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Turkish Airlines moving into Africa: will Turkey emulate China?

16-Jul-2010

Turkish Airlines (THY) is being encouraged to launch services between Istanbul and Lusaka, the capital of Zambia. It is not the first time that the airline has been linked to new African services but on this occasion comes the admission there is a wider agenda involving trade and specifically mining and energy. Could Turkey be about to emulate China, which has been flooding the African continent with executive manpower - especially where there are sparse resources to be mined - using essential air transport as bait?

The Turkish President, Abdullah Gul, this week announced the country is ready to improve cooperation with Zambia in the fields of transportation, agriculture, mining and energy. At the same time the Zambian President, Rupiah Banda, stated he expected Turkish Airlines to launch service to the country, after the governments signed agreements to strengthen aviation services. It is not unusual for air service agreements to be bound up with trade agreements but the scale on which they are happening presently in Africa is striking.

In the same week THY confirmed the launch of four times weekly Istanbul-Lagos (Nigeria) – Accra (Ghana) service from 15-Jul-2010, with Fifth Freedom rights between Lagos and Accra. With the Accra service, Turkish Airlines continues to increase its already extensive network and will serve 127 international destinations worldwide.

Africa is THY’s ‘most valuable destination’

Late in 2009 THY opened an office in Uganda as part of plans to turn Africa into the airline's "most valuable destination", stating that Uganda inspires a lot of investor confidence while its economy is growing at 6% per annum. Three times weekly services to Entebbe Airport (and Dar-Es-Salaam, Tanzania) commenced on 16-Jun 2010. Another African city served newly since the beginning of 2010 is Alexandria in Egypt, with effect from 18-Jun-2010. The carrier plans to establish up to ten new destinations in Africa in 2010. It already serves Addis Ababa, Algiers, Benghazi, Cairo, Cape Town, Casablanca, Dakar, Dar es Salaam, Entebbe, Johannesburg, Khartoum, Nairobi, Tunis and Tripoli.

Zambia's economy has experienced strong growth in recent years, with real GDP growth in 2005-08 about 6% per year, the same as Uganda’s. Privatisation of government-owned copper mines in the 1990s relieved the government from covering mammoth losses generated by the industry and greatly improved the chances for copper mining to return to profitability and spur economic growth. The decline in world commodity prices and demand hurt GDP growth in 2009, but a sharp rebound in copper prices has helped Zambia begin to recover recently.

There are clear economic benefits from dealing with other African countries where THY now flies. For example, Ghana is well endowed with natural resources and has roughly twice the per capita output of the poorest countries in West Africa. Gold and cocoa production are major sources of foreign exchange. Oil production is expected to expand in late 2010 or early 2011. 

Senegal, the once prosperous phosphate exporter, has struggled for two years to secure capital and reduced output has directly impacted GDP. In 2007, Senegal signed agreements for major new mining concessions for iron, zircon, and gold with foreign companies. Firms from Dubai have agreed to manage and modernise Dakar's maritime port and create a new special economic zone.

THY the new Emirates?

Which raises the question of whether THY is also aiming to gain access to these countries as quickly as is Emirates? Presently, Emirates flies to 19 cities in Africa (including Mauritius and the Seychelles). Unsurprisingly perhaps, 12 of them (Casablanca, Tunis, Tripoli, Cairo, Dakar, Accra, Lagos, Dar-Es-Salaam, Entebbe, Nairobi, Addis Ababa and Khartoum) are cities that THY is also now flying to.

Apart from the mineral wealth of many of these countries it has often been suggested that THY could have been what Emirates has become - a truly intercontinental hub airline, able to offer connections to all corners of the globe via Istanbul, if only it got its act together. As far as Africa is concerned at least it seems it is starting to do that.

Using Zambia as an example, there is currently only one intercontinental flight – British Airways to London Heathrow. There is no option on Emirates, Etihad or Qatar Airways and travelling via Johannesburg is an unattractive dog-leg journey to most destinations. THY’s arrival would therefore be a win:win – facilitating much greater access and egress to and from many parts of the world as well as facilitating industrial and commercial co-operation.

Chinese airlines' difficult challenge

But to return to the original premise, while China might be throwing management resources at Africa in order to gain from ‘first refusal’ access to mineral resources there, Chinese airlines have been slow on the uptake as far as their own flights into Africa are concerned. Of the ‘big three’ international Chinese airlines Air China currently has no services into Africa, China Southern has one (Lagos) and China Eastern one (Johannesburg). Of course alliance and code share agreements make indirect access possible but the conclusion must be that the Turkish government is playing the Chinese at their own game quite well; and possibly to greater effect in the long run.

The difference in behaviour highlights the massive advantage that hub carriers like Emirates, Etihad and Qatar Airways have, being able to link multiple city pairs without the need for the sort of long, thin routes that the Chinese airlines would have to operate.

Turkish has an advantage even over the Gulf airlines, as it has substantial origin-destination and domestic markets, in addition to its global network.

Air China has in the past talked about establishing a base in the UAE (which has an open skies policy allowing fifth freedom operations). But this is a strategy that will probably not become viable until airline liberalisation has progressed further. Meanwhile, the power remains with the hub carriers. One option - always in the wings - is for cross-equity airline ownerships and that is perhaps the more probable medium term prospect.

And THY's continued focus

As the world’s attention moves away from Africa following the FIFA World Cup, THY’s attention clearly remains firmly fixed on the continent.

Background information:

  • Based at Istanbul’s Ataturk International Airport, with secondary hubs at Esenboga International Airport and Adnan Menderes International Airport, Turkish Airlines is the national airline of Turkey and the county's largest carrier. Using a fleet of narrow and wide-body Airbus and Boeing aircraft, Turkish Airlines operates a network of domestic and regional services throughout Turkey and the Middle East and international services to Europe, Africa, North America, South America and Asia. Turkish Airlines is a member of the Star Alliance. The airline carried 24.5 million passengers in 2009, up from 22.5 million the previous year. Subsidiaries are SunExpress and Anadoloujet. It is a semi-privatised entity, shares being held by the Republic of Turkey’s Prime Ministry Privatisation Administration (49.12%), and the Public (50.88%);
  • THY achieved a net profit for the year ending Dec-2009 of EUR275.4 million (-51%) and an operating profit of EUR409.9 million (+12%), on sales revenues of EUR3,449 million (+15% but some way short of the target) and promptly announced an additional order for ten B737-800s and ten B737-900ERs from Boeing to be delivered between 2011 and 2014, and valued at USD1.6 billion. In Jan-2010 THY indicated it would acquire 20 A320 family aircraft: 14 A321s and six A319s. The aircraft are to be delivered between 2011 and 2012. Options for another ten A320 family aircraft have been taken, for delivery in 2013. This month THY placed a firm order for an additional A330-200 aircraft. This adds to the airline’s order for 10 A330-300s, two A330-200 freighters and 24 A320-family aircraft signed in 2009;
  • Serbia and Turkey are currently negotiating an aviation deal that could see indebted Serbian flag carrier JAT Airways merge with Turkish Airlines.

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