Back in June we picked Turkish Airlines [IST:THYAO] for our portfolio largely because we thought it would be well-positioned to benefit from the recovery in air traffic from COVID.
We liked the fact that the airline had actually performed well during COVID, becoming the busiest carrier in Europe and one of the top five in the world.
Turkish Airlines ended its 2020 fiscal year with $6.7bn in revenue and reported a net loss of only $836m. The management team, led by Chairman M. İlker Aycı kept Turkish Airlines flying by keeping on all their staff. Many personnel had to take a pay cut, but the jets kept flying.
As Ayci himself said, “the exceptional sense of unity within our staff is what sets Turkish Airlines apart: together as a family, we decided that no member of the Turkish Airlines family would be left behind during this crisis.”
How did Turkish Airlines perform so well during the pandemic?
In April 2021, with much of western Europe still in lockdown, Turkish Airlines was operating 685 flights per day. That’s double that of Lufthansa for example.
Our prognosis in June was as follows: “Turkish Airlines still has some way to go to get back to its pre-pandemic valuations, but given the solid underlying proposition, could well add another 20-25% in the next six months.”
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Shares in Turkish Airlines have surged
Shares in Turkish Airlines, listed in Istanbul, have surged from our entry price of TRY 13.86 on 28 June to hit TRY 17.9 at time of writing. Much of the buying of the stock has come in the last 10 days or so on the back of some solid results from the airline. However, if you had been looking at the fundamentals of the operation in June, this should come as no surprise.
Turkish Airlines reported a net profit of $735m in the first nine months of 2021. A lot of its competitors are still posting significant losses, among then Lufthansa, Air France-KLM and United Airlines. Total revenues have hit $3.4bn, which is 85% of the airline’s 2019 revenue.
Cargo operation is a crucial component
The market seems more primed to buy into airline stocks now, however. and seems to have woken up to what Turkish Airlines was up to over the last winter.
We think the real winner here is the cargo side of the business. With so much dislocation still in global supply chains, there is a premium on reliable air cargo. Turkish Airlines reported cargo was up 20% in September. Over the period from January to September cargo was up over 25% versus the same period in 2020.
Turkish Airlines was added to our longer term buy and hold list on 28 June. This has a 20% trailing stop loss measure as standard.