While airlines from developed countries continue to struggle in this difficult operating environment, certain emerging market carriers, such as Turkish Airlines, are thriving.
Earlier this week, Turkey’s flagship carrier reported stellar earnings resulting in Turkish Airlines’ stock jumping upwards of 10%, its largest move since October of 2009.
Turkish Airlines’ third quarter earnings saw the company increase revenues by 39% year-over year; as well, the company handily beat analyst estimates in income and margins. The latter was particularly welcome for investors given the industry’s well-documented struggles to keep margins elevated. Profits rose a stunning 665% year-over-year.
The stock was further buoyed by reports of talks between German carrier Lufthansa (DLAKY, quote) and Turkish Airlines. Widely regarded as one of the most influential airlines in the world, the opening of talks between the two was largely seen as positive for the Anatolian carrier.
These talks represent a secular change in the industry, as carriers from developed nations seek tie-ups with emerging market carriers in an effort to regain profitability as cut-throat competition on certain long-haul routes has adversely affected airlines from Europe and Australia.
However, the exciting story for Turkish Airlines is its growth. Recently, as a result of the company’s recent expansion, the company now serves more countries with its own metal than any other airline in the world. The company recently welcomed its 200th aircraft and plans to have 350 in its fleet by 2020.
While other developed-nation airlines are struggling, Turkish is thriving thanks to its low cost structure and its fortuitous geographic positioning.
Although Turkish Airlines is only traded in Istanbul, American investors can evaluate the company as a microcosm of the Turkish economy (TUR, quote) as a whole. The company has been able to expand thanks to its growing middle class and its ability to efficiently link disparate parts of the world. Going forward, Turkey will look to serve as a secular link between East and West in the 21st century.
Current Middle Eastern struggles are troublesome for investors in the region; for Turkey, a quick resolution to the fighting in Syria would be ideal. However, any significant pullbacks in the Turkish ETF could be a buying opportunity for long-term investors, given the economy’s prospects over the next decade.