Originally commissioned early 2016 for Invest In Group
Preface: Turkey faces some competition for its status as an aviation hub but it maintains the advantage, and its new airport is set to redraw the world aviation map.
Turkey’s aviation sector performed well in 2015, and holds huge potential still, however, security concerns may impact growth negatively. The sector grew by 15% in the beginning of 2015, compared to 5% globally over the same time period. This follows on from over a decade of strong performance. From 2003 to 2014, the sector grew on average 13.7% each year, compared to a growth rate of 5.7% per year for the aviation industry globally.
Passenger penetration, the ratio of passengers to total population, in the Turkish market increased by nearly three times between 2003 and 2014. Passenger numbers rose by an average of 16% a year from 2003 to 2013, which was three times more than the country’s GDP growth. Even during the crisis of 2009, which saw Turkey’s GDP decrease by 5%, passenger numbers still increased by 6%. In 2013, Turkey had the 11th highest aviation traffic in the world, in terms of passenger numbers. Moreover, despite this impressive growth, Turkey is still considered an underpenetrated market, meaning it holds considerable further growth potential.
Turkey is expected to see a total of at least 90 million passengers a year by 2018. The growth potential of the sector comes from the underpenetrated market, Turkey’s location as a geographical hub, the lack of alternatives in terms of transportation infrastructure in the country, and the strong support from the government. Moreover, a global decrease in oil prices increased profitability in 2015, potentially allowing operators to reinvest and improve services.
Turkey faces some competition from Gulf countries for its status as a transport hub. However, Gulf countries need wide-body aircraft if they are to carry passengers from Europe to Asia, whereas more than 40% of international traffic from Turkey can be reached using narrow body aircraft. Narrow-body aircraft provide greater flexibility in terms of operations, therefore, the risk of competition from Gulf countries for Turkey is still limited.
There are, however, a number of threats to the continued success of Turkey’s aviation sector. The exchange rate volatility Turkey has experienced over the last year threatens Turkish businesses across the board, particularly those with an international orientation, something which non-domestic airlines inherently have. Moreover, economic instability generally also poses serious concerns for Turkish companies, again this is true across the board, but particularly for non-essential services such as flights. Finally, the worsening security situation in Turkey risks damaging Turkey’s tourism industry and appeal to international business, which will in turn damage the aviation sector. In addition, worsening security may damage Istanbul’s appeal as a transportation hub.
Istanbul’s third airport, currently under construction, is set to be one of the biggest in the world. When it opens, it will undoubtedly redraw the lines on the world aviation map and will likely cement Istanbul’s position as a regional hub. The airport is planned to open by the beginning of 2018. In its first phase, the airport will have three runways, a railway link and an annual passenger capacity of 90 million. The plan is to expand this further and for the airport to have six runways, four terminals and an annual passenger capacity of 150 million by 2028. The airport will solve Istanbul’s current capacity problem, currently holding back development. However, filling the expanded capacity may also take time and this will also only exacerbate Turkey’s Istanbul-centric approach to developing its aviation sector. Turkey’s aviation sector has an exciting future ahead of it, however, its fate is tied to that of the country’s economy and other inter-related sectors.