THOUGH clearly not welcome news for Boeing, the decision by one of its former customers Pegasus, Turkey’s fast-expanding low-cost carrier, to select the Airbus A320neo for its fleet renewal (and spurn the Boeing 737 MAX) will be neither surprising nor unduly alarming. True, Airbus has notched up 1,654 firm orders for the neo against 969 for the MAX. But Airbus had a nine-month head-start with its next-generation narrow-body aircraft. Looking at total orders across all types, Boeing is on track to outsell Airbus this year: the first time it has done so since 2006.
What is more interesting is the size of Pegasus’s commitment—100 aircraft, comprising firm orders for 58 A320neos and 17 larger A321neos, plus 25 options. The airline’s chairman, Ali Sabanci, describes it as “the biggest order in the history of Turkish civil aviation”, which is no mean feat given the spending spree Turkey’s flag-carrier has also embarked on. Turkish Airlines ordered 30 wide-body aircraft in October—15 Airbus A330s and 15 Boeing 777s—and it is already dropping hints of Airbus A380 or Boeing 747-8 orders to come. Not content with their respective fleets of 42 and 200 aircraft, Turkey’s big two airlines have dreams of turning Istanbul into a mega-hub capable of rivalling the Gulf neighbours.
Going head-to-head with Qatar and the United Arab Emirates (UAE), two countries that have placed aviation at the heart of their economic development and have seemingly bottomless pockets to fund their strategies, may seem risky. But Turkey has some advantages. Istanbul is within four hours’ flying time of most of western Europe, the world’s largest market for international travel, as well as being equidistant from much of the Middle East, North Africa and central Asia. This allows Pegasus and Turkish Airlines to deploy smaller narrow-body planes from their hubs, affording greater flexibility for route planning than is enjoyed by the widebody-operators of the Gulf. Turkey’s size also gives it a strong home market, guaranteeing buoyant domestic demand.
Having secured strong growth at home and in western Europe since relaunching as a low-cost carrier in 2005, Pegasus is now increasingly looking to new markets in eastern Europe and central Asia. The strategy is underscored by the recent launch of services from its base at Istanbul Sabiha Gökçen airport to Lviv in Ukraine and Batumi in Georgia. However, while Mr Sabanci says his new fleet will facilitate further growth in under-served markets, he accepts that archaic bilateral restrictions and costly travel visas pose challenges in Pegasus’s target markets.
For Turkish Airlines, Africa is the obvious region for growth. The carrier already flies to 33 destinations on the continent, often with narrow-body jets deployed on low-frequency services, which can easily be scaled up or down to match shifting demand. This autumn’s spate of airline start-ups in Africa—centring on Fastjet in the east and Gambia Bird in the west—is a sign of confidence in the continent’s rising economic fortunes. As more Africans take to the skies, Turkish Airlines is hopeful of hoovering up intercontinental traffic and routing it via Istanbul Atatürk airport. The company’s latest traffic report—which, for the first nine months of the year, recorded 27% traffic growth coupled with a 46% increase in international transfer passengers—suggests it is doing a good job.
There are familiar pitfalls, of course. Competition from the Gulf in particular remains fierce. Not only are Emirates, Etihad and Qatar Airways heaping capacity on western European and African routes, but the UAE’s low-cost carriers, flydubai and Air Arabia, are both turning their focus to eastern Europe and central Asia. More than 40% of flydubai’s growth in 2012 has honed in on these regions. Furthermore, questions persist about Istanbul’s planned 120m-capacity third airport, to be located in the European side of the city near the Black Sea coast. The five-runway hub is intended to accommodate Turkish Airlines’ growth for decades to come. But it has barely progressed beyond the blueprint stage, and Turkey’s government, though decidedly pro-aviation, cannot hope to match the blank cheques being signed in the Gulf.
Another concern is the Gulf carriers’ newfound appetite for consolidation, a departure from their traditional focus on organic growth. The past few months have seen Emirates team up with Qantas, Qatar with oneworld, and Etihad with Air France-KLM. In response, a “joint management” agreement between Turkish Airlines and Germany’s Lufthansa is being openly mooted by the leaders of Turkey and Germany, Recep Tayyip Erdogan and Angela Merkel. While the strategic merit of such a deal is open for debate, continued expansion in Turkey, with or without foreign help, seems all but certain. Both Airbus and Boeing can be confident of more Turkish delights in the years ahead.