turkish airlines annual report 2017

106 Pages·2017·15.05 MB·English

TURKISH AIRLINES
ANNUAL REPORT 2017
TURKISH AIRLINES
2017 ANNUAL REPORT
OPEN UP
YOUR HORIZONS ENTHUSIASM COMBINING CURIOSITY
They are enthusiastic about discovering, THE WORLDS We fly for making the impossible possible
Those who can see the beauty of they know no fear. and reaching to the new horizons.
the unknown...
They enjoy differences, ...Just like us. For growing and being fascinated...
THEY ALWAYS HAVE they want to know the unknown. We fly from the new centre of the world WE ARE HERE FOR THE
THEIR EYES AND THEY NEVER LOSE THEIR to new worlds every single day. GENERATIONS WHO ARE
HORIZONS OPEN…
ENTHUSIASM... WE COMBINE THE WORLDS... CURIOUS ABOUT THE UNKNOWN.
THE SAME
There are many “Global” airlines around the world.
They all fly to the same countries, in accordance
with their respective requirements.
They meet average expectations by flying from
point A to point B, and implement the same
routes and tariffs.
IMPROVING POSSIBILITY JOY OF
‘’THE SAME’’
IS A STANDARD FOR THEM… And, They convert others’ impossibilities into DIFFERENCES
there are also those pursuing the possibilities...
undiscovered. They convert anything into idea and
We bring different cultures, people, ideas
reality,
THOSE WHO ALWAYS together.
SEARCH FOR THE NEW AND THEY CREATE AN Our childish curiosity is underpinned by
ARE OPEN TO LEARNING AND UNPRECEDENTED INFLUENCE. sincerity, empathy and heartful hospitality.
IMPROVEMENT... FLIES BEYOND EXPECTATIONS...
We create an enjoyable travel experience
offering differences as much as our flight
destinations.
2
TABLE OF CONTENTS
3 TURKISH AIRLINES AT A GLANCE

4 FOR OUR SHAREHOLDERS
4 Financial Analysis
8 Sectoral Developments and 2018 Expectations
16 Chairman’s Message
TURKISH AIRLINES AT A GLANCE
20 Board of Directors
23 Mission and Vision
24 Strategies and Strategic Focuses

Turkish Airlines, as the airline incorporation
30 TURKISH AIRLINES GROUP
30 Subsidiaries and Joint Ventures flying to the highest number of countries
34 Traffic Figures
and international destinations around the
36 Fleet
world, is working with an endless energy to
38 Flight Network
42 Cargo please its passengers both on the ground
44 Continuing Airworthiness Management, and in the air.
WIDEN YOUR
Maintenance and Repair
48 Catering
WORLD
52 Ground Handling
54 Training
For those who do not feel content by 64 Other Services
visiting the same places and doing the 76 Corporate Development and Information Technologies
Established in 1933, Turkish Airlines’ Turkish Airlines increased the num-
same things; just like us. For those who 83 Human Resources
main fields of activity are all types ber of aircraft in its fleet by 63%
celebrate the new thing will emerge 86 Quality and Corporate Responsibility
of domestic and international pas- in the last 5 years and the number
when differences come together... 90 Corporate Communication senger and cargo air transportation. reached to 329 by the end of 2017.
95 Financial Risk Management In the fleet, there are 90 wide-body
98 Organisation Chart aircraft, 223 narrow-body aircraft
50.88% of the shares of the Incor-
100 Corporate Governance Principles Compliance Report and 16 cargo aircraft.
poration have been offered to the
112 Assessment of the Board on the Effectiveness of the
public, 49.12% of the shares are
Board Commitees owned by the Turkey Wealth Fund Turkish Airlines flies to 303 destina-
BECAUSE WE KNOW THAT 113 Assessment of the Board on 2017 Results and one Group C share is owned tions, consisting of 51 domestic and
TRAVELING IS THE FIRST STEP 114 Legal Disclosures and Documents by T.R. Prime Ministry Privatization 252 international destinations, as of
TO CHANGE THIS WONDERFUL 115 Statement of Independency TURKISH AIRLINES Administration. Paid-up capital of 2017. The number of passengers of
WORLD. 118 Report on Affiliates SHAREHOLDING the Incorporation is TL 1.38 billion. the Incorporation increased by 9.3%
119 Statement of Responsibility STRUCTURE Established in 1933, Turkish Airlines to 68.6 million in 2017 compared to
WE ARE READY TO DEPART Inc. mainly operates in domestic and the previous year. Increase in the
TOGETHER WHEN YOU WANT international passenger and cargo number of passengers was 10.4%
121 CONSOLIDATED FINANCIAL FIGURES
TO CHANGE YOUR WORLD, air transportation. for domestic flights and 8.5% for
127 Consolidated Financial Statements As at and
BROADEN YOUR HORIZON OR international flights. The number
for The Year Ended 31 December 2017
STEP INTO NEW WORLDS. of landings for passenger aircraft
with Independent Auditor’s Report 49.12% 50.88% Turkish Airlines is the airline incorpo-
Turkey Other ration that flies to the highest num- increased by 1.2% to 469,552.
Wealth Fund (Publicly Traded)
ber of countries and international
destinations around the world. Cargo and Mail carried in 2017 in-
creased by 26.5% to 1,122,697 tons.
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TURKISH AIRLINES
FOR OUR SHAREHOLDERS
2017 ANNUAL REPORT
FINANCIAL ANALYSIS
10,958 223 9,403
RECOVERY IN THE AVIATION 8,590 1.317
9,792
SECTOR FOLLOWING A
389% 996
CHALLENGING THE YEAR
After 2016 that was a challenging 11,9% 223 9.5% 32.2%
year for the Turkish aviation sector, Million USD
2017 has been a year of recovery for 10,958 2016 9,403 1,317
Turkish Airlines. The increase in pas- Million USD 2017 Million USD Million USD
senger demand that began in April
reached the highest level especially -77
2016 2017 2016 2017 2016 2017
during summer, and the positive
atmosphere continued for the rest of
the year. The increase in fuel prices SALES REVENUES NET PROFIT PASSENGER REVENUES CARGO REVENUES
up to 25% has led to an increase in
fuel expenses, which is one of the BREAKING A RECORD IN
REVENUE BREAKDOWN BY CATEGORIES
largest expense items in aviation. OPERATIONAL PROFITABILITY
KEY FINANCIAL INDICATORS (MILLION USD)
The positive impact of the rising fuel
Turkish Airlines, which has the most
(MILLION USD)
prices on unit revenues along with an efficient cost management in the sector 2016 2017 17/16 Change
increase in sector average capacity
2016 2017 17/16 Change compared to its competitors, maintained Passenger Revenue 8,590 9,403 9.5%
up to 7% and the increase in pas-
Revenue (Net) 9,792 10,958 11.9% this advantage in 2017 as well. Along with Cargo Revenue 996 1,317 32.2%
senger demand have together led to
the impact of effective capacity man-
the increase in profitability. Contrary Net Profit -77 223 389% Other Revenue 206 238 15.5%
agement and increased demand, Turkish
to the year 2016, currencies of the Net Profit Margin -0.8% 2.0% 2.8 pt Airlines increased its operating profit by TOTAL 9,792 10,958 11.9 %
developing countries raised in value EBIT -167 1,186 810% 450% to USD 1 billion 22 million in 2017
27.5%
against the U.S. Dollar in the year EBIT Margin -1.7% 10.8% 12.5 pt and achieved the highest operating profit
2017. These developments have en- 24.5%
EBITDAR 1,628 3,016 85.3% in its history. According to IATA, while the
abled the sector to breathe a sigh of
average operating profit margin of airline
relief regarding pricing and financial EBITDAR Margin 16.6% 27.5% 10.9 pt companies was around 8% in 2017, Turkish 18.8% 18.8% 3,016
ponla tnhnein agir, lainned choamdp aa pnoiessi't fiivnea inmcpiaalc t end of 2016, in 2017 as well, which period, Turkish Airlines displayed a Aabirolivnee st hhea dse ac tporro afivte mraagrge.in of 9.3% which is 85 2,580 16.6%
conditions. have brought positive results in the performance above the sector aver- 1,849 2,0 628
profitability figures. Total revenues age by reaching an increase of 9.5% HIGH CASH GENERATION 1,
Turkish Airlines, which had a chal- of Turkish Airlines increased by 11.9% in passenger revenues, and 32.2% POTENTIAL
lenging period due to the unfortu- in 2017 compared to the previous in cargo revenues. In 2017, while the
Turkish Airlines expresses its profitability
nate events in our country in 2016 as year, and exceeded the year 2015. passenger revenues constituted 86%
and cash generating potential in terms of 2013 2014 2015 2016 2017
well as the global effects, success- According to IATA, airline passenger of the total revenues, share of the EBITDAR, which is widely used as a per- EBITDAR (Million USD) EBITDAR Margin (%)
fully continued its effective capacity revenues have increased by 6% and cargo revenues in the total revenues
formance criterion in the aviation sector.
management and austerity action cargo revenues have increased by increased to 12%. Our Incorporation increased its EBITDAR 2013-2017 AVERAGE EBITDAR MARGIN: 21.2%
plans, which were launched at the 15% around the world. Within this
by 85% to USD 3 billion 16 million and its
6 7
TURKISH AIRLINES
FOR OUR SHAREHOLDERS
2017 ANNUAL REPORT
7.94
7.77
Total CASK
6.42
12.4%
5.95 5.87 REGIONAL REVENUES* Domestic
(MILLION USD)
24.1%
3.63 3.66
Other CASK 3.40 3.29 3.20 2016 2017 17/16 Change Far East 11.8%
2.96 2.82 Domestic 1,282 1,330 4% Middle East
Fuel CASK
1.96 Middle East 1,154 1,270 10%
1.57 1.66
1.36 Europe 2,791 3,113 12% REGIONAL BREAKDOWN
1.26
1.07 OF REVENUES IN 2017
Personnel CASK 1.09 1.02 Africa 914 997 9%
(MILLION USD)
America 1,297 1,429 10% 13.3%
2013 2014 2015 2016 2017 America
Far East 2,148 2,581 20%
29.0%
Europe
Total 9,586 10,720 12%
UNIT COSTS 9.3%
(USD) * Passenger & Cargo Revenues Africa
EBITDAR margin by 10.9 points to The saving measures and effective in 2017 thanks to its high liquidity BALANCED REVENUE portfolio has been enriched with the
27.5% in the year 2017 compared to capacity management have also and broad base of investors. Our PORTFOLIO newly launched destinations such as
the year 2016. Consequently, Turk- provided the Cost per Available trading volume increased by 76% in Conakry, Kharkiv, Voronezh, Samara
Our Incorporation's large flight
ish Airlines has reached the highest Seat-Kilometer (CASK) to decrease 2017 compared to the previous year. and Phuket, and the share of the Far
network creates a natural hedging
EBITDAR margin in its history and by 1.3% to USc 5.87 in 2017. The share price of our Incorpora- East in the total revenue raised by 1.7
mechanism against regional crises
has continued to be one of the most tion, on the other hand, increased by points to 24% compared to the previ-
by providing a diversified revenue
profitable airlines in the sector. These Turkish Airlines, which has been af- 213.2% in 2017. ous year. That approximately 77% of
stream. The largest share in the re-
figures once again show how high fected positively by the depreciation our ticket sales in 2017 were realized
gional revenue distribution belongs
our Incorporation's internal poten- of TL against USD in terms of cost The market value of Turkish Airlines outside of Turkey indicates a very sig-
to Europe with 29%. The revenue
tial is to enable our Incorporation to management due to the fact that reached TL 12 billion between 2011- nificant service export for our country.
finance its future investments. approximately 30% of its operational 2015. However, the air travel passen-
expenses are in Turkish Lira, con- ger traffic was adversely affected due 350
THYAO BIST 100 313.2
SAVING MEASURES AND tinued to maintain its low unit cost to unfortunate events that start-
300
EFFECTIVE CAPACITY advantage globally in 2017. ed in the last quarter of 2015 and
MANAGEMENT continued in 2016 and the resultant 250
Turkish Airlines has effectively THE MOST TRADED SHARE increased security concerns, and
200 160.9
managed its expenses thanks to the Turkish Airlines shares have been although this consequently affected
saving measures it has implement- traded at Istanbul Stock Exchange the performance of THYAO share 150 147.6
ed since the second half of 2016, under the code of THYAO since 1990. adversely and caused its market 100 128.6
and has continued these measures The free float rate of our Incorpora- value to fall by 30% to TL 8.4 billion,
in 2017 as well. On the other hand, tion's shares has increased to 50.88% the market value of our share has 50
significant improvements have been after the secondary public offerings gained a strong momentum and has
0
achieved in load factors and utiliza- conducted in the years 2004 and increased by nearly three times to TL 7 7 7 7 7 7 7 7 7 7 7 7 7
01 01 01 01 01 01 01 01 01 01 01 01 01
tions thanks to the effective capacity 2006. Turkish Airlines share, which 22.2 billion by the end of 2017 thanks 2 2 2 2 2 2 2 2 2 2 2 2 2
ma20nad1n7 sa augsce hwm aeeclnlt.tio itn sh awse irme pcloenmtiennuteedd ,i n hsmhaaasn rbeyes y ebenya artsmh, ewo inangsv etthhsteeo mmrsoo issntt T tpurrarekdfeeeyrd rf eodr tsaotnr dao tuienrg cInrye,c aeosffrepedoc rtoaivpteieo rcnao'tssi ots nomaualn nedaffi ggcreioemwnectnhyt. January 3, February 3, March 3, April 3, May 3, June 3, July 3, August 3, September 3, October 3, November 3, December 3, December 31,
share at Istanbul Stock Exchange
with a trading volume of TL 171 billion THYAO - BIST (ISTANBUL STOCK EXCHANGE) 100 PERFORMANCE COMPARISON
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TURKISH AIRLINES
FOR OUR SHAREHOLDERS
2017 ANNUAL REPORT
SECTORAL DEVELOPMENTS AND
2018 EXPECTATIONS
The USA has left its mark on the year 2017 in
diplomatic terms. The actions of the new gov-
GLOBAL ECONOMY Growth in the European region was ernment have affected economic and commercial
GLOBAL GROWTH realized above the expectations in developments. The USA, which completed the year
general. While the economic growth 2017 with a growth rate of 2.3% which was below
2017 has been a year in which global
was around 2.4% in the Euro Zone, the expectations, is estimated to complete the
economic growth has been revised
it was 2.3% in the European Union year 2018 with a growth rate of 2.7% due to the
upward. Following the global crisis,
in 2017. Although the economic and effects of expectations regarding FED’s interest
the global growth was 3.2% in 2016.
commercial activities in the Europe- rate increase as well as the country’s strategic
While the growth prospect was at
an region have been revised upwards moves towards Russia, Asian and Middle Eastern
the level of 3.4% at the beginning of
in the year 2018; the factors that countries, the refugee problems and the country’s
2017, the global growth turned out
will affect the European economy protectionist policies.
to be 3.7% thanks to the effect of the
adversely will be the attitude of
convenient financial conditions and
the Central Banks, decrease in the Despite increasing consumption and trade in
the stabilized commodity prices. It
effectiveness of the European Union China, the government’s financial and monetary
is estimated that the stability in the
and emergence of different opinions, stabilizing policies are pushing downward the
year 2017 will also continue in the
Brexit decision of the UK, and the growth estimates for the future. Due to the poli-
year 2018, and the global growth will
developments such as independence cies implemented, the economic growth was 6,8%
raise to 3.9%1.
requests and refugee problems. It is in 2017 and is estimated to be 6,6% in 2018.
estimated that the economic growth
The year 2017 was an intensive
will be 2.2% in the Euro Zone, and In India, the growth has slowed down due to the
year due to the political, econom-
2.1% in the European Union in 2018. foreign exchange inflow policies and the nation-
ic and diplomatic factors and the
wide uncertainties regarding the goods and ser-
unfavoured effects of the year 2016.
In the Middle Eastern region, the vice tax which was announced in the mid-year. In-
While the year 2017 growth projec-
effects of the changes in the fuel dia is experiencing a gradual increase in its growth
tion have been revised downward
price, economic and political devel- rate due to the structural reforms, strong growth
for the USA and the UK, the growth
opments, tension among the coun- in other commodity importers and the growth
was realized above the expectations
tries in the region, and the continuing rate in China. Economic growth in India was 6,7%
in the Euro Zone, Japan, developing
civil war and conflicts are observed in 2017 and is expected to increase to 7,4% in
Asia, developing Europe and Russia
in 2017. This situation is expected 2018 Contrary to negative projections in 2017, the
starting from the second half of the
to continue in 2018 as well. Despite In 2017, global growth in Russia was 1.8% at the end of the year.
year and the growth projection has
these developments, growth record- Moreover, growth in 2018 is projected to be 1,7
been revised upward. China wants
growth was 3.7%.
ed in Middle East and North Africa as %. Brazil, on the other hand, displayed a positive
to keep the growth under control
2.2% in 2017 is estimated to be 3.2% outlook by 1.1% growth in 2017, and is projected to
through tight financial and monetary
in 2018. grow by 1.9% in 2018.
policies and to be minimally affected
by the crises. It is expected that the
growth will continue especially in
1 IMF WEO 2017 October ve 2018 January Update
Europe and China in 2018.
10 11
TURKISH AIRLINES
FOR OUR SHAREHOLDERS
2017 ANNUAL REPORT
Turkey, which
recorded the fastest
growth among G-20
countries in the 3rd
quarter of the year
by 11.3%, completed
the year 2017 with
a growth of 7.4%
that is above the Acceleration in
expectations. Aviation Sector
In Turkey, the upward trend in avia- the desired results due to develop- to increase considerably for both
TURKEY'S ECONOMY 37.2 million and the total amount of In the aviation sector, where eco-
tion has been preserved. Domestic ments in the aviation sector in 2016 passenger and cargo transportation
While Turkey’s economy grew by 3,3% revenue to be generated is estimated nomic approaches have become
passenger traffic increased by 6.9% and the first half of 2017; and some in the year 2018. While the passenger
in 2016 due to unfavored incidents, it to be USD 34 billion3. more important in recent years, flag
to 109 million 600 thousand passen- of the airlines have encountered unit revenue decreased by 1.5% in
quickly recovered from such effects carrier airlines and full service airlines
gers while international passenger negative impacts of the investments 2017 compared to 2016, it is expected
and realized a growth rate faster AVIATION SECTOR have established their own sub-
traffic increased by 17.1% to 83 million they made. to increase by 3.0% in 2018. Cargo
than expected in 20172. OVERVIEW brands to gain a place in the market
432 thousand passengers. Turkey’s unit revenue, on the other hand,
2017 FIGURES AND with low cost passenger transpor-
total traffic increased by 11% com- Besides these affairs, the bankrupt- recovered from the negative effect
Turkey, which grew by 5.4% in the YEAR SUMMARY tation business model. While the
pared to the year 2016, and reached cies announced in 2017 have left and increased by 5.0% in 2017. Cargo
first quarter of the year, recorded the Following the adverse events in low-cost carriers mostly used to use
193 million 318 thousand5. their mark on the sector. In Europe, unit revenue is expected to preserve
fastest growth among G-20 coun- 2016, the aviation sector showed a secondary airports to transport from
the airline companies that had been its acceleration and increase by 4.0%
tries in the 3rd quarter of the year recovery in 2017. In terms of increase point to point; it was observed that INVESTMENTS making loss for years went bankrupt in 20184.
by growing by 11.3% thanks to the in number of carried passengers, the low cost subsidiaries had operated
In 2016, airline companies made and have been purchased entirely or
measures it was taken. Turkey, which generated income and profits, airline in main hubs and made investments
major joint venture (JV) agreements partly (aircraft, slots, personnel, etc. The aviation sector is affected not
completed the year 2017 with a companies achieved a successful to obtain valuable slots at airports
and acquisitions in order to expand separately) by large airline compa- only by physical phenomenon, but
growth of 7.4%, is estimated to grow year in 2017. in 2017.
their current market, feed the flight nies. also by economic, political and social
by 5.5% in 20182.
network, and prevent the risks posed events. The political uncertainities in
In 2017, airline customers benefited According to IATA, the number of
by economic and political uncertain- In addition, the fact that corporate the European Union, effects of Brexit
The revival in the tourism sector in from the low travel costs provided by passengers carried across the globe
ties, and this trend continued in 2017. and individual investors consider the on both British aviation and Euro-
Turkey affected the service sector low-cost carriers, and the number of increased by 7.1% to 4.08 billion pas-
Besides, cargo JV agreements also profit margin in the aviation sector as pean aviation, protectionist policies
positively. The number of tourists passengers increased due to the in- sengers while the capacity increased
gained importance within the year. an investment opportunity and the of the states, policies of the USA
that visited Turkey in 2017 increased creased economic activities, and the by 6.3% in 2017. While the net profit
Other attention-grabbing trends of investments made by major Ameri- government regarding immigrants,
by 28% compared to 2016 and recovery in the tourism and aviation of the sector was USD 34.3 billion,
the year 2017 were the share sharing can investors in the sector within the prohibitions and embargoes, and
reached 32.4 million, and generated sectors. total cost increased by 7.3% and the
between some airline companies and year are indicators that the interest the ongoing and possible conflicts
revenue around USD 26 billion. Pos- fuel-excluded unit cost increased
the cooperation between carriers in the sector will increase in the com- in the Middle East will be the factors
itive developments in terms of eco- Long-haul flights testing realized by by 4%. Unit passenger revenues
with high connection number with ing years. affecting the aviation sector.
nomic, political and inbound tourism the low-cost carriers in the aviation decreased by 1.5% and unit cargo
low-cost carriers.
in 2017 are the indicators of revival sector seem to be the new trend revenues increased by 5.0%4. 2018 FIGURES AND Technology, innovation and digi-
to be observed in tourism for 2018. of the last year. Several low-cost Investments in purchases made by fi- EXPECTATIONS tal transformation will be factors
According to the targets for the year carriers have tested and succeeded in
nancially strong airline companies in The unit revenues, which had shown increasing productivity and efficiency
2018, the number of tourists to visit transoceanic long-haul flights. 1 IMF WEO 2017 October and 2018 January Update the previous years have not reached a downward trend in the previous by being followed up closely and
2 Ministry of Development, Medium-Term Program
Turkey in 2018 is estimated to be
3 R.O.T. Ministry of Culture and Tourism years, recovered in the year 2017. The invested in by the airline companies
4 Airline Industry Economic Performance: 2017
5 GDSA unit revenue of airlines are expected in the year 2018.
12 13
TURKISH AIRLINES
FOR OUR SHAREHOLDERS
2017 ANNUAL REPORT
air cargo sector will be positively domestic routes, 7.8% in international tions continued to diversify. The
affected by the ease of the processes routes, and 8.1% in total8. main flag carrier airlines in the region
thanks to the spread of the electron- respond to the intense competition
ic documents (e-AWB) used in cargo REGIONAL REVIEWS with strategies such as establishing
shipments. The Asia-Pacific region EUROPE sub-brands (LCC or regional), re-
is predicted to be the determining In 2017, European Aviation had a ducing costs, and increasing market
factor for the future of the air cargo successful year thanks to the eco- positioning. As another strategy,
It is estimated that
sector. In the air cargo sector, as in nomic recovery in the market and they continue to increase the number
air cargo traffic will the passenger sector, the importance the decline in the impact of the last of cooperation agreements with the
of customer-oriented approaches is year’s negative events. Growth in the leading airlines in different regions
grow by 4.5% and the
increasing. Similar to the passenger transatlantic market has also pos- and/or expand the scope of their
cargo unit revenue will loyalty programs in the sector, air itively affected the European mar- existing agreements.
cargo loyalty programs have begun ket development. As a result of the
increase by 4.0% in the
to take place. positive developments, load factor IATA estimates that the European
year 2018. of 84.3%, which is the highest rate in airlines will increase their total profit
According to IMF, world trade volume the history of Europe, was reached in in 2018 compared to the previous
increased by 4.7% in 2017. Air car- 2017. Moreover, the market grew by year, and will earn a net profit of
go traffic increased by 9% which is 8.0%, surpassing the capacity growth USD 11.5 billion. The unit profitability
well above this value and exceeds (6.2%). The carriers in the region value per passenger is estimated to
In general terms, 2018 will positively AIR CARGO REVIEW make Cargo JV agreements against
the expectations. The growth of increased their profits from USD 8.8 increase to USD 9.99. The fact that
support the expectations by being a Air cargo sector, despite having a intense competition. It is thought
air cargo traffic above the capacity billion in 2016 to USD 9.8 billion in the expected market growth in 2018
year in which new codeshare agree- volume lower than 1% of the total that the expanded and widespread
increased cargo load factor in the 2017. Unit profitability per passenger is 6.0% higher than the expected
ments will be made, strong partner- world trade, constitutes 35% of the Cargo JV agreements will provide a
sector. According to IATA, the cargo increased by 2% to USD 9.03 in 2017. capacity increase that is 5.5% which
ships will be established, procure- global trade value6. In this respect, transition to the establishment of
load factor in the sector increased by can be seen as a positive indicator
ments and sub-brand developments air cargo sector has great impor- cargo alliances among carriers in the
2.5% compared to the previous year However, several airline companies for the European region.
will be in the foreground, efficiency tance in the world. Many products future. Some carriers, on the oth-
and reached to 45.5% in 2017. On the in Europe were forced to declare
studies will accelerate, and auto- that are used by everyone in daily life er hand, have started to break into
other hand, the cargo load factor their bankruptcy one after the other The factors to affect the European
mation systems and technology will from medicines to electronic goods new markets neither than currently
increased by 2.7% to 49.3% in inter- by failing to catch up with market traffic in 2018 will be the uncertain-
take effect. and fashion products are transported focused markets by establishing new
national destinations7. dynamics and intense competition. ties regarding planning in many
through the air cargo sector. Today, companies with local partners. Many
Withdrawal of the bankrupt airline airlines in the post-Brexit period, the
In Turkey, the developing economy, the opportunity of fast and safe companies, particularly those in the
According to IATA, it is estimated companies from the market has emergence of different views in the
expected positive growth and the shipment provided by the air cargo role of transit carrier, aim to increase
that the volume of the air cargo strengthened other European airline European Union, the autonomy de-
revival expected in the tourism sec- sector plays an important role in the their cargo capacities through the
traffic and the cargo unit revenues companies in strong position, par- mands, and the additional structur-
tor will positively affect the aviation rapid development of many fields new and enlarged cargo terminal
will increase in 2018. IATA estimates ticularly the low-cost carriers (LCC), ing processes of the regional airlines.
investments and increase the pro- such as the international e-com- projects in their main hubs as well as
that the air cargo traffic will grow by and this situation is expected to
pensity to travel. In this respect, our merce sector. the new hubs they establish in differ- 4.5% and the cargo unit revenue will continue in 2018. AFRICA
country is expected to continue its ent regions. By this way, they aim to
increase by 4.0% in 2018. Total cargo Despite the high growth potential of
global influence in the sector with its Fluctuations in the world trade vol- increase their competitiveness in the
revenue, which was USD 54.5 billion The number of available LCC seats in the aviation sector in Africa, Africa
flight activities, passenger transpor- ume, balance between the available global market.
in 2017, is estimated to increase by the European region increased by 2.5 continues to be the worst region in
tation and revenue. cargo capacity and the demand,
8.6% to USD 59.2 billion in 20184. times between 2007 and 2017. The terms of the airlines’ revenues and
transitions between air/sea/land The volume of perishable (tempera-
share of LCC seats, which constitutes profitability, as was the case in the
It is estimated that the number of transportation, fuel prices and fare ture sensitive) cargo in the air cargo
DHMI (General Directorate of State approximately 45% of intra-Europe- last 4 years, due to ongoing structur-
passengers carried across the world levels are important dynamics for sector is expected to increase. For
Airports Authority of Turkey) es- an international air passenger market al problems. Political and economic
will increase by approximately 5.6% the air cargo sector. The presence this reason, many leading carriers
timates that the air cargo traffic in 2017, has grown by 2.3 times be- instability, governments’ protection-
to 4.31 billion passengers, and the of many different dynamics in the make significant investments in
in Turkey will increase by 14.5% in tween 2007 and 20179. The increase ist policies and interventionist struc-
capacity will increase by 5.7% in the sector and the increasingly intense terms of facilities and infrastructure
domestic routes and 7.1% in interna- in the share of the LCCs in the region ture, and poor corporate governance
year 2018. It is estimated that the net competition among carriers have for special cargo (medicine, valua-
tional routes, resulting in an increase causes other airline companies to of the airline companies continue to
profit of the sector will increase by led to an increase in the partner- ble cargo, live animals, perishable
of 7.4% in total in 2018. The increase act through different strategies. The negatively affect the aviation sector.
approximately 11.3% to USD 38.4 bil- ships and collaborations among cargo, etc.) and aim to increase their
values for the year 2017 are 15.5% in number of long-haul flights operat- The revenue and profitability of the
lion while the total costs will increase carriers especially in the recent market share in this area. In addition,
ed by LCC airlines from Europe also airlines in the region decreased by
by 9.6% and the fuel-excluded unit times. Carriers in different regions it is expected that the growth of the
increased in 2017 and the destina- 0.5% compared to the previous year.
costs will increase by 2.0%4. 7 IATA - Air Freight Market Analysis (December 2017)
8 GDSA - Aircraft, Passenger, Load Series and
Estimations
6 IATA - Value of Air Cargo Brochure 9 OAG Aviation Worldwide Limited
14 15
TURKISH AIRLINES
FOR OUR SHAREHOLDERS
2017 ANNUAL REPORT
On the other hand, the capacity revenues, visa embargoes and elec- market and monetary fluctuations,
increase was realized as 3.3% in 2017, tronic bans imposed by the United and pressure in 2017, the situation
which resulted in an increase (3.7 States, came out of this process with has begun to recover and is expected
points) in the load factor, and the loss of revenue and profit. In 2017, to improve further in 2018.
sector has started to progress slowly. the Middle Eastern airlines whose net
profits decreased compared to 2016, Despite the loss of USD 700 million
ASIA have reduced their capacity as pre- in 2016, a net profit of USD 700 mil-
Asia-Pacific, which has a rapidly caution (Especially in US routes with lion was achieved in 2017, and a net
growing economy, led by countries terminating or decreasing frequency). profit of USD 900 million is expect-
such as China and India, is a region ed in 2018. Traffic increased by 4.5%
with a very high growth expectation As a result of the loss of revenue and in 2016 and by 7.5% in 2017; and is
in aviation. Although the Asia-Pa- decrease in profitability in 2017, it is expected to increase by 8% in 2018.
cific region was the fastest growing estimated that the airlines will con- Capacity increased by 3.4% in 2016,
region in 2017 with 8.3% capacity tinue to implement cost reduction and by 5.9% in 2017 despite some
increase and 10% traffic increase, its strategies and will have a capacity obstacles and natural disasters. Ca-
operational profitability within the increase of 4.9% in 2018, which was pacity is expected to increase by 7.5%
same year was 8.5% which fell behind 6.6% in 2017 and 11% in 2016. Despite in 2018. The net profit per pax was
North America (13.2%). This can be the increase in the revenue by 4.5% USD 2.42 in 2016 and USD 2.4 in 2017.
attributed to the high proportion and profit in the aviation sector in In 2018, it is expected to increase to
of the population with middle class 2017, the Middle Eastern airlines were USD 3.004.
income level in the region and the adversely affected by the incidents
travel/consumption demands shaped in the Middle East region and could Although the region has all the
accordingly, the insufficient infra- only achieve a revenue increase by necessary qualities for success in
structure capacity in the region and 0.4% compared to the previous year, the aviation such as competition,
the slot problems at the airports. while their profit decreased from efficient airlines, growing middle
USD 1.3 billion to USD 0.3 billion. class, positive demographic features
According to IATA, 6.8% capacity and geographical conditions, coun-
increase and 7% traffic increase is NORTH AMERICA tries other than Panama and Chile
estimated in the Asia-Pacific region In 2017, the USA implemented new do not provide regular support to
in 2018. It is estimated that the total policies to prevent Gulf carriers’ ex- the airlines that would provide value
net profit of the airlines in the region pansion in North America. These im- and economic benefit to the region.
will increase from USD 8.3 billion in plementations caused mutual dam- For this reason, it is possible that the
2017 to USD 9 billion in 2018. ages. There is no guarantee that such The North American Region, regional aviation will be shaped by
practices will not be implemented by which was the winner in The biggest challenge for profitabili- increase. While the traffic increase external resources and cooperations
The most important factors affecting the current American government in ty in the region will be the costs next was 4.2% in 2016, it was 4.0% in 2017 in the near future10.
profitability with a net profit
the growth of air transport in the the coming period. It is expected that year. Considering that the increase and it is expected to be 3.5% in 2018.
of USD 15.6 billion in 2017, is
region are the increasing presence cooperation will be focused mostly in in the fuel prices and labor costs will In the region where the highest net
of low cost carriers, the elimination Asia and Latin America regions. estimated to make a profit accelerate, it can be predicted that profit per pax are seen, while the net
of regulatory constraints by ASEAN of USD 16.4 billion in 2018. It the sector will be more affected in profit per pax was USD 18.10 in 2016,
(deregulation), the increase of leisure North American airlines continued to the USA territory. Hedging fuel in it was USD 16.32 in 2017, and is ex-
is estimated that the region
travels due to ease of visa policies, exhibit the strongest financial per- smaller quantities will be a disadvan- pected to be USD 16.67 in 20184.
will be followed by Europe,
and the strengthening of the intra formances in the sector. Over the last tage in the case of a rapid increase
Asian market. three years, North American airlines Asia Pacific, Latin America in the fuel price. However, since it is CENTRAL AND SOUTH
have constituted more than half of and Middle East regions expected that the market conditions AMERICA
MIDDLE EAST the aviation profitability. However, will continue to remain strong, the Air transport is vital to the region's
respectively. In the African
Middle Eastern Airlines faced various this momentum is drawing a declining demand will increase, and negative economic growth by contributing
Region, on the other hand,
incidents and took precautionary trend due to rising costs. Even though impacts will be less effective. USD 167 billion to the GDP of the
profitability is estimated to
measures against them in 2017. The the net profit level of USD 20.3 billion region and employing 5.2 million
Middle Eastern airlines, which faced in 2016 could not be reached in 2017, remain at a negative level in The capacity increase, which was people in the region. Although the
problems such as regional conflicts a net profit of USD 15.6 billion is 2018, as in the past. 4.6% in 2016 and 3.9% in 2017, is regional airlines faced with challeng-
and instability such as the process obtained. In 2018, a net profit of USD expected to be 3.4% in 2018. A de- ing environmental aspects, a weak
10 IATA: Latin America & the Caribbean: Challenges
that took place with Qatar, low fuel 16.4 billion is estimated4. celeration is observed in the traffic and Opportunities
16 17
TURKISH AIRLINES
FOR OUR SHAREHOLDERS
2017 ANNUAL REPORT
body aircraft and 16 freighters. In terms AIRPORT IS OUR GREATEST responsibilities in global aviation than
of total number of aircraft (including LEVERAGE their current ones. We are currently
freighters), we are ranked 11th glob- Next year, we will witness one of the completing our plans for efficiently
ally with an average fleet age of 7.7 most important milestones of Turkey’s using the high capacity of the Istanbul
years. We continue our investments in aviation industry and our brand. The New Airport during this period when we
this field; continue our purchases of Istanbul New Airport, which will be- are also rapidly preparing for the relo-
cutting-edge technology, and environ- come operational on 29 October 2018 cation process. Upon completion of the
ment-friendly and fuel-saving aircraft. after completion of its first phase, will first phase, this facility will serve 90
be an investment that demonstrates million passengers annually and 200
We have extended our flight network the future vision of Turkish Airlines and million passengers when it is fully com-
from the Istanbul hub to 303 points will be admired by all. We are already pleted, which will increase even more
including 51 domestic and 252 interna- experiencing the excitement of turning with the growth pace of Turkish Airlines
CHAIRMAN’S MESSAGE tional destinations. We have developed the unique location of Istanbul, the and our aviation sector. The Istanbul
our flight network even more with the city that links the European and Asian New Airport will bring fresh momentum
addition of Conakry (Guinea), Kharkiv continents, into a big advantage for our to the entire aviation sector and will
(Ukraine), Voronezh (Russia), and country and our brand with this gigan- become a unique experience by itself,
Phuket (Thailand) in 2017. This year, we tic, high-capacity, passenger-oriented
civil aviation in our country. As a large
OUR ESTEEMED ation capacity, broke records, amount- increased the number of countries we and "smart" facility which is designed
family of over 51,000 members, includ-
SHAREHOLDERS, ing to 3 billion and 16 million USD, and fly to to 120. By including Freetown (Si- by taking into account both today's
ing subsidiaries, this sense of unity and
CUSTOMERS, BUSINESS our EBITDAR margin was calculated as erra Leone), Samarkand (Uzbekistan), and tomorrow's needs.
engagement shown by Turkish Airlines
PARTNERS, AND EMPLOYEES 27.5 percent. Aqaba (Jordan), Krasnodar (Russia),
in recent years, reinforces my belief even
As a record- breaking year, 2017 was an Moroni (Union of the Comoros), Mar- Thanks to this major investment real-
more that our pace and growth rate
Flying to more countries and interna-
impressive period for national flag-car- rakech (Morocco), and Palermo (Italy) ized with the vision and foresight of our
will increase as we approach our 2023
tional destinations than any other air-
rier Turkish Airlines, and proved what to our flight network, we will continue President H.E. Recep Tayyip Erdoğan,
targets.
line in the world and having a well-di-
can be achieved with determination, to carry our flag to new destinations. all stakeholders of our aviation sector
versified income spectrum, our brand
unity and teamwork. Our Incorporation STRONG GROWTH IN ALL will be assuming much larger roles and
increased its revenue by 12 percent
successfully weathered the effects of LANES According to data of the International
reaching 10 billion 958 million USD
the previous year’s developments on Air Transport Association (IATA), the
As a brand that is enshrined in our
thanks to the increase in demand in
our country and the sector, thanks to its number of passengers transported
passengers' hearts with our award-win-
efficient capacity management, financial 2017, and thus broke another significant globally has increased by 7.1 percent The Istanbul New
ning service quality, we have wrapped
record.
discipline, and following a quick turna- up 2017 with pride, adding another to 4.08 billion people and the capacity Airport, which will be
round in 2017, has again achieved high increase was 6.3 percent. The growth
successful chapter to our history of operational after the
Turkish Cargo, one of our sub-brands,
growth rates, exceeding expectations. in the economies and the populations
achievements. The number of passen- continued its strong growth in 2017, in- completion of its first
of Asia-Pacific countries has led to a
gers we succeeded in attracting, even
creasing the cargo volume transported phase on 29 October
As the airline flying to more countries shift of global economic power from
during the years of challenges, in-
than any other airline, we have become by 26.5 percent to 1.1 million tons. Our the West to the East. A similar trend 2018, will be a great
creased by 9.3 percent in 2017, reaching
Cargo income increased by 32 percent
one of the most profitable powerhouses 68.6 million. This increase, which was is also expected in the aviation sector. advantage for our
compared to the previous year and
in global aviation thanks to high-per- As the airline flying to more countries
10.4 percent in domestic flights and country and brand
reached 1.3 billion USD in 2017.
forming tourism sector’s accompani- than any other, with a mission to build
8.5 percent in international flights, was thanks to its unique
ment to the steady growth of our coun- bridges between continents, peoples
accompanied by a 79.1 percent passen-
Despite the lack of stability in our geographical location
try, Turkey. Undoubtedly, the greatest and cultures, Turkish Airlines devel-
ger load factor with an increase of 4.5
share in this success belongs to our region and the intense global compe- ops its plans and strategies to get the that connects the
points.
tition, Turkish Airlines has maintained
colleagues who despite extraordinary highest share in this growth. European and Asian
its position among the most success-
circumstances, never compromise on
We have achieved remarkable results continents, and to its
the service quality, keep passenger sat- ful companies in its sector through THE ISTANBUL NEW
and records in our financial statement. the above-mentioned figures we have design which takes into
isfaction at the highest level and ensure
We generated a net profit of 223 million
achieved. account all needs for
to make Turkish Airlines "the number
USD, while breaking the Consolidated
one" in the eyes of our guests. I express the future.
Operating Profit record amounting to 1
Turkish Airlines, which has one of the
my appreciation once more to our col-
billion 22 million USD in 2017.
youngest and most modern fleets in
leagues who devotedly work at all times
and would like to thank our subsidiaries, the world, has 329 airplanes as of 2017 M. İlker AYCI
EBITDAR (Earnings Before Interest,
stakeholders and all our businesses including 223 narrow body and 90 wide Chairman of the Board and the
Taxes, Depreciation, Amortization and
Executive Committee
that contribute to the development of
Rent), which represent the cash gener-
18 19