After Ataturk Bombing, How Can Turkish Airlines Recover?
Photo courtesy of Thinkstock
The bombing at Istanbul’s Ataturk Airport will further damage Turkey’s already suffering tourism industry and hurt the expansion plans for the country’s flag carrier, Turkish Airlines.
Turkish has been pushing forward with a plan to expand its capacity even as the country’s tourism numbers drop. The recent attack at Istanbul’s hub is the latest in a string of bombings and terror attacks that have plagued the country and kept tourists away in greater and greater numbers. A diplomatic row with Russia has further hurt the country’s tourism industry.
The number of tourism arrivals fell by 35 percent in May compared to the same month last year. Since the latest bombing hit the main entry point into the country, that number is expected to fall even further in the coming months.
Doomed plans for growth?
Before the tragic events at Ataturk, Turkey’s flag carrier was already ailing. In May, the airline announced its worst quarterly financial performance in more than 15 years. Like airlines in the US, Turkish actually saw an increase in passengers. However, since it was expanding capacity faster than its passenger numbers were growing, it ended up with a big net loss in terms of revenue.
Despite all these factors piling up against it, the airline said it still planned to increase capacity by 20 percent by the end of the year. After the bombings at its main hub, that number seems quite unreasonable.
Fliers and investors both afraid
That the recent attack hit the country's main airport is especially bad news for the airline. Like the so-called Gulf carriers, Turkish Airlines is banking on transit passengers to help its growth. These passengers will head between Europe and Asia or Africa, only stopping at Ataturk to change planes. Whether it is logical or not, the attack could make some fliers feel like the airport itself is unsafe (even though the attacks took place outside the terminal building and security measures kept the bombers from getting inside).
Investors are also not high on Turkish Airlines at this time. Shortly before the bombing, Bloomberg reported that Turkish Airlines stock was experiencing unprecedented shorting as investors sought to capitalize on the loss of confidence in the airline’s ability to come through with its expansion plans.
Could a new airport solve Turkish Airlines' woes?
The investment in air travel goes beyond the airline itself. Ataturk, the third busiest airport in Europe behind Heathrow and de Gaulle, is operating nearly at capacity. Construction has already started at a new airport, now known as Istanbul New Airport. It will be online by 2018 if all goes according to plan. If and when that happens, Ataturk will close. So any negative image that is associated with Ataturk because of the terror attack will be relatively short lived.
Still, though, the strategy of Turkish Airlines to focus on transit passengers will undoubtedly inspire comparisons with Emirates and its Gulf peers. These airlines rely heavily on transit passengers as well, but the the UAE is not suffering the same image problems as Turkey at the moment. Since the conflicts in neighboring Iraq and Syria show no signs of stopping and the Kurdish rebellion inside the country’s borders is still simmering, that image is not likely to change anytime soon.
Late to the game
Turkish was relatively late to the transit passenger game. It has been successful in improving its image and its level of service, but if it wants a bigger share of the market, it will have to somehow differentiate itself from Emirates and its peers, who are among the best and most well-funded airlines in the world. So even without the recent drop in tourism numbers brought on by the string of terror attacks, the airline would have the odds of long-term success stacked against it.
Investors and fliers will now be watching to see if Turkish Airlines finally pulls back on its ambitious expansion plans and waits until Istanbul New Airport goes online before ramping up capacity again.
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