Turkish Airlines: unprecedented loss provokes slowdown in expansion and int'l transfer strategy

Since adopting its strategy of rapid growth, driven by capturing global connecting traffic flows via its Istanbul Ataturk hub, Turkish Airlines (THY) has expanded its capacity in ASKs at double digit rates for 13 consecutive years. However, in 2016 it plans ASK growth of only approximately 3%, with cuts in the winter 2016/2017 season. Moreover, its long haul capacity will be almost flat in 2017, and it seems probable that it will not repeat its habitual increase in the number of passengers transferring between international flights this year.

The prompt for this unprecedented change in THY's growth path was a slump into loss in 2016, also unprecedented - at least, since the airline adopted its connecting strategy in 2004. This loss was itself the result of a slump in demand for air travel to/from Turkey, coupled with overexpansion. The consequent slide in unit revenue could not be mitigated by a matching cut in unit cost, in spite of lower fuel prices.

Recent management changes at THY raise the possibility of a new approach, but the airline cannot hide its pride over its history of growth and market share gains. It will need to balance this against the imperative to restore profitability.