S&P downgrades Turkish Airlines on weak performance, security worries

By bne IntelliNews July 15, 2016

Standard & Poor’s (S&P) has lowered the long-term corporate credit rating on flag carrier Turkish Airlines (THY) to 'BB-' from 'BB' with a negative outlook citing weak performance and security worries.

The downgrade reflects THY's significantly weaker-than-anticipated performance since early 2016 and expectation that the company will not fully recover to deliver financial metrics in line with the prior rating, according to S&P. “THY has been operating under a challenging environment facing low levels of traffic to and from Turkey, mainly due to security concerns and weak tourism activity”, the rating agency said in a statement, adding that demand still lags its strong planned capacity increase for the full year, resulting in continuing load factor decline.

S&P expects fuel cost savings and tight non-fuel cost control to partially offset those risks. “While we expect mild recovery in the second half of 2016 and in 2017, Turkey's geopolitical environment and unfavourable currency movements should, in our view, limit the recovery prospects in the near term”, it said.

Shares in THY plunged last month after the terror attack on Istanbul Ataturk Havalimani, the carrier’s main hub. THY shares dropped as much as 6% between June 28 and July 8, but the stock recovered from then on. THY shares were trading at TRY6.03 on July 14, a 7.3% increase from July 8.

On a related note, THY announced on July 14 that the number of passengers it carried increased by 5.5% y/y to 30mn in January-June with domestic passengers rising 7.7% and international passengers up by 3.9%. The load factor fell to 73.7% from 77.6% a year ago. It expanded its fleet by 17% y/y to have a total of 329 airplanes as of end-June.

THY is one of the world’s fastest growing carriers. The carrier’s global market share (in ASK-available seat kilometre) increased from 0.2% in 2002 to 1.9% in 2015. THY targets to increase its global market share to 2.1% this year as it aims to transport 72.4mn passengers, up from 61.2mn in 2015.

THY reported a net loss of TRY1.24bn (€387mn) for the first quarter of 2016, swinging from a net profit of TRY373mn a year earlier. The company’s revenue target for 2016 is $12.2bn.

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