Temel Kotil (PhD)

‘In ten Years, our biggest market will be Africa.’

Turkish Airlines is one of the biggest success stories in global aviation. In 2005, it was a regional carrier whose annual revenue was around USD2 billion, carrying 14 million passengers yearly. Today, it’s an international powerhouse, with revenues expected to reach USD12 billion this fiscal year, roughly 70 million passengers per year and nearly 300 destinations.
The company’s CEO, Temel Kotil (PhD), has been at the helm for 12 years. He credits this growth to capable employees, privatisation, and continuous expansion into new markets. EBR’s Tinbete Ermyas spoke with the ambitious leader during a trip to Ethiopia to mark the Airlines’ 10th anniversary flight to Addis Ababa. They discussed the company’s growth, plans to expand in Africa, and how the Airlines has managed during the ongoing crises in the region. The following is an excerpt.

Congratulations on the anniversary. I understand you met with the CEO of Ethiopian Airlines during your visit. What was the biggest take away from the meeting?
In the future you will see Turkish and Ethiopian working more hand-in-hand. We are already working together in code-sharing and we received good news that Ethiopian Airlines is starting [service] to Istanbul, so both airlines will be flying [there]. Also, our code-sharing agreement has become much stronger, with more cooperation.

What the two airlines – Ethiopian and Turkish – have in common is that is that they’ve grown rapidly in the past ten years. Your revenue was USD2 billion, which grew to USD10 billion last fiscal year. What spurred this growth?
In 2006 the government privatised us. After that, we worked on [developing the Airlines] because there was no state [intervention]. So we saw this as an opportunity. [We conducted] several studies on Istanbul’s connectivity – and we learnt that it is an ideal location as a travelling hub and we ran [with that idea]. This motivated us to expand.
So with purpose we opened several routes. And with that, we increased our flight load. That is our success. We’ve haven’t slowed down since then. Our revenue increased, passengers increased, destinations increased. But we aren’t satisfied yet.
The growth is really impressive, but it hasn’t always been rosy. You lost five percent revenue between the 2014 and 2015 fiscal years. What happened?
That was because of currency issues – exchange rates will affect the bottom line. We were selling tickets in Euros in 2015, so when Euro went down, our income also went down. But cost went down also. This is why 2015 was the perfect year in terms of profit but revenue didn’t increase.

Your service quality has also drastically improved. In 2007, The Economist wrote that the Airlines’ code – THY – unofficially stood for ‘They Hate You’. This was due to poor service quality – missing luggage, delayed flights, rude flight attendants. It seems the changes for Turkish were not solely economic – there was a human resources element as well.
Success in the airline business doesn’t come from the aircraft or economics, not from profit or losses – it comes from the heart. As management we do [our work] with purpose. We need to hire people, [especially] young people, who are hungry. They are hungry for success. They work hard and they do their jobs well.
In my 12 years working at Turkish, I can say that any airlines in the world will be successful if [managers] and employees believe in what they are doing. If they are able to arrive at their job before working hours, stay longer than expected, and stop checking their clocks to figure out when they’re going to finish their job, they are working from the heart and they will be successful.
If it’s the other way around and nobody cares about [their work or] the passengers, [your company] will be dead. Even if you subsidise prices, you are dead.

Let’s talk about Africa. You just announced the reopening of your Istanbul-Mogadishu line and you have nearly 50 destinations throughout the continent. What the significance of the African market for Turkish?
It’s our future. Of course, we are a European airline and we heavily operate [there] – close to 70Pct of our frequency is between Europe and Istanbul. But Europe is a very established market and it is not tasty. Africa is tasty.
[African aviation] is very small. It is four or five percent of the aviation business. This is tasty is because [the market] is growing here. If you have this saturated market [in Europe], which is like a constant flow, the cost difference is profit, and it’s constant. If you get something new, like a new route in Africa, that’s additional profit. We have the aircraft already [and we are expanding in] Africa economically, commercially, financially.
Plus, growth in Africa is in the double-digits in certain destinations. I believe personally that if we continue this way in ten years, our biggest market will be Africa – not Europe.
Turkish is often compared to Gulf carriers because you offer cheap fares and large, comfortable aircraft, which requires a lot of investment. This is difficult for African airlines to compete with. Some even argue that it’s contributed to the demise of some Africans carriers. What is your take on that?
The biggest problem in Africa is not the airlines. I believe [the problem] is the authorities and government. Also, the taxes and charges in the airports are very expensive. If I was a politician in Africa I would ask my government to make aviation tax free. The country might lose a little bit of revenue as a result, but it will begin to signal to everyone ‘oh, this country in Africa is favourable to [investors]. They support [aviation]. Let’s do business there.’
The fares into and within Africa are much higher than the rest of the world. The politicians should ask themselves, ‘how can we promote flights?’ It would be good for them. If there is a route that [Turkish] is flying – let’s say from Istanbul to Addis Ababa – if I am making USD1 revenue, cities make five times that amount through tourism and other business. This is why the Africans should look inward and [develop strategies] to promote flight.
This happened in Turkey. In 2002, the former Turkish Transportation Minster reduced taxes. Before then, our jet fuel price was two times more expensive than the international average. It was awful. The fees on the airport were large. When he came to power he cut them. This was a motivation for everybody. This opened routes that used to be domestic or Turkish Airlines only to other airlines. [As a result,] domestic passengers increased fivefold.
[African] states should have solid business plans to develop aviation. If the country is following a solid plan, it helps the airlines to [flourish]. This is because creditors [who fund aircraft, etc.] will know that their money will [benefit stable] aviation – not a fluctuating sector.
So for African [carriers], the problem is not fund raising or finding credit. The biggest problem is the state needs to have a solid business plan. I believe Ethiopia does have this – that’s why Ethiopian [Airlines] has flourished.

I’d like to talk a bit about the conflict in Syria – your neighbour. Delta Airlines announced that it will suspend service from New York to Istanbul. The conflict in the region has affected everything from travel routes to airport security. You have also had bombs threats that have specifically targeted your Airlines. How do you maintain growth in such a volatile region?
This is an unfortunate thing. [Another tragedy] I believe was Ebola in Africa. And it closed travel in [many parts of] Africa. But terrorism is much worse than Ebola. And it affects everybody. If you want to get rid of the Ebola, then you find [solutions to it] at home. But for terrorism the best thing you say is this is to say ‘too bad’ and everybody should keep travelling. I am not an expert in terrorism but it prevents people from travelling, which is not good.
This is a big pain, but what is happening is, our network is so big, we are [not hurting]. We did this on purpose. When we started building Turkish Airlines, we were aggressively opening networks – in Europe and other places as well. So this means that the network is so large that for Turkish, it hurts a little bit in terms of travel but we just substitute from other networks. So we’re growing this year by 18Pct, which means capacity increased.
So to answer your question, our network is so strong, our finances are so strong that we can compete in terms of pricing, so things are okay for Turkish Airlines.
We are also improving security. At our new airport, which will open in two years, we are running scenarios of what will happen in the case of a tragic event. We are preparing ourselves.

Finally, I’d like to learn a bit about your professional background. You have a PhD in engineering and you were a professor for years before arriving at Turkish Airlines. Was the transition to management difficult?
No, because I had experience working in the municipality as a manager. Also, when I was working in the university I worked as a manager – I was a vice chairman. Of course, running the Airlines isn’t exactly like teaching a class but there are a lot of similarities. In classes, you’re motivating students to do research. At the Airlines, we’re motivating the employees to do research and service. They are very similar. EBR

4th Year • June 16 2016 – July 15 2016 • No. 40

Tilahun Emiru

a 2014 MPAID graduate of Harvard, is currently a PhD candidate in Economics at Cornell. He can be reached at tme29@cornell.edu

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