Oguz Karakas
Turkish
Airlines is one of the world's fastest-growing carriers. Passenger numbers in
January were up 24 percent compared with the same month in 2013, and the fleet
has expanded to 233 from 65 aircraft in 2003, with enough on order to double in
size again. Meanwhile, European travel managers report increasing corporate
purchasing activity with the airline. Against this background, BTN contributing editor Amon Cohen
talked to director of corporate agreements and marketing Oguz Karakas about Turkish
growth plans, corporate sales strategy and the state of travel management in the
airline's home market.
Why is Turkish Airlines expanding so rapidly?
We want Istanbul to be the number-one hub in the world for transit passengers. In the past, Turkish did not grow as much as it should have, given that Istanbul has been a very good connecting point for East and West since the 16th century. Over the past 10 years, we have decided that we first have to connect Turkey to the rest of the world, and then connect other countries. It's a strategy that was initiated by top management and endorsed by the Turkish government, which owns 49 percent of the airline [the remaining 51 percent is quoted on the Turkish stock exchange] and wants to improve our import/export economy and our relations with other countries. Our national export association did research that showed when we launch a new route, exports to that destination triple in a couple of months. But this is not the main reason for our expansion. The central point of aviation is moving east. If we fill our long-haul flights, we can make money.
Does Turkish make a profit?
Over the last 10 years we have made money. Turkish receives no support from the government financially, and there are no more treasury guarantees on our aircraft leasing. Yes, we can make a profit. The last couple of years have presented really good opportunities to buy aircraft, and our labor costs—other than for pilots—are lower compared to other European airlines.
Where has expansion taken place?
Last year we became the number-one airline measured in the number of countries we fly to—105. We started by increasing passengers in Europe and the Middle East, then the Near East (such as Russia). We are the strongest European airline in the Middle East, and we are also growing very fast in Africa, where we are the second-largest, after Air France/KLM.
What are your plans for North America?
Two years ago we only flew a daily service to Chicago and a double-daily to New York. Since then, we have added Los Angeles, Houston, Washington, D.C., and Toronto, and this year we will add Boston and Montreal. We have plans for more destinations in the U.S.
How much bigger does Turkish plan to become overall?
We have orders for 250 more aircraft over the next five years, of which 40 are wide-bodied. There is also a new airport being built in Istanbul. Phase one of the project will have three runways and capacity for 90 million passengers annually. We want to complete it by the end of 2017. Phase two, to be completed by 2023, will add three more runways and give us total capacity of 150 million passengers per year.
Our current airport is almost completely full. There are no slots available in the rush hour. The new airport will accommodate our 450 aircraft and the many other airlines that want to fly to Istanbul. I am sure we will face tougher competition at the new airport.
How much of your business today consists of transit passengers?
Last year, they accounted for 40 percent of our international passengers. That figure will increase. Within four hours, you can reach something like 60 countries from Istanbul, including all of Europe and the Middle East and most destinations in the former Soviet Union and North Africa.
European travel managers have praised Turkish Airlines for offering corporate deals independently of its Star Alliance partners. What is your carrier's corporate sales strategy?
First, we are Star Alliance members and we cooperate with our partners for some customers. But we have our own deals too. My department—corporate agreements and marketing—was launched four years ago. We started analyzing what others were doing and we joined the Star Alliance Corporate Plus scheme, but we still had only a few corporate deals outside Turkey. Inside Turkey, we ran a simple program covering 180 of the biggest companies.
Now, Turkish Airlines has its own product called Turkish Corporate Club, which had 3,000 customers in Turkey at the end of 2013. We also have launched Turkish Corporate Club in Germany and have a couple hundred customers there. Last year, we segmented by adding Turkish Corporate Club Premier for key accounts, which is open to customers using us in three countries or more.
How do your negotiated deals work?
The feedback we received from customers was to make it simple. Our product is based on discounts, which are not applied only to the highest fares. We have also made our medium- and low-priced fares more flexible as well as subject to discounting. Our customers like that.
What do customers have to give you in return?
We don't say, "You have to spend $5 million." We don't think corporate agreements should be about forcing customers to use us. We are confident about our product in all cabins, so we believe that once travelers have tried us, they will want to continue using us. We see corporate agreements as the key to opening the gate to win corporate travelers.
Isn't there a risk that without any commitments, clients will be unable to direct as much business to you as they would like, for example, because their travelers prefer to fly airlines offering their favorite loyalty programs?
There is a risk, but the results are showing that is not the case. When I sign an agreement with a corporate customer, it forces us to offer better services, better schedules and better quality. Our business lounge at Istanbul includes a couple of restaurants with five-star service. Many people go to the lounge early so they can eat before departure instead of on the flight. Two days ago, we added another 2,400 square meters to the 3,000 square meters we already had, so why should I write a marketshare commitment into our contracts?
Late last year, Lufthansa announced it would scale down its cooperation with Turkish. Is that because the German carrier was losing too many corporate customers to you?
Yes, that may be the case. We cooperate but we are also competitors. In fact, legally speaking, we are obliged to compete.
Is your airline considering entering into joint ventures with other carriers?
There are none planned for now, but that doesn't mean we won't do it in the future.
Since Istanbul is emerging as a very strong hub in its own right, does Turkish need any joint ventures?
It may be useful for some regions. For example, we don't fly to Australia.
How is travel management developing in Turkey?
Companies here have basic knowledge. We will soon be launching a Universal Air Travel Plan product here, which will have a positive effect on travel management because customers will be able to access their own payment reports online. Unless businesses here are presented with tools, they don't know where to look.
Do any Turkish clients have negotiated agreements with you?
Ninety-nine percent of our domestic customers are on our fixed discount program. We cannot negotiate because of Turkish competition law, which says we must provide the same conditions for everyone. So if we have two banking customers, we cannot give one a 15 percent discount and the other only 10 percent. Also, we have a 70 percent share of Billing and Settlement Plan revenue in Turkey. Only a few companies here have offices in other countries, and in those cases we will negotiate with them at the other points of sale.
Do Turkish companies have travel policies?
The multinationals based here have policies like you would find anywhere else, but policies in Turkish companies are usually very simple. They don't work with reporting and data to maximize savings.
Will Turkey move to a more Western style of travel management?
Not very soon, but yes. As travel assumes a larger proportion of Turkish companies' budgets, they will become more enthusiastic, and we will give them more tools.