This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 03 ANKARA 001950 
 
SIPDIS 
 
PARIS FOR TSA NLARBI 
BRUSSELS FOR FAA KEDWARDS 
 
SENSITIVE 
SIPRNET 
 
E.O. 12958: N/A 
TAGS: EAIR ECON TU
SUBJECT:  COMPETITION SPURRING TURKISH AVIATION 
 
 
This message was coordinated with Consulate Istanbul. 
 
¶1. (SBU) Summary:  The entry of private airlines into 
Turkey's scheduled domestic market has increased 
competition for state-owned Turkish Airlines.  Such 
private airlines provide cheaper fares and alternatives 
to Turkish consumers, but they also add to the 
regulatory burden faced by Turkey's Directorate General 
for Civil Aviation.  Turkish Airlines will continue to 
push for favorable policies and should not be 
underestimated, but the GOT's ability to keep up with 
the growth in the sector will also affect the private 
companies' success.  End summary. 
 
¶2. (U) The entry of former all-charter airlines into 
Turkey's high-price scheduled domestic market has 
increased competition for state-owned Turkish Airlines 
(THY).  Currently, charter companies such as Pegasus 
Airlines and Onur Air provide scheduled flights from 
Istanbul to Turkey's most popular domestic 
destinations.  Ministry of Transportation officials 
announced earlier this month that four new companies 
have applied for permission to conduct scheduled 
flights, including Sunexpress (a lowcost carrier 
jointly owned by THY and Lufthansa) and Izmir Airlines. 
 
¶3. (U) In addition, Europe's second largest low-cost 
carrier, EasyJet, recently announced that they will 
begin flights between Istanbul and Basel, Switzerland 
on May 29, and between Istanbul and London on June 29. 
Furthermore, EasyJet hopes to include Istanbul-Berlin 
and Istanbul-Paris routes in the future.  EasyJet also 
announced the possibility that it would either acquire 
or establish a domestic airline in Turkey to provide 
domestic service, although EasyJet Turkey GM, Philippe 
Vignon, stated that they prefer to partner with THY. 
 
Pegasus:  Bringing Southwest's Ideas to Turkey 
--------------------------------------------- - 
 
¶4. (SBU) Pegasus Airlines, Turkey's oldest private 
airline, began domestic scheduled flights in November 
¶2005.  CEO Ali Sabanci's business plan resembles low- 
cost American airlines such as Southwest.  The airline 
currently owns a fleet of fourteen 737s but, with the 
help of U.S. ExIm Bank, is currently in the process of 
purchasing twelve additional 737s from Boeing over a 
five-year period.  Pegasus provides service to and from 
Istanbul's smaller Sabiha Gokcen airport, which is 
located on the Asian side of Istanbul, instead of the 
busier Ataturk International Airport on the European 
side.  According to Sabanci, the Asian side of Istanbul 
has a larger residential concentration and a higher 
income level than the European side, and Pegasus' 
location there provides a more convenient alternative 
for domestic air travel from Istanbul. 
 
¶5. (SBU) Sabanci is a Columbia University MBA who hails 
from the powerful Sabanci business family and serves on 
the Board of Directors of Esas Holding, Pegasus' parent 
company.  While charters still comprise the bulk of 
Pegasus operations (about 75% charter to 25% domestic 
scheduled flights), the company, through a subsidiary, 
also offers pilot training in their training facility 
for qualified applicants, regardless of their airline 
affiliation.  Sabanci told us that pilots from other 
European countries have participated in Pegasus 
training programs.  In addition, the company offers its 
employees a profit share at the end of the year 
equivalent to 10% of profits.  "Ownership gives all of 
our employees a vested interest in ensuring our 
success," he stated.  Finally, with the help of the 
financial backing of Esas Holding, Sabanci claimed that 
Pegasus currently has enough capital to run its 
scheduled flights without a single passenger for 18 
months. 
 
Onur Air:  Diversifying Service to Remain Competitive 
--------------------------------------------- -------- 
 
¶6. (SBU) Another airline startup is Onur Air.  While 
the majority of its business, like Pegasus, remains 
with the charter business, it provides daily domestic 
flights out of Istanbul's Ataturk International Airport 
to 15 destinations in Turkey.  According to Vice 
President Nedim Gurbuz, Onur's leadership is currently 
pleased with their business and added that any future 
plans to expand would be hindered by the lack of 
terminal space available at Ataturk Airport during peak 
flying times.  "During the mornings and evenings, it's 
very difficult for the smaller airlines to get 
additional space," he added.  Onur's leadership also 
spotted an emerging trend in Turkey and last year began 
offering charters to Mecca for Turks who want to make 
the annual pilgrimage to Islam's holy city.  "It proved 
to be very lucrative," he said. 
 
¶7. (U) Onur Air and another private carrier, Atlasjet, 
have also attracted extensive attention with a recent 
promotion offering domestic flights for as little as 9 
YTL (7 USD) or 19 YTL (15 USD) through April.  Onur Air 
President Sehabettin Bolukcu noted that the company's 
intent is to popularize air travel and make it 
accessible to all.  Only 10,000 seats are available 
through the promotion, however, roughly five percent of 
the airline's capacity. 
 
Turkish Airlines:  Politics as Usual 
------------------------------------ 
 
¶8. (SBU) Officials at Turkey's Directorate General for 
Civil Aviation (DGCA) tell us that, while increased 
competition is needed in Turkey's airline industry, it 
is a very political issue.  About 75% of Turkish 
Airlines remains state-owned (although the 
Privatization Administration announced in March that it 
plans to offer another 25% of THY for public purchase 
within the year), and the GOT has an interest in 
ensuring its continued viability.  According to the 
DGCA, Turkish Airlines officials are well-connected and 
can be expected to continue to push the GOT for 
policies that are favorable to their business. 
 
¶9. (SBU) For their part, THY officials display a 
studied nonchalance about their new low-cost rivals. 
Executive Vice President for Commercial Affairs Halil 
Tokel told us that Turkey's civil aviation sector will 
continue to expand dramatically for the foreseeable 
future.  He noted that even with the new private 
competition it has faced over the last three years, THY 
itself has doubled its domestic capacity. "They have 
not taken passengers from us," he argued, rather "they 
(and we) have brought new passengers into the sector." 
(Note:  In response to Pegasus Air, however, THY has 
begun offering low-cost fares out of Istanbul's Sabiha 
Gokcen airport.  End note.)  Further infrastructure is 
needed, however, if Turkey is to realize its potential, 
including a third airport for Istanbul.  "We need an 
airport with a capacity of 60 million passengers like 
Frankfurt or Heathrow," Tokel argued, in place of the 
15-20 million passengers that Ataturk Airport in 
Istanbul is currently capable of handling.  Tokel also 
dismissed the challenge of European low-cost carriers 
such as Easyjet, noting that their entry will give THY 
the opportunity to pursue additional flights to 
European destinations. 
 
Turkey's Aviation Policy Trying to Keep Up With Demands 
--------------------------------------------- ---------- 
 
¶10. (U) In an effort to strengthen the DGCA's 
regulatory powers, in part due to Turkey's growing 
aviation market, in November 2005 the GOT passed long- 
awaited civil aviation legislation.  The final version 
brought more limited benefits than envisioned in the 
draft legislation, but it did call for the following: 
 
-- The establishment of DGCA branch offices, first in 
Istanbul and then two additional branch offices in 
other provinces (most likely Antalya and Izmir).  The 
DGCA has already appointed the personnel for its 
Istanbul office. 
 
-- The establishment of an independent DGCA budget 
supported by fees collected from the industry. 
Included in this measure was also a much-needed salary 
increase for DGCA personnel (which was previously 
pointed to as the reason for the DGCA's high turnover 
rate), although the DGCA must still receive Transport 
Ministry approval for spending. 
 
-- The authorization of additional DGCA inspector 
positions to be filled immediately. 
 
¶11. (SBU) The GOT issued the implementing legislation 
for the new regulations in March 2006.  While the 
improvements are seen as positive, last-minute changes 
to the legislation made it possible for a Transport 
Ministry Commission to make management level 
appointments regardless of an individual's education, 
language abilities, or knowledge of aviation security. 
Many within the DGCA fear that the MOT will fill 
management positions with political cronies with little 
aviation sector experience. 
 
 
Comment:  Will the New Guys Last? 
--------------------------------- 
 
¶12. (SBU) While the new domestic carriers provide the 
Turkish public with more options and lower fares, their 
long-term effect on the industry is yet to be seen. 
Turkish Airlines will most certainly continue to use 
their clout to push for favorable policies.  Their 
prominence and influence should not be underestimated. 
In addition, the GOT's ability to keep up with the 
growth in this sector (both in terms of regulating the 
new airlines and promoting the physical infrastructure 
growth that will enable competition to thrive) will be 
vital for the continued success of these smaller 
carriers.  End comment. 
WILSON