanding in the current environment — terrorism in Turkey, the neighboring war in Syria, problems in Russia, the collapse of oil prices, the rapid expansion of the Mideast Three — suggests to me that they’re not a for-profit airline. If there’s evidence to the contrary, I’d love to hear it, as it would be remarkable.

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