02-Jul-2012 6:50 PM

Turkish Airlines plans further North American expansion with Houston and potentially Miami

Analysis

Turkish Airlines is planning further expansion of its North American network, currently five destinations, with the recent announcement of plans to serve Houston from Apr-2013. The airline has also indicated it will commence services to Miami, Boston, Detroit and Atlanta as part of its near- to medium-term network expansion plan with Miami also likely to be launched in 2013.

The launch of new US routes comes after Turkish has used 2012 to take a break in opening more trans-Atlantic routes and instead focus on increasing frequencies to its existing North American destinations.

Summary

Turkish Airlines plans to expand its North American network by adding new destinations such as Houston, Miami, Boston, Detroit, and Atlanta.
The airline has been focusing on increasing frequencies to its existing North American destinations in 2012.
Turkish Airlines currently operates to five destinations in North America: Chicago, Los Angeles, New York JFK, Toronto, and Washington Dulles.
Istanbul Ataturk-New York JFK is Turkish's largest route, with three daily flights and over 13,000 weekly seats.
Turkish Airlines aims to offer a wide range of connections to Africa, the Middle East, and Asia through its North American services.
Turkish Airlines plans to expand its network to 250 destinations within the next five years.

North America currently accounts for approximately 5% of Turkish Airlines' overall capacity (based on seats) or about 28,000 seats per week. Turkish Airlines currently operates to five destinations in North America including Chicago, Los Angeles, New York JFK, Toronto and Washington Dulles.

So far this year Turkish has upgraded its Los Angeles and Washington Dulles services to daily and its New York service to twice daily with a seasonal third frequency in the peak summer months. Service to Toronto Pearson will be increased to five times weekly from 31-Oct-2012.

Turkish Airlines routes to North America

Route	Current Frequency	Aircraft	Competition	Launched	Frequency increases
IST-ORD	Daily	A330		Pre-2009	To daily (date unknown)
IST-JFK	Three times daily	A330/777-300ER	Delta (daily)	Pre-2009	From daily to 10 times weekly from 25-Mar-2011; To twice daily from 25-Mar-2012; to three times daily (peak summer season only) from 28-May-2012
IST-YYZ	Four times weekly	777-300ER		11-Jul-2009 (Three times weekly)	To five times weekly from 31-Oct-2012
IST-IAD	Daily	A340-300		06-Nov-2010 (Four times weekly)	To six times weekly from 29-Aug-2012; to daily from 31-Mar-2012
IST-LAX	Daily	777-300ER		03-Mar-2011 (Four times weekly)	To five times weekly from 31-Aug-2011; To daily from 26-Mar-2012

Fast rate of expansion for Turkish's North American operation

Istanbul Ataturk-New York JFK service is now Turkish's largest route across its entire network. With three daily flights currently operated on the route Turkish now offers over 13,000 weekly seats in the market, overtaking Istanbul Ataturk-London Heathrow as its largest route.

The third frequency to New York is only seasonal, reducing back to twice daily flights on 16-Sep-2012. The third peak summer season frequency is operated with A330-300s while Turkish's other two daily flights on the route are operated with Boeing 777-300ERs. While Turkish has been operating daily flights to New York for decades, it only upgraded the route from seven to 10 weekly flights in Mar-2011 and then from 10 to 14 weekly flights in Mar-2012.

New York is the only one of Turkish's North American routes which faces direct competition. Delta Air Lines now operates one daily flight to Istanbul from New York JFK while fellow Star Alliance carrier United launched on 02-Jul-2012 a new daily flight to Istanbul from New York Newark. Turkish, Delta and United now offer a combined total of five daily frequencies in the Istanbul-New York market, reducing to four in September when Turkish reverts back to two daily frequencies.

Turkish has been working on rapidly expanding its trans-Atlantic operation since 2009 as part of the carrier's overall ambitious plan to become one of the world's largest airlines. At the start of 2009 the carrier only served two destinations in North America - Chicago and New York - but had already identified several new destinations in the region including Atlanta, Boston, Detroit, Los Angeles, Miami, Toronto and Washington DC.

Turkish subsequently launched Toronto in 2009, followed by Washington Dulles in 2010 and Los Angeles in 2011. The carrier was initially aiming to launch at least one more US route in 2012 but late last year decided to instead use 2012 to increase frequency to some of its existing North American destinations. Turkish's focus this year in terms of new destinations is on further expanding its networks to Europe and Africa.

Turkish to join Emirates and Qatar Airways in Houston

Turkish in Jun-2012 announced that Houston will be its next US destination, with service starting on 01-Apr-2013. The other potential new US destinations - Atlanta, Boston, Detroit and Miami - are still in Turkish's short to medium-term plans and will likely all be launched by the end of 2014.

Houston will initially be served four times per week with 777-300ERs. But like the other North American destinations which Turkish has launched over the last three years, Houston will likely be upgraded to daily service in the short to medium-term.

Emirates and Qatar Airways now both serve Houston daily. Turkish will compete for network traffic against both of these Gulf carriers in the Houston-Asia market as well as against the three European carriers now serving Houston - Air France, British Airways and Lufthansa. Houston is also served from Moscow five times weekly by Singapore Airlines.

While Istanbul-Houston is a relatively small local market, Turkish aims to offer a wide range of connections to Africa, the Middle East and Asia. Many of these markets (which are often, like Houston, resource rich travel destinations) have high demand, in particular for premium travel, and limited one-stop options.

Miami is most likely Turkish's next new US destination after Houston. Unlike Houston, Miami has one of the largest Turkish communities in the US. Miami also has significant premium demand. Turkish previously served Miami from 1999 to 2001. The route preformed well but was cut at the time as part of capacity cuts implemented in the aftermath of the Sep-2001 terrorist attacks.

All of Turkish's planned future destinations in the US are currently un-served from Istanbul. Turkish originally looked at serving Atlanta in 2010 as a tag-on to its Washington Dulles service. Atlanta will most likely be launched as a route in its own right considering demand for Washington alone is now strong enough to support its own service.

In addition to resuming expansion of its North American network, Turkish may also continue to increase capacity on some of its existing North American routes by adding frequencies or switching to higher gauge aircraft. The airline is currently in discussions with Airbus and Boeing over a potential order for at least 15 A380 or 747-8I aircraft. Turkish's largest aircraft is currently the 777-300ER, which it already uses for most of its New York flights as well as on the Los Angeles and Toronto routes.

Turkish expands reach in North America through Air Canada and JetBlue

Turkish Airlines is reaching even further into the North American market aside from its own services into the region. In May-2012 Turkish signed an agreement with fellow Star Alliance member Air Canada, providing for a codeshare between Turkey and Canada as well as on connecting domestic services in Canada operated by Air Canada.

The Air Canada agreement was closely followed by an interline agreement with unaligned JetBlue Airways. The JetBlue interline will allow passengers to connect easily between Turkish Airlines-operated international services into New York and Washington and domestic US flights operated by JetBlue.

Africa and Central Asia networks key to Turkish's North American growth

While the US-Turkey market is growing, Turkish relies heavily on connections beyond its Istanbul hub to support its fast-expanding trans-Atlantic operation. The carrier's North American services, which are generally competitively priced and quality products, are particularly proving popular for travellers to and from Asia and Africa. For example, Turkish Airlines CEO Temel Kotil has said the airline carries high numbers of passengers from Washington DC to Africa thanks to the airline's extensive African network.

The recent service reduction by US carriers operating directly to Africa is also working in Turkish Airlines' favour. United Airlines has decided to cancel Washington Dulles-Accra service from 04-Jul-2012 while Delta is following suit with the cancellation of Atlanta-Accra service on 13-Aug-2012. Delta from 1-Sep-2012 is also dropping Abuja, which is served as a tag on its New York-Accra service. Turkish already serves Accra and Abuja is one of eight new African destinations Turkish plans to launch this year, giving it an anticipated total of 26 destinations in Africa.

While load factors on non-stop US-Africa routes have been high, there is low premium demand on the routes due to it being a mainly VFR market with price sensitive travellers.

Turkish Airlines' largest competitors in the US-Africa market are Western European carriers, which have historically carried a majority of traffic over their European hubs. While some backtracking is required if travelling to Africa from the US with Turkish Airlines compared to Western European carriers, there is not a large difference in flying time. For example, travelling from New York to Nairobi with Air France via Paris takes 15 hours and 25 minutes, Brussels Airlines via Brussels takes 15 hours 50 minutes and Turkish Airlines via Istanbul takes 16 hours 10 minutes (according to Innovata, based only on flight time).

Turkish also offers some of the fastest connections between North America and some Asian markets. The carrier's position in connecting Central Asia is particularly strong as it is the largest foreign carrier serving several Central Asian markets, which are typically under-served and have limited connections.

Connections to Central Asia particularly played a role in Turkish's decision to launch services to Houston, as Central Asia is an important destination for the oil and gas industry. Houston-Kazakhstan, for example, is a lucrative market with high fares and high premium demand. Turkish serves Almaty and Astana in Kazakhstan - destinations not served by either Emirates or Qatar. Turkish Airways will also be able to match a lot of the services Emirates and Qatar now offer in the Houston-Middle East one-stop market but will be able to differentiate itself by also offering lucrative connections to Kazakhstan and other Central Asian markets.

Turkish's existing North American flights are already benefitting from connections to Central Asia as well as Africa. In Mar-2012 transfer traffic accounted for 40% of Turkish's overall passenger traffic. 57% of this was international-to-international transfer traffic.

Turkish Airlines network summary: as of 01-Jul-2012

Total non-stop passenger destinations	189
Europe	80
Domestic Turkish	34
Middle East	27
Asia Pacific	22
Africa	20
North America	5
Latin America	1

Turkish Airlines international capacity share (% of seats) by region: 25-Jun-2012 to 01-Jul-2012

Latin America is also becoming a Turkish target

Turkish Airlines' also now operates to only one destination in Latin America, Sao Paulo. Turkish plans to extend its Istanbul-Sao Paulo service later this year to Buenos Aires and is looking at potentially further expanding its network in Latin America. Asia-Latin America is a fast-growing market and Turkish is able to offer a competitive service with relatively quick connections.

While Turkish Airlines' current North American network now contributes less than 3% of its overall number of destinations, it accounts for about 5% of the airline's total seating capacity and 15% of its ASKs. These figures will significantly increase over the next two years as Turkish continues to expand its trans-Atlantic operation.

With another 60 destinations to be added by 2017

Turkish Airlines' planned expansion in North America is a key component of its overall network expansion plan.

The airline is now expanding across its network including in the Middle East, Europe, Asia, Africa and the Americas as it works towards its goal of having the world's largest airline network. Turkish currently operates to about 190 destinations and plans to increase this to 250 destinations within the next five years.

With this remarkable network goal, the several proposed new US destinations are likely to become a reality in the near- to medium-term, further strengthening the carrier's global reach.