Turkey's other carriers are turning their attention to the international market after four years of rapid domestic expansion
Turkey's second and third largest carriers, Pegasus Airlines and Onur Air, are seeking to step up competition against Turkish Airlines and challenge the flag carrier on its lucrative international routes.
Onur has competed domestically against Turkish since Turkey's domestic market was liberalised in 2003 and its chief executive, Sahabettin Bolukçu, says it wants an opportunity to take on Turkish on routes to the Middle East, Russia and Iran. Onur now only operates charter flights on international routes. "Internationally we would like to operate scheduled services but bilateral agreements are in favour of the national carrier and therefore we are not allowed to operate scheduled services on most of the profitable international routes," Bolukçu says.
Pegasus, which began competing against Turkish and Onur in the scheduled domestic market in late 2005, is also looking to expand its fledgling scheduled international operation which it launched in late 2006. Pegasus only carried 550,000 passengers on scheduled international routes last year, compared with 9.7 million for Turkish.
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"We are limited with Turkey's bilateral agreements.Turkish benefits from most of the rights" Ali Sabanci |
General manger Ali Sabanci complains Pegasus is now limited to operating only select routes to Europe: "We believe there is considerable opportunity in the markets which are located south and east of Turkey, like Middle Eastern or CIS countries. In general we are limited with Turkey's bilateral agreements in these markets, since Turkish Airlines benefits from most of the rights arising from these agreements. But we believe these markets will be gradually liberalised over time."
Onur and Pegasus are particularly keen to expand overseas because Turkey's domestic market seems to be approaching saturation after tripling in size from only 5 million passengers in 2003 to over 16 million last year. Onur and Pegasus have expanded rapidly since launching their low-cost domestic operations with Onur now serving 13 domestic cities and Pegasus 16. But Bolukçu and Sabanci say given the record high oil prices it is hard to justify further expansion domestically.
"Profitable growth in the Turkey domestic market cannot be achieved with fuel prices at $130 per barrel," Bolukçu says. "With today's fuel price consolidation is inevitable. The question is: 'Is it going to be voluntary or obligatory consolidation?'"
Onur and Pegasus last year discussed merging but Bolukçu says "we could not agree on terms with Pegasus and decided to stay as friends for the time being".
Sabanci adds: "With fuel at around $135 a barrel it is a challenge to grow the market as a whole. Such an environment will see great shifts in market share as a result of consolidation and liquidation. This is a great opportunity for Pegasus to grow."
Pegasus now operates a fleet of 20 Airbus and Boeing narrowbodies and is already committed to acquiring 12 additional 737-800s as part of a plan to operate 40 aircraft by 2013. Last year it surpassed Onur as Turkey's second largest scheduled carrier and is now the largest carrier at Istanbul's secondary airport Sabiha Gökçen. Onur and Turkish are based at the main airport Atatürk.
"We anticipate and plan to double the fleet within the next five years," Sabanci says. "The market is more mature compared to 2003 [but] we still believe that there is big potential in the Turkish market when you consider the economic growth and young population in Turkey."
Onur currently operates 25 aircraft and Bolukçu says "as soon as we see the chance of lower fuel prices we would like to reach 30 aircraft". Turkey's fourth largest carrier, Atlasjet, is also interested in expanding its domestic operation but its new chief executive, Orhan Coskun, says "the increasing fuel rates are becoming a very serious burden for the sector".
Atlasjet launched scheduled full-service domestic services from Atatürk in 2004 and now serves 13 domestic destinations with a focus on thinner routes to western Turkey and the Turkish Republic of Cyprus. "What is important for Atlasjet is to be an alternative to Turkish rather than compete with Turkish," Coskun says. "We are very much in knowledge of how difficult it is to compete with big carriers. That is why we have diverted from their markets and moved on with our plans of operating in the markets the bigger ones don't."
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Turkish has already seen its domestic market share steadily drop over the last five years from 100% to 60% and its chief executive, Temel Kotil, expects this will drop to below 50% as it focuses more on international expansion. "Domestic for us is not such an important market," he says. "It used to be very good but is currently not a money maker."
But Bolukçu doesn't believe Kotil, pointing out Turkish launched in April a low-cost brand called Anadolu Jet and claiming Turkish is still "fiercely pricing some domestic routes". Bolukçu adds: "The domestic market is still not fully liberal. Turkish has a big influence on slot allocation and some government institutions. Additionally we see excessive capacity on most of the routes except for high season."
For more on Turkish Airlines, read our June cover interview with Temel Kotil at flightglobal.com/Kotil
Source: Airline Business
