The aviation sector in Turkey has been weakened by current events. But despite recent lackluster performance and waning of investor confidence, the seeds of rebound may already be in place.
The wave of terrorist bomb attacks – the attack on Istanbul International Airport on June 28 was the height of it - followed by the failed coup on July 15 have touched Turkey’s economic nerve, particularly the country’s aviation sector. The country, which posted impressive growth rates until a few years ago, today looks like a shadow of its past, with trade declining, foreign investor confidence at an all-time low, and Western tourists and businesspeople unsure about visiting the country.
All these factors have raised questions about the country‘s economy, with some pundits forecasting a steep decline in revenue and a sharp rise in unemployment that could exacerbate the country’s social problems.
Once a popular destination of investors, businesspeople and tourists alike, Turkey is struggling today to save its old image of a thriving economic oasis in the midst of an explosive region marred by terrorism, religious extremism and political instability. Tourist arrivals have declined and, in effect, reduced the number of airline flights to Turkey. With the decline in number of passenger flights, which also transport belly-hold cargo, air-cargo traffic also faces challenges.
Nevertheless, air-traffic, which was temporarily suspended as a result of the coup, is slowly limping back to normalcy. National carrier Turkish Airlines says that full services have been restored. Many foreign airlines, including German Lufthansa and Austrian Airlines, have also resumed flights to Turkey.
Impact on Freight
Foreign shippers and others involved in the airline business, including air cargo, are worried by the rising number and frequency of terrorist attacks, the coup attempt and the unresolved issue of refugees. The tourism sector, which contributes some 13 percent to the GDP and is an important source of foreign exchange, has been hit hard. Initial reports suggest that Turkey’s revenue from air travel has sharply declined.
Meanwhile, according to the Airports Council International (ACI), Turkey experienced an overall 12.4% decline in airfreight traffic at its major commercial airports.
Even if Turkey does offer a semblance of normalcy in the passenger and cargo traffic, experts do not rule out short to mid-term repercussions of these incidents on its aviation sector.
Aviation is, usually, the first casualty of any airport attack. Besides disrupting traffic, it causes mayhem, panic and nervousness among travelers and air cargo shippers. A similar situation occurred at Brussels airport following the March 22 deadly bomb attacks that ripped through the heart of that airport though, fortunately, the air-cargo infrastructure was, largely, unaffected, according to Brussel airport officials.
But unlike Brussels, Atatürk Istanbul International Airport is one of Europe’s five biggest airports, the others being London Heathrow, Paris CDG, Frankfurt and Schiphol Amsterdam. Indeed, Istanbul surpassed Frankfurt last year in passenger numbers, and was well on its way to overtaking Paris as well this year. Before the attacks, Istanbul airport clocked, in an average hour, 7,000 passengers. Istanbul airport was being groomed to become the Middle East’s cargo hub, and oust Dubai from that status. The attack on Istanbul airport could hurt its ambitions of becoming an aviation hub. Turkish Airlines, which gets 60% of its revenue from transit passengers, has been trying to profile Istanbul as a global transit hub for traffic to and from the Americas, Europe and Asia. The new Istanbul airport, to be opened in 2018, was hailed by some Turkish officials as “the jewel in Turkey’s aviation crown”, with a starting annual capacity exceeding 80 million passengers, increasing the numbers to 150 million eventually.
Turkey was the world’s sixth-most attractive destination in 2014, receiving 36.8 million visitors, according to the Association of Turkish Travel Agencies. It was expected to receive 42 million tourists in 2016. But that target was set before the incidents. No expert can predict today how many foreign passengers would visit the country; much would depend on whether the government can contain and eradicate terrorism from its soil. The decline had already begun in the early part of 2016 before the airport bomb attack and before the failed military coup; foreign passenger arrivals had already declined by 10% in the first five months of 2016 over the year-early period.
The number of passenger flights, which carry bellyhold cargo, was also declining. In April, tourist arrivals declined by 28% to 1.75 million, with the negative trend continuing in May (- 23%). Many experts doubt if the revised forecast of attracting at least 30 to 33 million tourists this year can be realized, and fear that tourism earnings could fall below the official target of US$ 30 billion. Air-cargo shipments to and from Turkey could also possibly decline.
World Bank Forecast for Growth Still at 3.5%
Nevertheless, the World Bank still forecasts 3.5% growth this year, though it is a sharp contrast to the double-digit growth Turkey posted some ten years back.
The airport attack and the failed coup set off alarm bells in global financial circles. Investors are wary about Turkey’s disruptive politics, instability and rising number of terrorist attacks.
Trying to calm investors, Turkish Prime Minister Binali Yildirim announced that the government plans a multi-billion dollar infrastructure fund to keep growth on track.
Halit Anlatan, Vice President (cargo) of the Turkish Airline, sent me a message after the failed coup, saying that the airline‘s schedule was back to normal.
Turkish Cargo transported a total volume of some 730,000 tons in 2015, up 8% over the previous year’s volume. The cargo carrier presently maintains a fleet of 10 freighters, seven of which are A330F and the remaining three A310F aircraft. But its passenger aircraft fleet, currently at 300 of which 80 are wide-bodied and the remaining 220 narrow-bodied aircraft, has become an important medium for transporting belly-hold cargo. Turkish Cargo had placed an order for three freighters of the A330F type; delivery of all three is expected to be completed by spring 2017.
The cargo carrier has been eyeing the big emerging markets: India with huge volumes of outbound pharmaceutical air-shipments, is one of the world’s largest pharmaceutical suppliers. Turkish Cargo transports substantial pharmaceutical supplies to major markets, including North America, Western Europe and Turkey itself, Anlatan said during a recent interview in Mumbai. It remains to be seen if India’s pharmaceutical shipments on Turkish Cargo to North America, India’s biggest pharmaceutical market, would be affected by recent incidents in Turkey. Similar doubts could also be raised on shipments from China, South Korea, Vietnam and Japan.
“In North America, we have started operating to two new destinations last year – San Francisco and Miami. This year we will start operating to Atlanta and Panama, and will be increasing our capacity for Washington DC and Los Angeles where we will have two daily passenger flights. We have once a week freighter service to JFK New York, and a weekly freighter service also to Chicago and Atlanta each,” Anlatan had maintained before the incidents. Nevertheless, experts doubt if the past momentum of cargo traffic to North America could be maintained.
Meanwhile, the recent meeting between Turkish President Tayyup Erdogan and his Russian counterpart Vladimir Putin in St. Petersburg – the first such meeting between the two after Turkey shot down a Russian jet in November 2015 - has thawed the tense relationship between the two countries, raising the prospect of a revival in the promising bilateral Turkish-Russian trade for which both sides have set a target of $100 billion.
Russia had promptly cut ties with Turkey over the downed jet incident, banning imports of Turkish vegetables and perishables, restricting Russian tourists’ access to Turkey and blocking some Turkish companies from working in Russia.
Russia’s Economy Minister Alexei Ulyukayev had said that his country may open its market for Turkish food imports by the end of the year (a thriving black market business is already underway). Russia can also be a lucrative market for Turkey’s perishable products, which are shipped by air.
Turkey’s location as truly the pivoting trade point between the Middle East, Asia and Europe is hard to under estimate even in these difficult times. The coming months will reveal the extent of the impact of the incidents on both air-passenger and cargo traffic.