Oil Drop Means Cheaper Fares as Turkish Air Seeks Expansion

Turkish Airlines, the carrier that flies to more destinations than any other in the world, will use oil’s drop as an opportunity to cut prices, expand its destination map and increase market share, its chairman said.

Promotional tickets targeted at budget-minded travelers will help lift revenue by about 20 percent next year, Turkish Airlines Chairman Hamdi Topçu said in an interview on a flight en route to London from Istanbul, where the airline is based.

“We’ll be able to offer more competitive prices,” he said. “On every plane we already have some promotional fares, and we’ll increase those.”

Oil has dropped 37 percent this year and accelerated its decline last week after OPEC decided to maintain output. The drop is a blessing to the aviation industry, which counts fuel costs as its single biggest expense. The Bloomberg World Airlines Index added 1.6 percent today after jumping 5.2 percent on Nov. 18, the most since October 2008.

Topcu said about 50 percent of his airline’s oil purchases are hedged, and that these wagers have helped the carrier make “strategic budgets.”

Oil Hedging

“We’re in line this year which shows we’ve done a good job,” Topcu said. “We think our oil-buying strategies have been correct.”

Turkish Air has expanded its global reach, serving 264 destinations, the most worldwide. Topcu said the carrier will add San Francisco in mid April, and Taipei later in 2015, as well as additional destinations in Africa and Latin America. “We’ve decided on these, we’re working on the bureaucracy and licenses.”

To support growth, the airline will add about 30 new planes to its fleet each year, with about half that amount made up of wide-body airliners for long-distance travel, Topcu said. The total fleet size will be around 430 by 2021, including 76 wide-body aircraft, according to the carrier’s website.

The airline is seeking to exploit Istanbul’s geographical position to establish the city as an inter-continental transfer hub for travel between Europe and the U.S. and Asia, mirroring the strategies of top Gulf carriers located further southeast.

Turkish Airlines, formally known as Turk Hava Yollari AO, rose as much as 0.23 liras, or 2.6 percent, to 9.16 liras today in Istanbul, bringing the increase this year to 40.5 percent and putting the carrier on track for its third annual gain. The company’s largest shareholder remains the Turkish state, with a stake of about 49 percent.

“I don’t think shares show our value yet,” Topcu said. “Oil prices have just started to be reflected in our numbers.”

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