Turkish Airlines: wider 1Q loss a reflection of the need to balance growth against profitability

Turkish Airlines suffered a wider operating loss in the 1Q2016. Its capacity growth, consistently at double-digit rates, is accelerating in 2016 as it pursues new markets and increases frequencies - particularly in the US and Africa. However, its load factor slipped by 2.9ppts and its total revenue per ASK fell by 17.2%.

Demand was weakened by the aftermath of geopolitical events but there are also gathering macroeconomic uncertainties in Turkish Airlines' markets, which increasingly embrace the globe. This highlights the risks associated with very high capacity growth when the robustness of demand is faltering. Although its unit cost also fell (thanks to lower fuel prices), this was not sufficient to offset the drop in unit revenue.

Turkish Airlines strategy of high growth, based on the geographic advantage offered by its Istanbul hub in attracting global transfer traffic, now ranks it among the world's leading airlines. Although the seasonally weak 1Q may not be a reliable guide to FY2016, the airline will need to generate improved trends in load factor, RASK and margins over the rest of the year if it is to assuage concerns that it is pursuing growth at the expense of profitability.