Yahoo Finance Turk Hava Yollari AO (IST:THYAO) Q4 2023 Earnings Call Transcript Highlights: Soaring Profits ...
Revenue: Exceeded $20 billion.
Net Profit: $2.9 billion, excluding one-off gains from inflation accounting adjustment.
Passenger Demand: Supported year's success, 83.4 million passengers carried, 16% increase YoY.
Capacity: Rose by 16% YoY, surpassing 2019 levels by 25%.
Cargo Operations: Freight tonne kilometers almost on par with 2022, ranked fourth globally by IATA.
Passenger Revenue: $17.7 billion, 24% increase YoY.
Cargo Revenue: Decreased by 30% to $2.6 billion.
Turkish Technic Contribution: $0.5 billion.
Total Revenues: Increased by 14%, reaching nearly $21 billion.
EBITDAR: $6.1 billion with around 29% EBITDAR margin.
Free Cash Flow: $5.4 billion generated over the last 3 years.
International Market Share: Increased from 2.4% to 3.5% over the last 4 years.
Load Factor: Slight drop in Far East by about 1 percentage point, drop in Americas by about 3 percentage points.
Operational Cash Inflow: Reduced net debt by $6.7 billion to $7.3 billion.
Leverage: Decreased to 1.3x by end of quarter.
EBITDA: $6.1 billion for the year.
Fuel Hedging: 20% hedging level provided around 90% protection on average.
Inflation Accounting Impact: One-off tax gain amounting to $3 billion.
Unit Expense: 7.8% decrease in fuel CASK, 6.8% increase in ex-fuel CASK.
CapEx for 2024: Expected to be around $4.5 billion to $5 billion with 44 net aircraft additions.
Sustainability Goals: Carbon neutral by 2050, signed global SAF declaration, and introduced Tomorrow Onboard initiative.
Release Date: April 04, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Revenue exceeded $20 billion with a full year net profit of $2.9 billion, excluding one-off gains from inflation accounting adjustment.
Passenger demand remained robust, with a 16% year-over-year increase, carrying 83.4 million passengers.
Turkish Airlines named Best Airline in Europe by Skytrax and received a 5-star global airline rating from Apex.
Commitment to sustainability recognized with the title of Most Sustainable Flight Carrier Airline by World Finance.
Strategic plan announced for sustainable and profitable growth, targeting over 170 million passengers and a fleet of over 800 aircraft by 2033.
Negative Points
Challenges such as geopolitical tensions, air traffic congestion in Europe, and manufacturer-related problems impacted the industry and operations.
Cargo revenues decreased by around 30% to $2.6 billion, mainly due to unit revenue erosion.
Increased competition in long-haul routes and slower-than-anticipated recovery in China affected load factors and yields.
Ongoing conflicts in the Middle East and geopolitical issues in the region led to a decrease in demand and load factors.
High inflation and currency fluctuations could impact cost structure and operational expenses.
Q & A Highlights
Q: How many aircraft were grounded due to the GTF engine issues, and will these challenges impact your operational and financial targets for 2024? A: As of the end of the first quarter, there were around 17 Neos grounded because of the engine problem. The number could rise to 40 to 45 aircraft by the end of the year. To minimize this, 15 to 20 new aircraft were leased to maintain the roughly 10% capacity growth target for 2024. Negotiations with Pratt & Whitney for compensation and reducing engine backlog are ongoing. Of the grounded aircraft, 30 are with Turkish Airlines and about 10 with AJet.
Q: What were contributors to the performance in the fourth quarter? A: The strength in passenger demand, especially in the Far East and the Americas, was a big contributor. Yields were about 25% higher than Q4 2019, though slightly below Q4 2022. Long-haul demands remain strong. Positive trends in air cargo business due to e-commerce and sea freight disruptions also contributed. A third factor was lower jet fuel costs. Challenges included geopolitical tensions in the Middle East and cost pressures from higher inflation affecting personnel, handling, catering, airport, and commission expenses.
Q: Could you provide details on the one-off items from the last quarter, and do you expect any similar items to occur this year? A: One-off items included earthquake-related funds, bonuses paid considering the strong financial performance of 2023, and income from late aircraft deliveries. For 2024, bonuses have been paid before the holidays, and salaries will be adjusted after the union agreement. The Board will determine any additional bonuses at the year's end.
Q: What are your expectations for global passenger demand in 2024, and what is your capacity and yield guidance? A: The visibility for passenger demand remains constructive, with strong capacity and passenger numbers in the first quarter. Constraints in capacity growth due to widebody limitations are expected to help load factors. Air travel has just recovered to 2019 levels, and with recovery not uniform across regions, there are opportunities for growth. Turkish Airlines plans for about 10% capacity growth in 2024, with some expected erosion in yields due to increased competition.
Q: Could you discuss the cost expectations for 2024? What are the main challenges, and what is the projected ex-fuel CASK? A: Global inflation will affect the cost structure, with ex-fuel CASK expected to increase by a low single-digit percentage. Personnel expenses will be the most affected by inflation, with a 64% increase in salaries in Turkish lira terms in the first half of 2024, and a second adjustment based on CPI in the second half. In dollar terms, the impact will be limited, with personnel CASK expected to increase by 10% to 20%.
Q: What is your expectation for fuel CASK, and what assumptions is this based on? Can you also share your hedging ratios? A: A low single-digit decrease in fuel CASK is expected compared to 2023, with Brent price assumptions between $85 to $90. The current hedge portfolio is around 37%, with a breakeven price of $83. The hedge ratio is expected to be between 45% to 50% by the end of the year.
Q: What is the projected year-end fleet size in 2024, and could you provide further details? A: The year-end fleet size for 2024 is expected to be about 484 aircraft, with 52 entries and 8 exits, resulting in a net increase from 440 aircraft at the end of 2023. Of the new entries, approximately 10 will be for AJet, 5 for cargo, and the remainder for Turkish Airlines.
Q: What is the respective CapEx and PDP this year? A: The gross CapEx is expected to be around $4.5 billion to $5 billion, with around 40 of the fleet additions being financial and operational leases. PDP payments will be limited as most new aircraft are scheduled for delivery in later years.
Q: What net debt position do you forecast for the year-end and 2025? What is a sustainable level of CapEx for the midterm considering your aircraft orders? A: The year-end net debt is forecasted to be between $9.5 billion to $10 billion, with a net debt to EBITDA multiple between 1.8x to 2.3x. By 2025, net debt is expected to be around $11 billion to $12 billion. The gross CapEx will be around 15% to 20% of revenue for the next five years.
Q: Can you update us on the progress of AJet transformation and indicate when you might start reporting financial and operational data separately? Is there any potential AJet partnership? A: AJet started operations last week and is expected to carry about 24 million passengers in 2024 with a fleet of around 104 aircraft. Projects to increase profitability are underway, and it's too early to report full financials separately or consider potential partnerships.
Q: Can you touch upon cargo volume and the use outlook along with the midterm plans? A: Cargo unit revenues improved by the end of 2023, and the trend is expected to continue into 2024. The first quarter showed supportive traffic and yield environment for cargo operations. However, the dynamics are fragile, and it's early for conclusive remarks for 2024.
Q: With the record net profit achieved this year, is there any plan to distribute dividends? A: With the resolution of discrepancies in income statements, Turkish Airlines now has the ability to pay dividends. The decision will be considered based on financial performance and CapEx needs.
Q: What is the main reason behind extending flight cancellations to Israel until March 2025? A: The cancellations are mostly due to security-related issues. If the situation normalizes earlier than anticipated, the decision may be reevaluated.
Q: Do you intend to continue share buybacks? A: Share buybacks will be considered if there is significant volatility in the stock price or if it's seen as a good opportunity to support the share price.
This article first appeared on GuruFocus.
