30-Jan-2012 10:41 AM

Natural resources and economic growth draw Turkish Airlines to Africa

Analysis

Turkish Airlines' bullish African expansion plans will see the carrier launch service to several destinations in 2012 and upgrade many existing routes to twice daily. The carrier's focus for 2012 is on expanding in emerging markets, primarily Africa, as further network expansion in the US is on hold and plans for launching service to Australia will likely not materialise until at least 2013.

Turkish currently operates 18 destinations in Africa, including Misrata in Libya which was launched in Dec-2011. Turkish CEO Temel Kotil told CAPA in Dec-2011 that the carrier plans to launch in 2012 Abuja and Kano in Nigeria; Kigali in Rwanda; Abidjan in Cote d'Ivoire; and Mogadishu in Somalia.

The carrier has since also announced plans to launch in 2012 Kinshasa in The Democratic Republic of the Congo, which could give Turkish an African network of 24 destinations by the end of this year.

Summary

Turkish Airlines plans to expand its operations in emerging markets, particularly in Africa, in 2012.
The airline aims to launch new routes to Abuja and Kano in Nigeria, Kigali in Rwanda, Abidjan in Cote d'Ivoire, and Mogadishu in Somalia.
Turkish Airlines will become the largest international carrier in Africa in terms of the total number of destinations.
The airline's expansion in Africa is made possible by its new fleet of Boeing 737-900ERs, which will be used to launch new routes and increase frequency on existing routes.
Turkish Airlines plans to increase frequencies on key African routes, including Addis Ababa, Lagos, and Nairobi, and potentially increase services to Libya.
The airline is also looking to expand its operations in Asia and Europe, with potential routes to Sydney and Melbourne via Jakarta, and new destinations in Europe and Asia.

The dramatic expansion will make Turkish the largest international carrier in Africa in terms of total number of destinations. The African expansion is partially made possible by the carrier's new fleet of Boeing 737-900ERs, which will be used to launch new routes and to increase frequency on existing routes that are currently served with widebody aircraft. Turkish already operates two Boeing 737-900ERs, which were delivered in 4Q2011 and are now used to serve three African destinations: Dar es Saalam, Accra and Lagos.

The aim of switching to narrowbodies on some medium-haul African routes is to allow Turkish to offer more frequencies to African destinations and to free up widebodies for expansion in other regions. Mr Kotil says Turkish Airlines does not have any widebody deliveries scheduled for 2012. While some long-haul expansion will be pursued using the widebody aircraft freed up from African routes as eight additional Boeing 737-900ERs are delivered, the rate of long-haul expansion for Turkish in 2012 will not be nearly as rapid as previous years.

Turkish Airlines current African destinations (route, frequency, aircraft) as at 27-Jan-2012

Country	Airport	Frequency	Aircraft
Morocco	Casablanca	Daily	A330/A340-300
Algeria	Algiers	Daily	A330/A321
Tunisia	Tunis	Daily	737-800
Libya	Tripoli	11 times weekly	737-800
Libya	Misrata	Daily	737-800
Libya	Benghazi	10 times weekly	737-800
Egypt	Cairo	17 times weekly	A320
Egypt	Alexandra	Three times weekly	A319
Sudan	Khartoum	Daily	737-700
Ethiopia	Addis Ababa	Daily	737-800
Kenya	Nairobi	Daily	737-800
Uganda	Entebbe	Three times weekly	737-800
Tanzania	Dar es Salaam	Four times weekly	737-900ER
Senegal	Dakar	Three times weekly	737-800
Ghana	Accra	Four times weekly	737-900ER
Nigeria	Lagos	Daily	737-900ER
South Africa	Johannesburg	Twice daily	A330
South Africa	Cape Town	Daily	A340-300

Each of Turkish Airlines' planned new destinations in Africa has a rapidly growing economy (such as Rwanda, which has a projected GDP growth rate of 6.8% for 2012), valuable natural resources (such as the gold and diamonds found in Cote d'Ivoire) or oil (as is already present in Nigeria and likely to be found in Somalia).

Turkish Airlines new African destinations (country profiles) as at 27-Jan-2012

Country	Turkish Airline planned route	Trade ranking with Turkey	GDP growth rate	Natural resources	Seats per week*
Somalia	Istanbul-Mogadishu	50+	2.6%	Uranium, largely unexploited reserves of iron ore, tin, copper, salt, natural gas, likely oil reserves	6756
Rwanda	Istanbul-Kigali	50+	6.5%	Gold, tin ore, tungsten ore	29,714
Nigeria	Istanbul-Kano-Abuja	36	8.4%	Natural gas, petroleum, iron ore, tin, limestone, lead, zinc	416,368
Cote d'Ivoire	Istanbul-Accra-Abidjan-Accra	50+	2.6%	Petroleum, natural gas, diamonds, iron ore, copper, gold, nickel, hydropower	29,575
The Democratic Republic of the Congo	Istanbul-Kinshasa	50+	7.2%	Diamonds, copper, gold, zinc, tin, cobalt, coltan	14,026

Turkish to become third carrier serving Mogadishu

Turkish Airlines initially announced last month plans to launch twice daily service to Mogadishu in Somalia with Boeing 737-900ER equipment from Jan-2012. But the launch has since been delayed due to the condition of Mogadishu International Airport.

Turkish Airlines will be the third carrier to operate at Mogadishu International Airport and the first carrier from outside Africa to offer scheduled flights at Mogadishu in 21 years. Other carriers currently serving Mogadishu include Kenya-based African Express Airways and Somali carrier Jubba Airways. Turkish plans to offer 2114 seats per week in the Somalia market, making it the largest carrier at the airport and third largest in the country.

Turkish will be particularly well positioned to connect Somalis living overseas to their homeland. There are large Somali populations in the UK, the Netherlands, the US and Finland, which are all included in Turkish's network.

Mogadishu International Airport capacity by carrier (seats per week): 23-Jan-2012 to 29-Jan-2012

Turkish's planned entry into Somalia comes as Canadian oil company, Africa Oil, begins drilling two wells in the semi-autonomous region of Puntland. Africa Oil believes that at the depth it is drilling (3800 meters below ground), it will discover between three and four billion barrels of oil. If correct, Somalia's economy will no doubt be improved and in need of international air connections, which Turkish Airlines will have already established.

Somalia also has a wealth of other natural minerals such as salt, natural gas, uranium, iron ore, tin and copper. Turkey has been active in helping Somalia construct schools, hospitals and roads, and in 2010, imported USD5.2 million worth of goods into Somalia (making it the country's 15th largest import partner).

Turkish to add Abidjan stop to Accra route

Turkish Airlines announced in a stock exchange filing on 23-Dec-2011 plans to open an Istanbul-Accra-Abidjan-Istanbul route this year, subject to regulatory approvals. Accra was served by Turkish via Lagos until earlier this month, when the route was split into separate Istanbul-Lagos and Istanbul-Accra services using newly delivered 737-900ERs. Upon obtaining authorisations, Turkish will extend the Istanbul-Accra route to Istanbul-Accra-Abidjan.

Abidjan Felix Houphouet Boigny Airport is the international gateway to Cote d'Ivoire and is already served by Air France with a daily 777-200/300 service, Emirates with a daily A340-300 service and Brussels Airlines with a four times weekly A330-300 service. Turkish currently serves Istanbul-Accra with four weekly flights and is yet to announce how many frequencies it will operate when Abidjan is added to the route. But over time, the route is likely to be served daily, in line with Turkish's overall plan to serve African destinations with at least one and in some cases two flights per day. A daily frequency would better meet the needs of the Cote d'Ivoire business community.

The market in Cote d'Ivoire is much larger than in Somalia, with the West African country seeing nearly 30,000 seats per week (compared to Somalia's 6800). While both countries experience political unrest, Cote d'Ivoire's economy is significantly more stable than Somalia's, making it an easier destination to serve. While much of the Western world is not at ease with the country's security situation, Cote d'Ivoire's economy is expected to expand by 8% to 9% in 2012, after contracting 5.8% in 2011 due to post-election violence. The potential to increase its cocoa industry (Cote d'Ivoire is currently the world's largest cocoa producer) could be reached if the country receives investment for infrastructure and additional air services.

Cote d'Ivoire capacity share by carrier (seats per week): 23-Jan-2012 to 29-Jan-2012

Turkish to enter improving Kigali market

In 2011, Turkish Airlines entered a MoU with Rwandair, Rwanda's growing national carrier, to collaborate on codesharing, scheduling, technical support and training. Rwanda and Turkey share a steady trade relationship, with Rwanda being one of the largest importers of Turkish goods such as pharmaceuticals, cleaning supplies, flour, clothing, electrical appliances and construction equipment. The country's major economic reforms since 1994 have resulted in an open trade policy, favourable investment climate, cheap labour, tax incentives and comparatively low crime rates. As a result, Rwanda is becoming an increasingly popular destination for business ventures to be established.

While Rwanda's GDP growth rate of 6.5% is among the highest in Africa, investment in Rwanda remains low, meaning infrastructure is often underdeveloped. Tourism is on the rebound with 2011 reporting increases in tourism arrivals for both leisure and business purposes. In 1H2011, 43% of Rwanda's visitors were for business and 43% for leisure, with the remaining visitors arriving for transit or other reasons.

Kigali International Airport is currently served by European carriers KLM and Brussels Airlines and African carriers Kenya Airways, Ethiopian Airlines, Air Uganda and, since 17-Jan-2012, South African Airways. Turkish Airlines would easily become the largest European carrier to enter the market (KLM only offers approximately 1400 seats per week) and has the opportunity to establish itself as the business airline of choice with its higher frequencies on African routes. Rwanda is a growing market and slowly attracting more international interest, for example, from Qatar Airways which plans to enter the market via a tag on to its Entebbe service starting 21-Mar-2012.

Turkish has not yet announced an initial routing for its Kigali service. Like other foreign carriers serving Rwanda, it would elect to initially serve Kigali via another African destination.

Turkish to join Air France and Brussels Airlines in The Democratic Republic of the Congo

The Democratic Republic of the Congo (DRC) is served by just two European carriers - Air France with a six times weekly A330-200 service and Brussels Airlines with a daily A330-300 service. When Turkish enters the market through the country's main gateway of Kinshasa N'Djili Airport, it is likely to provide the most frequent service to a European country. Brussels Airlines plans to make six of its daily services to Kinshasa non-stop in summer 2012, providing a further increase in capacity between the country and Europe.

Air France and Brussels Airlines, however, will remain major players in the Kinshasa market given France and Belgium's historical connections to the DRC. Belgium and France are also the largest and second largest European import partners to the DRC.

Kinshasa N'Djili Airport capacity by carrier (seats per week): 23-Jan-2012 to 29-Jan-2012

The DRC's political instability and poor infrastructure make it an unattractive destination for airlines to operate. Tourism levels are low and poorly marketed (one of the DRC's top tourist destinations, Virunga National Park, recorded only 4000 visitors in 2011). The country's potentially lucrative industries of diamond and gold exportation are also riddled with corruption, and there are low levels of investment in the country's infrastructure. However, the need for regular air service, especially as its diamond and gold industries continue to grow, from business travellers is there and Turkish Airlines hopes to capture this market by the end of 2012.

Nigeria to be second most well covered country in Turkish's African network

Turkish's African expansion in 2012 will not have the same impact on the Nigerian market as it will have on the Rwandan, DRC and Cote d'Ivoire markets because Nigeria already has approximately 416,368 seats operating each week and the country has many international carriers to choose from. However, the introduction of Turkish service to Abuja and especially Kano will have a significant impact on each airport.

At Kano International Airport, Turkish will become only the fifth international carrier after Egyptair, Sudan Airways, KLM and Lebanon's Middle East Airlines. The two largest carriers at Kano, Aero followed by Arik Air, only operate domestic services from the airport.

Turkish could surpass Egyptair as the largest international carrier at Kano. Egyptair operates five weekly A320 flights at Kano, resulting in approximately 1500 seats per week. Turkish will be able to offer Kano passengers more connections than Egyptair to Europe, Asia and the Middle East.

Kano Aminu Kano International Airport capacity by carrier (seats per week): 23-Jan-2012 to 29-Jan-2012

Abuja International Airport, located in the geographic centre of Nigeria, is a much larger airport than Kano. It has approximately 211,000 seats per week, but less than 20,000 of these seats are in the international market.

Abuja is currently served by six foreign carriers - British Airways, Ethiopian, Lufthansa, Egyptair, ASKY and KLM. Nigerian carrier Arik also operates some international services from Abuja and is the second largest international carrier at the airport after British Airways.

While Turkish will unlikely become one of the largest international carriers at Abuja, its regular frequencies with narrowbody aircraft should be able to meet the needs of Abuja's growing business community. Turkish announced last month that it would launch a new route to Nigeria in 2012 connecting both Abuja and Kano on a single flight but is yet to set an exact launch date or initial frequency.

Introducing new links to Abuja and Kano are important because through these cities Turkish would have an entry point into Nigeria in the north, south and centre. Abuja, the capital of Nigeria, is one of the wealthiest and most expensive cities in Africa, making it a strong business destination, while Kano is the second largest city in the country behind Lagos.

Another valuable Nigerian city Turkish could consider introducing service to is Port Harcourt, a popular business destination located near Nigeria's multiple offshore oil fields. The Nigerian Federal Airports Authority plans to expand the airport, which currently only has domestic services to bring it to international aviation standards. Work is expected to commence shortly.

Nigeria, the world's 12th largest producer of oil, is of considerable interest to Turkey. Nigeria was Turkey's second largest sub-Saharan Africa trading partner in 2010.

Map of Nigeria

Turkish to increase frequencies to Addis Abba, Lagos and Nairobi

Mr Kotil told CAPA that Turkish also plans to increase frequencies on key African routes in 2012, including Addis Ababa, Lagos and Nairobi. He says all three routes will become double daily.

All three are key business destinations for Turkish and other carriers. Lagos International Airport, Addis Ababa Bole Airport and Nairobi International Airport all have a considerably higher percentage of business class seats than the worldwide average of 5.2%, with 7.4% of seats at Lagos, 9.5% at Addis Ababa, and a staggering 17.9% at Nairobi.

Currently, Addis Ababa and Nairobi are served with daily 737-800 services while Lagos is served six times weekly with 737-900ERs. Mr Kotil says the second frequencies to Addis and Nairobi will likely also be operated with 737-800s because Turkish's new fleet of 737-900ER cannot be operated with full payloads to these destinations due to their high altitude.

Turkish Airlines is the only carrier to operate between Turkey and East Africa. The carrier is bullish to increase services to Ethiopia, Nigeria and Kenya, which would further strengthen trade relations and reinforce Africa as a policy priority for Turkey. Turkey is drawn to Kenya for its plethora of minerals and metals that include gold, salt, limestone and gemstones while Ethiopia's attraction stems from its projected 8% GDP growth rate, food processing industry and small reserves of gold.

Turkish also plans to increase frequencies to several of its other African routes as it takes delivery of additional 737-900ERs. Mr Kotil says only South Africa, where Turkish serves both Johannesburg and Cape Town, will continue to be served by widebody aircraft. He says the idea of the additional frequencies is to improve connections from Africa to Europe, Asia and North America.

Turkish quick to restore service to Libya, future increases likely

Additional frequencies are possible to Libya, where Turkish now serves three destinations - Benghazi, Misrata and Tripoli. Turkish was the first international carrier to resume service to Libya after the civil unrest and continues to strengthen its links to the North African country. Turkish resumed daily service to Benghazi on 13-Sep-2011, two days before Royal Jordanian and just under two months before Egyptair.

Turkish was also the first to re-enter Tripoli and resumed 16 times weekly service on 24-Sep-2011. As Libya is Turkey's second strongest North African trading partner and as oil production restores to normal capacity, Turkish Airlines will be looking at increasing services further.

Turkey to Libya seats per week (one-way): 19-Sep-2011 to 08-Jul-2012

Turkish Airlines launched four times weekly Istanbul Ataturk-Misrata service on 15-Dec-2011, its third destination in Libya. Shortly after, on 08-Jan-2012, Turkish Airlines Cargo launched freight service to Mitiga Airport in Tripoli using A310F and A330-200F equipment. Turkish Airlines resumed passenger service to Tripoli Mitiga Airport on 21-Sep-2011.

US expansion on hold

Mr Kotil told CAPA that the carrier is not planning to launch any new US destinations in 2012 but capacity increases to existing US gateways are possible. The carrier's North American network currently includes Los Angeles, Toronto, Chicago, New York and Washington. Turkish previously identified Atlanta, Boston, Houston and Miami as potential new US gateways but Mr Kotil says these will not be added until 2013 at the earliest.

While expansion of the North American network is on hold, Mr Kotil said Turkish aims to add Buenos Aires as its second South American destination in 2012 pending government approval. Turkish plans to serve Buenos Aires as a tag-on to its existing Sao Paulo service.

Turkey and Latin America have historical relations beginning in the 19th century that have developed into a prosperous trade relationship today. Over the last decade, Turkey has been pursuing a more active policy towards the region with the aim of strengthening trade and cooperation. Latin America and the Caribbean region's (LAC) growing investment opportunities have generated strong interest from Turkey, who has been bullish on establishing agreements between it and various LAC countries (including Argentina, Brazil, Ecuador, Guatemala, Guyana, Jamaica and others).

Turkey's trade volume with the region was only USD919 million in 2000. This surged to USD5.5 billion in 2008.

Turkish signed a codeshare agreement with Brazil's TAM on 14-Dec-2011, enabling it to market TAM's domestic services from Sao Paulo to Rio de Janeiro, Iguassu Falls, Porto Alegre and Brasilia. In return, TAM will codeshare on Turkish's Sao Paulo and Rio de Janiero services that operate via London and Madrid, giving passengers an alternative to the non-stop Sao Paulo-Istanbul service.

Expansion to Asia and Europe

Turkish is also looking to expand in the Asia Pacific with potential Sydney and Melbourne via Jakarta routes. The carrier has been looking at the Australian market but Mr Kotil told CAPA that it is unlikely a service to Australia will be launched in 2013.

Mr Kotil says initially the carrier would serve Sydney and that Melbourne could come later. He says the company is engaged in positive negotiations with both airports and service to Australia could be launched in 2013.

He adds Australia will be served via Jakarta. Turkish currently serves Jakarta via Singapore, however, plans to make its Singapore service non-stop, as the Singapore market is now big enough to support its own service without the tag. Mr Kotil expects the Jakarta service to be upgraded to non-stop with a Sydney tag added later. Turkish expects to secure pick-up rights in Indonesia for the anticipated Jakarta-Sydney leg.

Turkish now serves Australia through a codeshare agreement with Thai Airways, which allows Turkish to offers its passengers connections on Thai-operated services to Brisbane, Perth, Melbourne and Sydney. Turkish also codeshares with Thai Airways to Auckland and Kuala Lumpur, both of which are currently not served with Turkish's own aircraft.

In addition to several new African points, Buenos Aires and potentially Toronto, Turkish has already announced several new destinations will be launched during 2012 in Europe and Asia. For example, Turkish will launch services this year to Edinburgh in Scotland; Bilbao and La Coruna in Spain; and Ulaanbaatar in Mongolia; Leipzig in Germany; Aalborg and Billund in Denmark; and Novosibirsk in Russia.

Mr Kotil is confident about 2012 and expects it to be a more successful year than 2011 in terms of financial performance. He expects the carrier's ASKs to increase 17% in 2012 after increasing 25% in 2011. The carrier expects RPKs to increase by 17% and total number of passengers carried to increase by 20% in 2012, compared to 23% and 12% increases, respectively, in 2011.

Turkish Airlines ASKs: 2009 to 2011

While Turkish will continue to expand its network globally, its expansion in Africa is particularly significant given the relatively small size of the current African market. Turkish Airlines' bullish approach to Africa is expected to pay off and its offering is in line with the forecast increase in demand for Africa.

Turkish, however, is not the only carrier pursuing expansion in the fast-growing region. Middle Eastern carriers, particularly Emirates, are a large source of competition to Turkish Airlines and are geographically better positioned to operate into Africa. Emirates already operates to 19 destinations across Africa and is currently the largest carrier operating between the Middle East and Africa, with over 185,000 weekly seats. Turkish Airlines is now only the eighth largest carrier to operate between Africa and Europe, with over 80,000 weekly seats. While Turkish is well behind and will remain well behind all-widebody operator Emirates in terms of total capacity, Turkish will soon have a bigger African network than the Dubai-based carrier.

Background information

Turkey trade with main partners: 2010