TURKISH AIRLINES INVESTOR DAY May 15, PDF Free Download

TURKISH AIRLINES INVESTOR DAY May 15, 2014

Turkish Airlines Investor Day (May 2014) 1. Investment Highlights & Strategy Overview 2. 2014 Q1 Operational Figures and 2014 Outlook 3. Marketing and Branding 4. 2014 Q1 Financial Figures and 2014 Outlook 5. Risk Management 6. Subsidiaries, Joint Ventures and Affiliates 2

Key Investment Highlights 1 Turkey s Flag Carrier Turkey s flag carrier with a leading market share in Europe s fastest growing country 2 3 4 5 Extensive and Diversified Route Network Low Costs and Superior Quality Istanbul s Geographic Location Young Fleet & Narrowbody Advantage #1 airline in the world by destination countries flown. Our extensive route network, combined with Turkey s growth potential leave us wellpositioned to grow in both developed and emerging markets One of the lowest Costs per ASK amongst peers. Despite our low costs, we are also recognised for our superior service quality and popular brand Istanbul is the fastest-growing air travel city in Europe and is expected to gain further market share by becoming a leading international aviation hub A young and modern fleet with an average age of only 6.9 years. Leveraging Istanbul s ideal geographical location, we are able to gain an edge by operating mostly narrow-body aircraft 6 Vertically Integrated Business Model Our unique business model, with vertically integrated supply chain give us an edge over competitors 7 Consistent Financial Performance A stable and sustainable growth over the last decade. We posted a profit every year since 2006 as such we were one of the few airlines to remain profitable throughout the financial crisis 3

Turkish Airlines Growth Story Weekly Flights 12,000 11,000 59.5 mn pax 10,000 9,000 48.3 mn pax 2014E 263 Aircraft 8,000 7,000 6,000 5,000 4,000 3,000 2,000 2004-73 2008-127 22.6 mn pax 2009-132 25.1 mn pax 14.1 mn 19.7 mn pax 2009-132 pax 16.9 mn pax 2008-127 11.92005- mn 83 2007-101 pax 2005-83 2006-103 29.1 mn pax 2010-153 32.6 mn pax 2011-180 39 mn pax 2012-202 2013-233 10.4 mn pax Destinations 1,000 90 100 110 120 130 140 150 160 170 180 190 200 210 220 230 240 250 260 270 Note: The diameter of the sphere illustrates total number of passengers carried. 4

Global Market Share Gains Global Market Share Trends (in ASK) 4.8% 4.6% 3.6% 3.4% 2.9% 2.6% 2.5% 2.4% 2.3% 2.2% 2.1% 1.8% 1.7% 1.7% 1.7% 1.6% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Turkish Airlines Market Share Development % of World Scheduled Traffic (ASK) 1.9% 1.6% 0.6% 0.5% 0.5% 0.6% 0.7% 0.7% 0.8% 0.9% 1.0% 1.2% 1.4% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014F 5 Source: 2002 ICAO, 2003-2013 IATA, sorted by the highest 12M ASK values

More Countries Than Any Other Airline Future network development will be more focused on frequency increase, aiming maturity 2002 THY Network 2003-2014 Destinations Planned Destinations (5 years) Today Planned Europe & CIS 96 +11 Middle East 33 +2 Africa 38 +12 Far East 31 +2 America 9 +7 TOTAL 207 +34 6

Istanbul's Natural Advantage Istanbul is between Europe Middle East and Europe Asia corridors, high volume and growth markets From To ~17% ~6% ~10% Connecting via Istanbul the increase in flight time* Europe to Middle East : 6% Europe to Far East : 10% Europe to Africa : 17% Turkish Airlines Offers the Most Number of O&D Pairs Africa to the World : 7,704 Far East to the World : 6,976 Middle East to the World : 7,344 * Increase in the flight distance compared to a non-stop flight is forecasted by using 6,000 arrival-departure cities 7

Ataturk International Airport (IST) 10 th Largest Airport in the World* 5 th Largest Airport in Europe Number of Passengers in 2013 8 Capacity Enhancements: Parking Positions: 58 new parking positions and related taxiway being built to be operational in Q3 14 (+56%) Air Traffic Movements: Declared capacity at Ataturk Airport is 58 movements per hour. At peak hours 67 ATMs is realised. With certain tower management measures 80 ATMs is achievable. (+20%) New International Terminal : Construction to start in September 2014 after Turkish Cargo moves to its new terminal. Managerial Measures: Easy-pass implementation, elimination of security control at terminal entrance, increased x-ray and passport control London Heathrow Paris CDG Frankfurt Amsterdam Schiphol Istanbul Atatürk International Madrid Barajas Munich Airport Rome Fiumicino London Gatwick Barcelona El Prat 35,2 Pax Growth (2004-2013) Moscow Domodedovo International 30,8 Moscow Sheremetyevo Antalya International Copenhagen Kastrup 24,1 airports Oslo Gardermoenat the Skytrax 23,0 Awards Palma de Mallorca Vienna International 21,9 Source: Airport Council International, Jan 14 12 month data; airports public data. (*): In terms of number of international passengers Dusseldorf International 21,3 Zurich %14 CAGR 24,9 22,8 29,3 27,0 36,2 35,4 39,7 38,7 52,6 51,3 58,0 62,3 One of three airports in the World Paris Orly* 28,3 with Double Digit Growth Listed Amongst the Top 10 72,4

Sabiha Gökçen Airport (SAW) %62 CAGR 2004-2013 Pax Growth 24 million Pax 2014 Target Satellite Terminal 2nd Runway Current Runway Current Terminal (25 mn pax capacity 67 parking stand) 1. Second runway construction to start in S 14 to be completed in 2-2,5 years 2. Existing terminal will reach to 60 mn pax capacity with the extensions 3. Satellite terminal construction will have an additional 30 mn pax capacity 90 million Pax Capacity 2 Independent Parellel Runways 151 parking stand 9

Sabiha Gokcen Airport Strategy Three-year network building investment period for a second hub in Istanbul 2014 SAW Network TK AJ Destinations 2013 2014 Europe 10 14 CIS 1 3 M. East 3 3 Domestic (TK) 5 5 Domestic (AJET) 16 22 TOTAL 30 42 Fleet 2013 2014 7 13 7 9 TOTAL 14 22 2013 2014 Utilizing additional catchment area High demand and local pax potential destinations Connecting Europe to ME, Central Asia and Turkey Market Share (%) 11,8 24,5 10

Istanbul's Third Airport All Turkish Airlines Ataturk International Airport operations will move to the new airport. Third Airport 3 rd Bridge Black Sea Istanbul Atatürk International Airport Sabiha Gökçen The new airport will be constructed in four phases: Phase 1: to be operational by 2019 with 90mm PAX capacity p.a. To include 3 runways and 2 terminals. Phase 2: addition of a 4 th runway; Phase 3: addition of a 5 th runway and 3 rd terminal with a total capacity of up to 120mm PAX p.a.; Phase 4: to be completed by 2027 totalling capacity of 150mm PAX p.a. and including 6 runways and 4 passenger terminals. 11

Turkish Airlines Narrow Body Range Narrow Body Range capability to and from Istanbul With full passenger payload 177 out of 207 international destinations More than 40% of world-wide international traffic Over 55 national capitals All of Europe, Middle East, Central Asia and North and East Africa Algiers Adana Tehran Casablanca Tunis Tripoli Alexandria Misurata Benghazi Cairo Nouakchott Sharm El-Sheikh Sebha Hurghada Dakar Abidjan Accra Lagos Kinshasa London Douala ISTANBUL Addis Ababa Juba Entebbe Kigali Kilimanjaro Khartoum Djibouti Nairobi Mombasa Dar Es Salaam Lusaka Mogadishu Osh Mumbai Chennai Bangalore Male Johannesburg 12

Turkish Airlines in 2023 120 million passengers Over 450 aircraft 24 bn $ revenue Over 3% global market share Largest network in the world Five Star Service Quality Profitable Growth 13

Traffic Figures 1Q 2014 40 57 48 65 59 81 74 96 92 116 19 25 24 30 Total Passenger (mn) RPK and ASK (bn) 25.1 13.4 29.1 15.5 32.7 18.2 23.1 11.7 13.6 14.5 15.9 28.3 20.1 6.0 6.9 4.0 5.1 2009 2010 2011 2012 2013 1Q'13 1Q'14 Domestic International Passenger Load Factor 39.0 48.3 10.0 20.2% 12.0 2009 2010 2011 2012 2013 1Q'13 1Q'14 RPK ASK International to International Transfer PAX (mn) 21.0% 21.5% 11.6 70.9% 73.7% 72.6% 77.7% 79.0% 78.0% 77.7% 4.4 5.1 6.2 9.0 2.5 27% 3.2 2009 2010 2011 2012 2013 1Q'13 1Q'14 2009 2010 2011 2012 2013 1Q'13 1Q'14 14

AnadoluJet AnadoluJet Total Passengers (mn) AnadoluJet Capacity and Load Factor 36% 80.9% 79.4% 76.6% 81.9% 81.2% 82.6% 80.1% 7.7 248% 5.9 5.3 5.3 2.2 1.2 1.5 23% 1.1 2.9 0.1 5.5 2.0 4.2 4.4 4.2 1.3 2.7 0.7 0.2 1.1 1.4 2009 2010 2011 2012 2013 1Q'13 1Q'14 ESB SAW TOPLAM 5,960 5,212 4,611 3,895 2,095 1,670 938 2009 2010 2011 2012 2013 1Q'13 1Q'14 ASK (mn) Load Factor (%) 21% market share in the domestic market Fleet size: 17 Ankara, 9 SAW based, 1 charter, total 27 aircraft All domestic network: 33 destinations from Ankara and 22 destinations from SAW As of today, all flights are operated by SunExpress 15

Turkish Cargo Leading cargo carrier in total export and import cargo in Turkey 49 cargo destinations with 9 freighter aircraft Along with 249 destinations with 240 passenger aircraft 16

Turkish Cargo Cargo Revenue Evolution (mn USD) Cargo Tonnage Carried (mn Ton) 858 565 719 471 286 405 578 190 22% 232 238 314 388 124 27% 157 2009 2010 2011 2012 2013 1Q'13 1Q'14 Global vs THY Cargo Growth 2009 2010 2011 2012 2013 1Q'13 1Q'14 Turkish Cargo Global Market Share in Revenue 44% 1.41% 34% 39% 1.12% 28% 0.86% 19% 21% 0.60% 0.61% 10% 12% 4% 17 2009 2010 2011 2012 2013-10% World FTK Growth THY FTK Growth 2009 2010 2011 2012 2013

Turkish Cargo Recent Developments 3 new cargo destinations in 1Q 14. Hanoi is the next one Best Asia Pacific Cargo Airline 2013 International Air Cargo Winner 2013 India Cargo Airline of the Year 2014 Best European Cargo Airline Air Cargo News Cargo Outlook New Cargo Terminal will be opening in Q3 2014 Turkish Cargo 2018 Targets: 1,2 million tones of annual capacity 2 billion $ cargo revenue 3,4% global market share 15% cargo revenue share in total Turkish Airlines revenue 18

Revenue Development (mn USD) Volume 378 Price -127 Currency -11 2,009 1,769 189 Cargo (+21%) 230 2,015 Other (+35%) 57 77 Total Revenue (+15%) 2,315 Q1 13 Q1 14 19

Scheduled Services Yield Development R/Y (USc) 5% 11.95 12.10 12.22 9.72 9.95 10.24 9.25 9.51 9.90 11.89 10.58 10.56 9.78 9.38 8.83 9.47 9.19 8.59 7% 24% 8.18 8.20 8.01 2009 2010 2011 2012 2013 Q1'13 Q1'14 Domestic International Total Scheduled RASK (USc) 8% 9.49 7.55 7.18 9.77 9.86 9.89 8.84 8.94 8.13 8.19 8.24 8.00 7.55 7.82 7.92 8.00 7.87 7.36 5% 24% 6.96 6.98 6.79 2009 2010 2011 2012 2013 Q1'13 Q1'14 Domestic International Total Scheduled 20

Regional Yield Development Q1 14 vs Q1 13 Regional Yield Development 22.0% America 18.3% Europe & CIS 28.6% Far East -6.4% -3.3% ASK RASK R/Y -4.2% -7.2% ASK RASK R/Y -7.4% -8.6% ASK RASK R/Y Depreciation of local FX rates (Argentina, Brezil, Canada) Increase in transfer pax share Depreciation of local FX rates Political tension in Ukraine, Russia Capacity additions to SAW (accounts for 1.6pp lower R/Y) 23 new routes (including SAW) Easter shift to April Increase in transfer pax share Depreciation of local FX rates (Kazakhistan, Ozbekistan, India, Japan) Political tension in Thailand Capacity increase 4 new routes Increase in transfer pax share 14.3% Africa 33.9% Domestic Middle East 6.0% 6.9% ASK RASK R/Y 10.6% 0.3% 1.1% ASK RASK R/Y -24.3% -23.9% ASK RASK R/Y Depreciation of TRY against USD (-22%) 82% AJET Capacity increase (accounts for 8.5pp lower R/Y) 5 new routes TK, 18 New routes AJET (including SAW) Easter Shift to April 21

Trading Outlook for 2014 Passenger Business 2014 Outlook Capacity growth: 18 net fleet additions in Q2 Capacity growth in line with guidance Forward booking trends indicate: Positive demand outlook Yield pressures continue in Q2 14 Better yield outlook for H2 14 Cargo Business 2014 Outlook: Expected capacity growth for Q2 and H2 (yoy) are 24% and 10% respectively Positive demand outlook Increased transfer cargo 2014 YE Traffic Guidance Unchanged 59.5 million Passengers - 23% growth yoy 141 billion ASK - 21% growth yoy 79% Load Factor 653 thousand tons Cargo - 19% growth yoy 22

Superior Service Quality & Customer Satisfaction BEST AIRLINE IN EUROPE LOUNGE ISTANBUL Economy Class Business Class BEST BUSINESS CLASS CATERING IN THE WORLD 23

Turkish Corporate Club Corporate Sales Revenue grew ten-fold since 2009 Corporate sales revenue share in total revenue 2009 2014 2.4% 8.4% TCC Business Class revenue share; 2009 2014 In Total Corporate Sales 18.7% 34.3% In THY Business Revenue 10.3% 15.7% 24

25 Branding and Sponsorships

Key Financial Data (USD mn) 2013 1Q 2014 1Q Change Revenue 2,015 2,315 14,9% Passenger Revenue 1,769 2,009 13,6% Net Operating Profit -48-102 EBIT -24-78 Net Income -14-102 Net Income Margin -0,7% -4,4% -3,7 pt EBITDAR 212 215 1,3% EBITDAR Margin 10,5% 9,3% -1,2 pt (USD mn) 31.12.2013 31.03.2014 Change Net Debt 4,213 4,376 3.9% Total Assets 11,901 12,410 4.3% Net Debt = Total Debt (incl. Finance Leases) minus Cash & cash equivalents Time deposits and Current PDP Receivables (31.03.2014: 577 mn USD) 27

Net Operating Profit Evolution Q1 13 Q1 14 (mn USD) -48-102 Decrease in fuel price -137 Currency +47 Utilization +43 Unit Revenue (ex-currency) -34-4 +31 Unit Cost (ex-currency ex-utilization) L/F 28

Operational Expense Breakdown (mn USD) 1Q 13 1Q 14 Change Fuel 769 887 15,4% 1Q 14 36,7% Personnel 385 398 3,5% 16,5% Aircraft Ownership 240 300 25,2% 12,5% Airports & Air Navigation 169 219 29,7% 9,0% Sales & Marketing 164 194 18,1% 8,0% Ground Handling 126 145 15,5% 6,0% Passenger Services & Catering 97 126 29,1% 5,2% Maintenance 55 85 54,7% 3,5% Overhead 17 19 12,5% 0,8% Other Cost of Sales 40 44 9.2% 1,8% TOTAL 2.062 2.418 17,2% YoY ASK Growth: 21.5% 29

CASK Breakdown (USc) 1Q 13 1Q 14 Change Fuel 3,08 2,92-5,0% Personnel 1,54 1,31-14,8% Aircraft Ownership 0,96 0,99 3,1% Airports & Air Navigation 0,67 0,72 6,8% Sales & Marketing 0,66 0,64-2,8% Handling 0,50 0,48-4,9% Passenger Services & Catering 0,39 0,41 6,3% Maintenance 0,22 0,28 27,4% Overhead 0,07 0,06-7,4% Other Cost of Sales 0,16 0,14-10,1% TOTAL 8,25 7,96-3% 30 YoY ASK Growth: 21.5%

Selected KPI s (USD) 1Q 13 1Q 14 Change Fuel Price (Usd/ton) 1.100 1.051-4,5% Fuel Consumption (lt) per 100 ASK 3,5 3,5-0,5% Aircraft Ownership Cost per BH 1.088 1.128 3,7% Maintenance Cost per BH 250 320 28,1% Handling Cost per Landing 1.616 1.547-4,3% Airports & Air Navigation Cost per km Flown 1,1 1,2 5,0% Passenger Services & Catering Cost per Pax 9,7 10,4 7,4% Sales & Marketing Cost / Passenger Revenue 9,3% 9,6% 0,3 pt Total Cost per ASK 8,25 7,96-3% 31

Effective Cost Management Cost per ASK (USc) 10.0 CASK Personel/ASK Fuel/ASK Others/ASK 8.0 7.17 7.91 8.46 7.92 7.94 8.25 7.96 6.0 4.0 3.81 4.00 3.84 3.49 3.63 3.63 3.73 2.0 1.75 2.16 2.95 3.00 2.96 3.08 2.92 0.0 1.61 1.75 1.65 1.43 1.36 1.54 1.31 2009 2010 2011 2012 2013 1Q2013 1Q2014 32

Productivity and Profitability 20,127 23,613 EBITDAR Personnel Efficiency (mn USD) 1Q 13 1Q 14 Change Sales Revenue 2,015 2,315 15% Cost of Sales (-) -1,769-2,086 GROSS PROFIT/(LOSS) 245 230-6% General Administrative Expenses (-) -58-65 Marketing and Sales Expenses (-) -235-267 NET OPERATING PROFIT -48-102 Other Operating Income 28 27-4% Other Operating Expense (-) -20-7 Adjustments* 15 4-73% EBIT -24-78 EBITDA 139 94-32% 25,000 20,000 15,000 6% 1,606 1,516 17.3% 1Q'13 1Q'14 Number of Personnel Passenger Per Employee Fleet Utilization 14:25 14:15 4.6% 1500.0 1000.0 500.0 - Adjusted Operating Lease Expenses** 53 70 31% Adjusted ST Lease Expenses (Wet-lease)*** 19 50 159% 11:28 11:56 12:06 12:29 EBITDAR 212 215 1% EBITDAR MARGIN 10.5% 9.3% -1,2pt (*): For non-cash other operating income/expense (**): Adjusted for A/C heavy maintenance (***): Adjusted for A/C Rent and heavy maintenance portion (Aprox. 55%) 1Q'13 1Q'14 WB Long-Haul NB Medium Haul Total 33

Outlook for 2014 2014 YE Traffic Guidance Unchanged 2014 YE Financial Guidance updated with Currency and Fuel Cost assumptions Previous Assumption Updated Assumption Average USD/TRY 2.06 2.18 Average EUR/USD 1.31 1.37 Fuel Cost (USD/Ton) 1,023 1,057 2014YE Updated Guidance (Compared to 2013YE in USD) 19% increase in non-consolidated revenue 19% increase in total fuel cost 2% decrease in total CASK 2.5% decrease in total RASK Long-term EBITDAR Margin Target: 18% 34

Fleet Growth Plan CURRENT FLEET Type As of today Year End Fleet 2014 2015 2016 2017 2018 2019 2020 2021 Wide Body 47 55 68 79 80 80 79 76 76 Narrow Body 193 201 207 237 232 262 294 341 349 Cargo 9 7 7 7 7 7 7 7 7 GRAND TOTAL 249 263 282 323 319 349 380 424 432 AIRCRAFT PURCHASES Delivered To Be Delivered Type 2014* 2014* 2015 2016 2017 2018 2019 2020 2021 TOTAL Wide Body 3 7 14 11 3 35 Narrow Body 7 3 18 34 6 47 40 62 10 220 GRAND TOTAL 10 10 32 45 9 47 40 62 10 255 * As of today * Including 60 optional aircrafts 35

Aircraft Financing Structure As of 31.03.2013 Total Debt : 6.3 Bn USD Weighted Average Interest Rate: 3.8% Lease Type Currency Type Interest Rate Type Financial Lease 90% Operational Lease 10% EUR 40% USD 48% JPY 12% Fixed 78% Floating 22% 36

Hedging Risk Revenue by Currency (1Q 14) Fuel Hedging Other 18.5% EUR 41.8% TL 11.3% USD 16.8% Around 16 mn barrels of hedged position on ICE BRENT as of March 31th, 2014 The break-even price of the hedged position is $101/bbl Decreasing layered hedging strategy (24 months) Crude oil based swaps and options Aim to reach 50% of budgeted consumption SEK 1.7% SAR 1.8% CNY ; 2.1% JPY 2.6% GBP 3.4% Expenses by Currency (1Q 14) Currency Hedging Other 7% USD 56% Monthly gradually decreasing layered hedging strategy Sell EUR, Buy USD and TRY via forward contracts Each contract for 24-month period Target hedge levels: 30% for TRY, 25-35% for USD Flexible hedge strategy with respect to conditions EUR 14% TL 24% 37

Subsidiaries, Joint Ventures and Affiliates 1 1Q 14 THY Consolidated Revenues: 2,315 mn USD Date of Creation 2009 1989 2006 / 2013 2007 2008 2008 Ownership Opet 50% THY 50% LH 50% THY 50% THY 100% Do & Co 50% THY 50% Havas 50% THY 50% Pratt & Whtiney 51% THY 49% Consolidation Equity Method Equity Method Full Consolidation Equity Method Equity Method Equity Method Business Description Number of Employees Aviation Fuel Passenger Airline Maintenance Services Airline Catering Ground Services Maintenance Services 231 2,983 4,431 3,648 7,837 206 Q1 14 Revenues (2) USD 623 mn USD 191 mn USD 175 mn USD 79 mn USD 53 mn USD 45 mn Sales to THY (%) 86% 32% 71% 85% 80% 99% Net Income 1Q 14 USD 9 mn USD (34) mn USD 2 mn USD 6 mn USD 3 mn USD 1 mn (1) Material entities with more than $10 mm revenues in FY 2013 (2) Full company revenues, not just the portion attributable to THY 38

THANK YOU TURKISH AIRLINES INVESTOR RELATIONS Tel: +90 (212) 463-6363 x-13630 E-Mail: ir@thy.com 39

DISCLAIMER This presentation is confidential and does not constitute or form part of, and should not be construed as, an offer or invitation to subscribe for, underwrite or otherwise acquire, any securities of Turkish Airlines A.O (the Company ) or any member of its group nor should it or any part of it form the basis of, or be relied on in connection with, any contract to purchase or subscribe for any securities of the Company or any member of its group nor shall it or any part of it form the basis of or be relied on in connection with any contract, investment decision or commitment whatsoever. This presentation has been made to you solely for your information and background and is subject to amendment. This presentation (or any part of it) may not be reproduced or redistributed, passed on, or the contents otherwise divulged, directly or indirectly, to any other person (excluding the relevant person s professional advisers) or published in whole or in part for any purpose without the prior written consent of the Company. This presentation includes forward-looking statements. These forward-looking statements include all matters that are not historical facts, statements regarding the Company s intentions, beliefs or current expectations concerning, among other things, the Company s results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which the Company operates. By their nature, forward-looking statements involve risks and uncertainties, including, without limitation, the risks and uncertainties set forth in the Company s Offering Memorandum, because they relate to events and depend on circumstances that may or may not occur in the future. The Company cautions you that forward-looking statements are not guarantees of future performance and that its actual results of operations, financial condition and liquidity and the development of the industry in which the Company operates may differ materially from those made in or suggested by the forward-looking statements contained in this presentation. In addition, even if the Company s results of operations, financial condition and liquidity and the development of the industry in which the Company operates are consistent with the forward-looking statements contained in this presentation, those results or developments may not be indicative of results or developments in future periods. The Company does not undertake any obligation to review or confirm analyst expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events that occur or circumstances that arise after the date of this presentation. 40