Turk du Soleil: Turkish Airlines needs some fancy acrobatics to navigate its toughest environment ever

Last year wasn’t pleasant for Gulf carriers. Nor was it a good year for Cathay Pacific. Lufthansa and Air France/KLM certainty had their share of headaches in Europe. Singapore Airlines and LATAM wish they had done better. But among the largest global airlines, none had a lousier 2016 than Turkish Airlines.

Fourth quarter results for Turkish aren’t yet in, but in the 12 months to September, Turkish— one of just 20 global airlines with more than $10b in annual revenue—was alone among the 20 in losing money at the operating level. Its operating margin was negative 3% for the period, one in which fuel prices tumbled and worldwide air traffic boomed. Turkish began 2016 with a $280m operating loss in the first quarter, followed by another $163m the next quarter. That preceded a Q3 peak season in which operating margin was a highly disappointing 8%, down dramatically from 21% a year earlier.

The reasons for this dramatic decline in fortunes are clear enough. A series of terrorist attacks, a failed military coup, diplomatic tensions with Russia and conflict in neighboring Syria and Iraq all contributed to a severe decline in inbound tourism, a key pillar of traffic growth for Turkish Airlines. Turkey was in fact the world’s sixth largest tourism destination in 2015, with nearly 40m international arrivals. But last year through November, arrivals were down 31%, led by a near-complete evaporation of Russian tourists after a Russian warplane was shot down in Turkish airspace, prompting Moscow to ban all tour operators from selling package holidays to the country. Tourists from other countries—including Germany, Turkey’s top source of visitors— stayed away too, all this even before a gunman killed 39 people from 14 countries, who were celebrating New Year’s Eve at a nightclub along Istanbul’s waterfront.

The collapse in tourism, in turn, is hurting Turkey’s economy, whose rapid growth in the past decade represented another key pillar of success for Turkish Airlines. GDP might grow less than 3% this year, according to some forecasts, with a multitude of risks threatening even that low level of expansion. In the past year, the Turkish lira has lost about a fifth of its value, making it one of the worst-performing currencies worldwide. As a big energy importer, rising oil prices don’t help. Inflation is running high. And all of this is curtailing the inflow of foreign money…

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