Turkish Airlines Return to Profits — Thanks to Cargo

Photo credit: Cargo helped drive Turkish to profits in the first half of 2022. Flickr / Caribb

Turkish Airlines returned to operating profits in the first half of this year, primarily driven by the strength of cargo demand. In fact, cargo revenues almost trebled between the first half of last year and this.

“We expected cargo revenues to normalize in the second quarter of this year,” Chief Financial Officer Murat Seker told analysts during the company’s first-half earnings call on Thursday. “The normalization has not been realized yet, and it’s not going to happen any time soon.”

In fact, he believes air freight will continue to boom, thanks to ongoing maritime freight issues and seemingly bottomless demand for e-commerce. The strength of cargo kept Turkish’s second-quarter revenue slide only 33 percent off of 2019, he said. Cargo is also directly responsible for Turkish’s first-half operating profit of $73 million, he said. “By the looks of the current state of recovery, the divergence between high cargo unit revenues and low passenger unit revenues will remain significant during the third quarter,” he said.  

Turkish currently operates a fleet of 26 dedicated freighters as well as 10 widebody passenger aircraft temporarily converted to freighters, or “preighters.” Belly-hold cargo is coming back online as the airline adds more passenger flights. The freighter fleet is at full utilization, and Turkish streamlined scheduling in the first half of this year to get more hours out of its freighters. Seker said the carrier could add more preighters in the third quarter as demand dictates.

The passenger network is poised for a comeback as well. In the first half of the year, demand grew in pace with vaccination rates in countries Turkish serves. Capacity to North America rose from 2019, and to Europe started to rise as the summer approached. Systemwide, Turkish reported operating 70 percent of its 2019 capacity in June and expects to operate 80 percent of its systemwide capacity in the third quarter. Last year, Turkish flew mainly evacuation and humanitarian flights in the first half, making comparisons to 2020 less useful.

Other parts of Turkish’s far-flung network are not doing as well, however, due to ongoing Covid-19 restrictions. Flights to East and Southeast Asia remain the most constrained. Turkish reports strong visiting friends and relatives (VFR) flows from Europe, the Middle East, and North America for South Asia, although the carrier pared back flights to India during the recent Covid-19 surge in that country. Routes to Central Asia and parts of the former Soviet Union were a mixed bag, due to differing quarantine and lockdown regimes throughout the region.

Still, Turkish expects the recovery to gain traction as vaccines roll out. The carrier has so far reported no major cancellations due to the Delta variant of the coronavirus. The booking curve is lengthening out, primarily for longhaul flights but also in Turkish’s domestic network.

The domestic network has rebounded quickly, both from VFR and inbound demand from Europe, Seker said. Andaloujet, the carrier’s mainly domestic budget arm, saw capacity rise 129 percent in the first half and is on track to exceed pre-pandemic levels.

Wildfires in Southern Europe, both in Turkey and Greece, have resulted in cancellations going up 10 percent from earlier in the quarter, Seker said. The wildfires have not affected international bookings, but domestic traffic is down. Turkish did not see widespread cancellations to holiday destinations due to the “sea snot” beach infestation earlier in the quarter.

Turkish is not altering its orderbooks with Boeing and Airbus and still has 145 aircraft on order, 95 of which are firm. The carrier expects to add 25 more aircraft to its fleet this year, bringing it to 371 aircraft by year’s end.

Turkish reported first-half revenue of $4 billion, down from $6 billion in the first half of 2019. Passenger revenues fell by more than half from 2019, to $2 billion, while cargo revenues spiked 121 percent to $1.8 billion.