Economic Update

Published 05 Apr 2012

The Turkish aviation sector is experiencing accelerating growth with foreign firms taking note of fresh opportunities. The new alliance in early March between Aéroports de Paris (AdP) and TAV, the Turkish airports operator, is a sign that the rapid growth in passenger numbers and air traffic at the country’s main airports has not only drawn interest from international investors but is also spurring TAV to expand to other regions.

Under the deal between AdP and TAV, which is set to be finalised in July, AdP will buy a 38% stake in TAV for $874m and a 49% stake in TAV’s construction subsidiary, Akfen Holding, for $49m. AdP wants to get a footing in the Turkish market where it believes it will receive a double-digit return from the deal.

But the agreement also seeks to build a partnership between the two airport operators to target investment opportunities in Russia, Central Asia and the Middle East. Both firms hope that by pooling their resources, they will have a better chance of success. Once an agreement is signed, the partners will control 37 airports around the world, with a total capacity of 180m passengers.

The partnership allows each company to establish its own service firms in airports where the other partner is already present. TAV currently operates and manages Europe’s eighth busiest airport – Atatürk International Airport – in Istanbul, as well as airports in Latvia, Tunisia, Georgia and Macedonia, and has a build-own-operate contract to run Medina airport in Saudi Arabia.

Rapid growth has marked Turkey’s aviation sector over the last few years. According to data from the General Directorate of State Airports Authority (DHMI), Turkey’s airports handled more than 117m passengers in 2011, a 14% rise from the 102m passengers in 2010.

Since 2007, when the airports handled up to 70m passengers, demand has increased each year: by 12% in 2008; 9% in 2009; and 20% in 2010. This represents 47m passengers in four years, according to DHMI.

In a report on the world’s airline industry carried out in September 2011 by consultancy Arthur D Little and Air Transport World (ATW), a marked shift of traffic from East to West was recorded over 2010, with Turkey and Russia the main emerging markets driving growth in Europe.

As airports in advanced countries, such as European nations, the US and Japan struggled to reach pre-financial crisis volumes of air traffic, airports in the Middle East, Asia, Eastern Europe and South America were recording double-digit growth, said the report. Turkey was described as the “only growth engine” in the whole of Europe in 2009.

The country’s main travel centre remains Istanbul Atatürk Airport, where passenger numbers rose by 16.5% in 2011 to around 37.5m. Antalya Airport was next in line with 25.1m passengers, a 14% increase on 2011. Passenger numbers at the Istanbul’s second airport, Sabiha Gökçen, also grew 14% to 12.8m. Additionally, in 2011, Izmir overtook the capital’s airport in Ankara as the fourth busiest, according to DHMI.

Much of the growth in passenger numbers was fuelled by the expansionist activities of Turkish Airlines, which launched 20 new routes from Istanbul in 2011. Its passenger numbers increased by 12.1% to 32.6m over the year. Pegasus, a Turkish low-cost carrier, is also proving a fierce competitor to European rivals Easyjet and Ryanair, recording a 32.2% rise in passenger numbers to 11.3m in 2011. It is now Europe’s fifth–largest low-cost carrier.

To cope with the increasing passenger numbers, the DHMI is planning to build a new runway at Istanbul’s Atatürk Airport. According to local daily Hurriyet, the project has been approved by the government and construction is expected to take one year.

DHMI is also spearheading negotiations that will see the Turkish Air Force hand over the section of Atatürk Airport that it currently uses and convert it to commercial use as an airplane parking lot, according to Hurriyet. The new runway will measure 2500 metres in length and 60 metres wide. This will allow Istanbul Atatürk to handle 70 airplanes per hour.

To meet the surge in demand, a new airport for Istanbul is expected by 2016.

“The competition is in the transfer market, and Istanbul is an ideal hub,” Temel Kotil, the CEO of Turkish Airlines, told OBG. “From Istanbul, it is possible to reach more cities with higher frequencies than an airline can from other locations. European, Russian and Gulf cities are all within two to four hours from here.”

The national carrier already occupies up to 75% of capacity at the existing Istanbul Atatürk Airport, according to Kotil, while a final location for the new facility is expected to be finalised soon, with construction set to start by the end of 2012. The new airport will cover 6000 ha and is expected to have five runways, as well as capacity to handle up to 120m passengers per year.

“The removal of the visa requirements between Turkey and Russia has been like magic for us, and reciprocity agreements have happened with many countries.” Kotil told OBG. “This makes Turkey a better attraction and increases the number of flights between key locations.”

The Turkish government is moving quickly to match infrastructure to growth. The surge in passengers and air traffic over the last five years is a positive sign for the services, tourism, logistics and transport sectors — and the economy overrall — but the challenge will be to ensure there is enough capacity in place within five years to cope with rising annual demand.