Half Year 2026 Turk Hava Yollari A.O. Earnings Call

August 5, 2026

Operator: Now introduce our hosts to you, and they are Professor Murat Şeker, the Chairman of the Board of Directors and Executive Committee, Metin Gülşen, the member of the Board and Executive Committee, as well as the Chief Financial Officer, and Mehmet Fatih Korkmaz, Head of Investor Relations. Gentlemen, the floor is yours. Gentlemen, I believe your microphones are muted. If you could unmute them, that would be great. Thank you.

Speaker #1: Introduce our hosts to you, and they are Professor Murat Seker, the chairman of the board of directors and executive committee; Mertan Gülsen, the member of the board and executive committee as well as the chief financial officer; and Mehmet Fatih Korkmaz, head of investor relations.

Speaker #1: Gentlemen, the floor is yours. gentlemen, I believe you're microphones are muted. If you could unmute them, that would be great. Thank you.

Speaker #2: You're welcome.

Speaker #3: Can you hear us now?

Murat Şeker: Can you hear us now?

Speaker #1: Yes, indeed we can.

Operator: Yes, indeed we can.

Murat Şeker: All right.

Speaker #3: All right, I'll start over. Thank you very much, Rob. Good afternoon, everyone, and thank you for joining us. The second quarter of 2026 was marked by rapidly evolving geopolitical developments in the Middle East.

Operator: Thank you.

Murat Şeker: I'll start over. Thank you very much, Rob. Good afternoon, everyone, and thank you for joining us. The Q2 of 2026 was marked by rapidly evolving geopolitical developments in the Middle East. This conflict, together with the resulting airspace closures, flight restrictions, and elevated fuel prices, created one of the most challenging operating environments the airline industry has faced in recent years. While passenger demand across international markets remained broadly healthy, airlines were required to continuously adapt their operations amid an increasingly unpredictable environment. Against this backdrop, Turkish Airlines demonstrated the adaptability of its diversified business model and the flexibility of its global network. Our broad geographic footprint and agile execution enabled us to reach swiftly to changing conditions while maintaining operational continuity.

Speaker #3: This conflict—together with the resulting airspace closures, flight restrictions, and elevated fuel prices—created one of the most challenging operating environments the airline industry has faced in recent years.

Speaker #3: across international markets remained broadly healthy, airlines were required to continue to adapt their operations amid an increasingly unpredictable environment. Against this backdrop, Turkish Airlines demonstrated the adaptability of its diversified business model and the flexibility of its global network.

Speaker #3: Our broad geographic footprint and agile execution enabled us to respond swiftly to changing conditions while maintaining operational continuity. Before turning to our financial results, I would like to briefly address the measures we implemented to navigate the recent volatility and preserve the resilience of our operations.

Murat Şeker: Before turning to our financial results, I would like to briefly address the measures we implemented to navigate the recent volatility and preserve the resilience of our operations. Throughout the quarter, safety remained our highest priority. We continuously monitored developments across the region and adjusted our operations in line with international regulations and real-time risk assessments. Given the changing nature of the conflict, our operational and commercial teams work to respond quickly to new developments, minimizing disruption across the network. At the same time, we leveraged one of Turkish Airlines' greatest competitive advantages, the flexibility of our global route network. Through disciplined capacity management, we tapped into opportunities while managing pressures from the conflict. At the height of the war, our Middle East operations were temporarily reduced to only 8 destinations in 3 countries from 26 destinations in 12 countries.

Speaker #3: Throughout the quarter, safety remained our highest priority. We continued to monitor developments across the region and adjusted our operations in line with international regulations and real-time risk assessments.

Speaker #3: Given the changing nature of the conflict, our operational and commercial teams worked to respond quickly to new developments. Minimizing disruption across the network. At the same time, we leveraged one of Turkish Airlines' greatest competitive advantages: the flexibility of our global route network.

Speaker #3: Through disciplined capacity management, we tapped into opportunities while conflict. At the height of the war, our Middle East operations were temporarily reduced to only 8 destinations, in 3 countries, from 26 destinations in 12 countries.

Speaker #3: During March and April, our capacity in the region was reduced to approximately 60%. As operations gradually resumed from May onwards, the reduction narrowed down to approximately 30%.

Murat Şeker: During March and April, our capacity in the region was reduced to approximately 60%. As operations gradually resumed from May onwards, the reduction narrowed down to approximately 30%. In response to the sharp increase in fuel prices, we channeled 58 weekly passenger and 61 cargo frequencies to high-demand routes. These destinations include Beijing, Shanghai, Singapore, and Mauritius, among many others. In order to better align capacity with prevailing market conditions, we also decelerated capacity growth from our initial plan of about 8% to 1% through selectively reducing services on lower return markets. Alongside, we implemented a tactical commercial strategy to mitigate the impact of elevated fuel prices. Our actions included fuel surcharge adjustments, broadening ancillary revenue base, and route level profitability management. Together with our fuel hedging program, these actions helped offset around 80% of the additional fuel cost pressure on profitability.

Speaker #3: In response, in response to the sharp increase in fuel prices, we channeled 58-weekly passenger and 61-cargo frequencies to high-demand routes. These destinations include Beijing, Shanghai, Singapore, and Mauritius, among many others.

Speaker #3: In order to better align capacity with prevailing market conditions, we also decelerated capacity growth from our initial plan of about 8% to 1% through selectively reducing services on lower return markets.

Speaker #3: Alongside we implemented a tactical commercial strategy to mitigate the impact of elevated fuel prices. Our actions included fuel surcharge adjustments, broadening ancillary revenue base, and route-level profitability management.

Speaker #3: Together with our fuel hedging program, these actions helped offset around 80% of the additional fuel cost pressure on profitability. Turkish Cargo also continued to demonstrate considerable flexibility during the period.

Murat Şeker: Turkish Cargo also continued to demonstrate considerable flexibility during the period. Since the beginning of the conflict, we introduced more than 60 additional cargo frequencies across the network. These additional flights enabled us to respond quickly to changing trade flows and customer demand while further strengthening our cargo network. As a result, in H1, Turkish Cargo increased its volume by 16%. Our prudent financial management and a strong balance sheet provides us substantial headroom to navigate an increasingly uncertain operating environment. By the end of the quarter, our liquidity recorded as 36% of last 12 months revenues, with continuing positive free cash flow. We also selectively invest in projects that support our long-term growth strategy. Construction of Rolls-Royce Engine Maintenance Center progress as planned, while infrastructure investments across cargo, Turkish Technic, catering, and flight training are ongoing.

Speaker #3: Since the beginning of the conflict, we introduced more than 60 additional cargo frequencies across the network. These additional flights enabled us to respond quickly to changing trade flows, and customer demand while further strengthening our cargo network.

Speaker #3: As a result, in the first half of the year, Turkish Cargo increased its volume by 16%. Our prudent financial management and strong balance sheet provide us substantial headroom to navigate an increasingly uncertain operating environment.

Speaker #3: By the end of the quarter, our liquidity recorded as 36% of last 12 months' revenues, with continuing positive free cash flow. We also selectively invest in projects that support our long-term growth strategy.

Speaker #3: Construction of Rolls-Royce engine maintenance center, progress as planned. While infrastructure investments across cargo, technique, catering, and flight training are ongoing, more recently, we joined the Safa Fund, further supporting our long-term sustainable aviation fuel strategy and diversifying our supply chain.

Murat Şeker: More recently, we joined the SAFFA Fund, further supporting our long-term sustainable aviation fuel strategy and diversifying our supply chain. Now, I would like to turn your attention to our results. In Q2, Turkish Airlines' total passenger capacity increased by around 1% year on year, bringing the H1 capacity growth to 5%. Between April and June, we carried more than 23 million passengers with a load factor of 84%, indicating almost two percentage points improvement annually. Despite the busy summer schedule and the challenges posed by the evolving geopolitical situation, in June, our on-time performance improved 3.5 percentage points annually and surpassing 86%. With this result, Turkish Airlines was among the best-performing airlines in Eurocontrol area. Passenger revenues increased by almost 15% compared to the same period last year, benefiting from robust demand from Asia and strong pricing across our network.

Speaker #3: Now I would like to turn your attention to our results. In the second quarter, Turkish Airlines totaled passenger capacity increased by around 1% year on year.

Speaker #3: Bringing the first half capacity growth to 5%. Between April and June, we carried more than 23 million passengers, with a load factor of 84%.

Speaker #3: Indicating almost 2% points improvement annually. Despite the busy summer schedule, and the challenges posed by the evolving geopolitical situation, in June, our on-time performance improved 3.5% points, annually and surpassing 86%.

Speaker #3: With this result, Turkish Airlines was among the best-performing airlines in the euro-controlled area. Passenger revenues increased by almost 15%, compared to the same period last year.

Speaker #3: Benefiting from robust demand, from Asia, and strong pricing across our network. As mentioned, cargo was another highlight of the year, delivering one of its best performances to date.

Murat Şeker: As mentioned, cargo was another highlight of the year, delivering one of its best performances to date. Adapting to the shifting trade flows and our extensive network, its revenues increased by 58%, reaching nearly $1.3 billion, mainly driven by more than 40% increase in yields. Accordingly, our total revenues rose by more than 20%, surpassing $7.2 billion. Elevated fuel prices represented the most significant headwind during the quarter. To mitigate this impact, alongside fuel surcharge adjustments, we focused on improving operational and staff efficiency. These initiatives are expected to result around $320 million annualized benefit. Together with strong passenger yields and gains from our fuel hedging portfolio, EBITDA amounted to $906 million, corresponding to a margin of 12.6%. Despite the significant increase in fuel expenses, profitability came in above the upper end of the guidance range we communicated at the end of Q1.

Speaker #3: Adapting to the shifting trade flows, and our extensive network, its revenues increased by 58%, reaching nearly 1.3 billion dollars. Mainly driven by more than 40% increase in yields.

Speaker #3: Accordingly, our total revenues rose by more than 20%, surpassing $7.2 billion. Elevated fuel prices represented the most significant headwind during the quarter. To mitigate this impact, alongside fuel surcharge adjustments, we focused on improving operational and staff efficiency.

Speaker #3: These initiatives are expected to result around 320 million dollars annualized benefit. Together with strong passenger yields and gains from our fuel hedging portfolio, EBITDA amounted to 906 million dollars.

Speaker #3: Corresponding to a margin of 12.6%. Despite the significant increase in fuel expenses, profitability came in above the upper end of the guidance range we communicated at the end of first quarter.

Speaker #3: Net income realized at almost 200 million dollars, supported by the contribution from our investment portfolio. Looking ahead, forward bookings for the remainder of the summer season remain healthy, with both passenger and cargo trends developing broadly in line with our expectations.

Murat Şeker: Net income realized at almost $200 million, supported by the contribution from our investment portfolio. Looking ahead, forward bookings for the remainder of the summer season remain healthy, with both passenger and cargo trends developing broadly in line with our expectations. Currently, passenger revenue yields remain elevated at high single digit, and forward load factors tracking slightly above the year's levels despite the renewed fuel price risks. I will now pass the call to our CFO, Metin Bey, to elaborate on our results and further provide insights.

Speaker #3: Currently, passenger revenue yields remain elevated at high single digit, and forward load factors tracking slightly above the year's levers. Despite the renewed fuel price risks.

Speaker #3: I will now pass the call to our CFO, Metin Bey, to elaborate on our results and further provide insights.

Speaker #1: Thank you, Murat Bey. And good afternoon, everyone. As briefly outlined earlier by Professor Seker, the second quarter shaped by uncertainties related to the war in the Middle East.

Metin Gülşen: Thank you, Murat Bey, and good afternoon, everyone. As briefly outlined earlier by Professor Şeker, the Q2, shaped by uncertainties related to the war in the Middle East, unprecedented rise in fuel prices, and evolving overflight restrictions. While operating conditions gradually improved throughout the period, it required ongoing adjustments to our network. With disciplined management, we successfully redirected capacity towards stronger performing markets while maintaining connectivity across our system. As a result, our passenger capacity increased by around 1% year-on-year. Demand fundamentals remained supportive in the Q2, reflecting the resilience of our diversified network. Although traffic patterns continued to change across regions, effective capacity deployment and healthy passenger demand contributed to a 1.8 percentage point improvement in load factor. This performance demonstrates our ability to align capacity with demand while preserving operational efficiency in a rapidly changing environment.

Speaker #1: Unprecedented rises in fuel prices and evolving overflight restrictions. While operating conditions gradually improved throughout the period, it required ongoing adjustments to our network. With disciplined management, we successfully redirected capacity towards stronger performing markets while maintaining connectivity across our system.

Speaker #1: As a result, our passenger capacity increased by around 1% year on year. Demand fundamentals remained supportive in the resilience of our diversified network. Although traffic patterns continued to change across regions, effective capacity deployment and healthy passenger demand contributed to a 1.8 percentage point improvement in load factor.

Speaker #1: This performance demonstrates our ability to align capacity with demand while preserving operational efficiency in a rapidly changing environment. We successfully implemented our direct sales channel strategy indicated by the 13 percentage points decline, indirect sales ratio is just two years.

Metin Gülşen: We successfully implemented our direct sales channel strategy, indicated by the 13 percentage points decline in direct sales ratio in just two years. Our new distribution platform, TKCONNECT, proved itself for better ancillary revenue generation, along with materially decreasing distribution costs by about $100 million annually. Turning to regional performance, Asia remained our strongest performing market during the Q2. Demand continued to benefit from changes in competitive landscape following the conflict in the Middle East, as a portion of passengers shifted away from Gulf towards alternative routings. We responded by further expanding capacity across key markets, including China, Hong Kong, and Thailand, among others. As a result, region's capacity increased by 7% compared to our initial plan, representing an 18% annual growth. This additional capacity was well-absorbed by the market, as indicated by 1.8 percentage point load factor improvement in the region.

Speaker #1: Our new distribution platform, TK Connect, proved itself for better ancillary revenue generation, along with materially decreasing distribution cost by about 100 million dollars annually.

Speaker #1: Turning to regional performance, Asia remained our strongest performing market during the second quarter. Demand continued to benefit from changes in the competitive landscape following the conflict in the Middle East, as a portion of passengers shifted away from the Gulf toward alternative routings.

Speaker #1: With responded by further expanding capacity across key markets, including China, Hong Kong, Thailand, among others. As a result, regions' capacity increased by 7%, compared to our initial plan.

Speaker #1: Representing an 18% annual growth. This additional capacity was well absorbed by the market, as indicated by a 1.8 percentage point load factor improvement in the region.

Metin Gülşen: Australia also delivered another strong quarter, where capacity increased by more than 10% year-on-year, while revenues grew by 43%, with both Sydney and Melbourne performing ahead of internal targets. In parallel, we introduced a new product segmentation model across selected Far East markets, which is expected to enhance ancillary revenue generation as the rollout expands to additional destinations during the H2 of the year. While gradual normalization is expected as Gulf carriers restore capacity, we remain well-positioned, thanks to our extensive network and strong presence across the region. In Africa, load factor improved by 3 percentage points year-on-year to 79%. During the quarter, we refined our regional network by suspending underperforming routes and concentrating capacity on markets with stronger demand.

Speaker #1: Australia also delivered another strong quarter where capacity increased by more than 10% year on year, while revenues grew by 43%. With both Sydney and Melbourne performing ahead of internal targets, in parallel we introduced a new product segmentation model across selected Far East markets.

Speaker #1: This is expected to enhance ancillary revenue generation as the rollout extends to additional destinations during the second half of the year. While gradual normalization is expected as Gulf carriers restore capacity, we remain well positioned thanks to our extensive network and strong presence across the region.

Speaker #1: In Africa, load factor improved by 3 percentage points year on year to 79%. During the quarter we refined our regional network by spending underperforming routes and concentrating capacity on markets with stronger demand.

Speaker #1: At the same time, frequencies to Mauritius were increased to 10 weekly flights while seasonal services to Seychelles resumed in June. Allowing us to capture demand in high yield leisure destinations.

Metin Gülşen: At the same time, frequencies to Mauritius were increased to 10 weekly flights, while seasonal services to Seychelles resumed in June, allowing us to capture demand in high-yield leisure destinations. The operating environment remained mixed in Europe. Higher fuel prices and softer demand in certain connecting markets to the Middle East required capacity optimization with selective frequency reductions and temporary route suspensions implemented. Still, transit demand remained supportive, with business traffic from Northern Europe increasing by 10% year-on-year, accompanied by 6% improvement in yields. Similar trends we observed in Southern Europe, transfer traffic partially offsetting softer local demand. We also continued to strengthen our network through targeted expansion, including additional frequencies to Bucharest, Sofia, Cluj, and Yerevan, while new services to Timișoara further enhanced our presence in the region.

Speaker #1: The operating environment remained mixed in Europe, higher fuel prices and softer demand in certain connecting markets to the Middle East required capacity optimization with selective frequency reductions and temporary route suspensions implemented.

Speaker #1: Still, transit demand remained supportive with business traffic from Northern Europe increasing by 10% year on year accompanied by 6 per percent improvement in yields.

Speaker #1: Similar trends we observed in Southern Europe. Transfer traffic partially offsetting softer local demand we also continued to strengthen our network through targeted expansion. Including additional frequencies to Bucharest-Sofia and Cluj and Yerevan.

Speaker #1: While new services to Timișoara further enhanced our presence in the region, following the increase in fuel prices, frequencies on some North American routes were reduced, allowing additional capacity to be redirected toward higher-yielding markets in Asia.

Metin Gülşen: Following the increase in fuel prices, frequencies on some North American routes were reduced, allowing additional capacity to be redirected towards higher yielding markets in Asia. The FIFA World Cup demand developed broadly in line with our expectations and contributed to our revenues. Although demand from the Middle East softened, most of the lost traffic was replaced by stronger passenger flows originating from Europe and Asia. In Q2, total revenues continued to benefit from both passenger and cargo operations. Passenger revenues increased by nearly 15% year-on-year, reflecting the positive impact of higher traffic volumes, yields, and improved load factors. Our cargo segment once again demonstrated its strategic importance. Building on the positive momentum established in recent quarters, cargo revenues increased by 58% annually, driven by constrained market supply and continued growth in e-commerce demand.

Speaker #1: The FIFA World Cup demand developed broadly in line with our expectations and contributed to our revenues. Although demand from the Middle East softened, most of the lost traffic was replaced by stronger passenger flows originating from Europe and Asia.

Speaker #1: In the second quarter, total revenues continued to benefit from both passenger and cargo operations. Passenger revenues increased by nearly 15% year on year reflecting the positive impact of higher traffic volumes yields and improved load factors.

Speaker #1: Our cargo segment once again demonstrated its strategic importance building on the positive momentum established in recent quarters cargo revenues increased by 58% annually. Driven by constrained market supply and continued growth in e-commerce demand.

Speaker #1: Currently the as the world's largest air cargo carrier by market share Turkish cargo remains well positioned to respond quickly to changing market conditions. On the Asia side, we continue to strengthen the commercial performance of AJET during the second quarter.

Metin Gülşen: Currently, as the world's largest air cargo carrier by market share, Turkish Cargo remains well-positioned to respond quickly to changing market conditions. On the AnadoluJet side, we continued to strengthen the commercial performance of AnadoluJet during Q2. Aided by healthy demand, network optimization, and an enhanced ancillary product portfolio. AJet's 8% annual capacity increase was mostly backed by the continued expansion of its international network. Unit revenue increased by 18% year on year across the network, reflecting the improvements in both domestic and international operations. At the same time, international load factor improved by 3 percentage points to 82%. Ancillary revenues grew by 75% annually, accounting for 15 of total revenues, up from 11% a year ago. This specifically highlights the growing base of high-margin products to AJet's business mix.

Speaker #1: Aided by healthy demand, network optimization, and an enhanced ancillary product portfolio, AJET's 8% annual capacity increase was mostly backed by the continued expansion of its international network.

Speaker #1: Unit revenue increased by 18% year-on-year across the network, reflecting improvements in both domestic and international operations. At the same time, international load factor improved by 3 percentage points to 82%.

Speaker #1: Ancillary revenues grew by 75% annually accounting for 15 of total revenues. Up from 11% a year ago. This specifically highlights the growing base of high margin products to AJET's business mix.

Speaker #1: Our focus remains on improving network profitability optimizing aircraft utilization and further enhancing the customer experience through a broader range of ancillary products and digital services.

Metin Gülşen: Our focus remains on improving network profitability, optimizing aircraft utilization, and further enhancing the customer experience through a broader range of ancillary products and digital services. When we look at our financial performance, Q2 delivered substantial top-line growth. Passenger revenues remained the primary driver, backed by the robust underlying strength, while cargo continued to benefit from constrained market supply arising from the geopolitical developments and favorable demand conditions across key trade lanes. Conversely, elevated fuel prices and other cost pressures negatively affected our financial performance. As a result, EBITDA decreased by 40% to $906 million, corresponding to a margin of 12.6%. Supported by contributions from our investment portfolio, net income reached almost $200 million for Q2. Total CASK increased around 35% year on year, primarily reflecting higher fuel costs.

Speaker #1: When we look at our financial performance, the second quarter delivered substantial top line growth. Passenger revenues remained the primary driver backed by the robust underlying strength while cargo continued to benefit from constrained market supply arising from the geopolitical developments and favorable demand conditions across K trade lanes.

Speaker #1: Conversely, elevated fuel prices and other cost pressures negatively affected our financial performance. As a result, EBITDA decreased by 40% to 906 million dollars corresponding to a margin of 12.6%.

Speaker #1: Supported by contributions from our investment portfolio, net income reached almost 200 million dollars for the quarter. Total CASC increased around 35% year on year primarily reflecting our reflecting higher fuel costs.

Speaker #1: Excluding fuel unit cost growth was mainly driven by higher personnel expenses which reflected headcount expansion salary increases and inflation impact. The slower pace of capacity growth also increased unit costs through lower aircraft aircraft utilization in addition rescheduling of certain aircraft maintenance activities resulted in approximately 1.5 percentage points to the increasing CASC.

Metin Gülşen: Excluding fuel, unit cost growth was mainly driven by higher personnel expenses, which reflected headcount expansion, salary increases, and inflation impact. The slower pace of capacity growth also increased unit costs through lower aircraft utilization. In addition, rescheduling of certain aircraft maintenance activities resulted in approximately 1.5 percentage points to the increasing CASK. Higher market prices weighed on fuel CASK during Q2. Our hedging strategy provided some mitigation, although its impact remained limited due to sharp upward movement. Despite these headwinds, we remain focused on improving our operational efficiency and maintaining cost discipline across the organization, aiming to save up to $300 million throughout the year. Turning to our balance sheet, we generated around $250 million of free cash flow during Q2, enabling an increase in on-hand liquidity to around $9.6 billion. Meanwhile, net debt increased to $1.2 billion, mainly reflecting ongoing fleet investments and currency impacts.

Speaker #1: Higher market prices weight on fuel CASC during the quarter. Our hedging strategy provided some mitigation although its impact remained limited due to sharp upward movement.

Speaker #1: Despite this headwinds we remained focused on improving our operational efficiency and maintaining cost discipline across the organization aiming to save up to 300 million dollars throughout the year.

Speaker #1: Turning to our balance sheet, we generated around 250 million dollars of free cash flow during the quarter enabling an increase in on hand liquidity to around 9.6 billion dollars.

Speaker #1: Meanwhile, net debt increased to 1.2 billion dollars mainly reflecting ongoing fleet investments and currency impacts. Strongly QDT position provides us with meaningful financial flexibility at the current backdrop reinforcing our resilience against ongoing market pressures and positioning us well to navigate future uncertainties.

Metin Gülşen: Strong liquidity position provides us with meaningful financial flexibility at the current backdrop, reinforcing our resilience against ongoing market pressures and positioning us well to navigate future uncertainties. Looking ahead, visibility for the remainder of the year remains limited. In Q3, we expect passenger capacity increase by 3% to 6% year on year, supporting a mid-teen increase in total revenues. We also anticipate a mid-single digit increase in ex-fuel unit cost. Based on these assumptions, we expect an EBITDA margin of 20% to 25%. Given the fluidity of current environment, we stand ready to adjust our plans dynamically as conditions evolve. During H1 2026, we continued to improve fuel efficiency through more than 100 operational optimization projects, investments in new technologies, and the ongoing renewal of our fleet.

Speaker #1: Looking ahead, visibility for the remainder of the year remains limited. In the third quarter we expect passenger capacity to increase by 6 to 3 to 6 percent year on year supporting a 15 increase in total revenues.

Speaker #1: We also anticipate a mid single digit increase in ex fuel unit expect an EBITDA margin of 20 22 25%. Given the fluidity of current environment we we stand ready to adjust our plans dynamically as conditions evolve.

Speaker #1: During the first half of 2026 we continue to improve full efficiency through more than 100 operational optimization projects investments in new technologies and the ongoing renewal of our fleet.

Speaker #1: This initiatives resulted in fuel savings of 25,000 tons and prevent prevented more than 78,000 tons of associated carbon emissions. Our progress was also reflected in external sustainability assessments and industrial recognition.

Metin Gülşen: These initiatives resulted in fuel savings of 25,000 tons and prevented more than 78,000 tons of associated carbon emissions.

Metin Gülşen: These initiatives resulted in fuel savings of 25,000 tons and prevented more than 78,000 tons of associated carbon emissions. Our progress was also reflected in external sustainability assessments and industrial recognition. We strengthened our position across several leading international ESG assessments, including achieving an EcoVadis gold medal and A rating from MSCI. Looking ahead, Sustainable Aviation Fuel remains an important part of our decarbonization strategy. We have developed short to long-term SAF plans covering supply agreements and investment opportunities, with a particular focus on domestic production capacity.

Mehmet Fatih Korkmaz: Our progress was also reflected in external sustainability assessments and industrial recognition. We strengthened our position across several leading international ESG assessments, including achieving an EcoVadis gold medal and A rating from MSCI. Looking ahead, Sustainable Aviation Fuel remains an important part of our decarbonization strategy. We have developed short to long-term SAF plans covering supply agreements and investment opportunities, with a particular focus on domestic production capacity. In this context, we signed memorandums of understanding with Tüpraş, Çalık Renewables, and SOCAR, while our planned investment in DB Tarımsal Enerji is expected to support the development of SAF production facility in Turkey. Most recently, we joined the SAF Financing Alliance Fund, expanding our access to international SAF financing and investment opportunities. With this, we conclude our presentation and continue with the Q&A session.

Speaker #1: We strengthened our position across several leading international ESG assessments including achieving an ECOVADIS gold medal and air rating from MSCI. Looking ahead, sustainable aviation fuel remains an important part of our decarbonization strategy we have developed a developed short to long-term SAS plans covering supply agreements and investment opportunities with a particular focus on domestic production capacity.

Speaker #1: In this context we signed memorandums of understanding with TUPRASH Chaluk Renewables and SOCAR while our planned investment in DB Taramsal Energy is is expected to support the development of SAF production facility in Türkiye most recently we joined the SAF financing alliance found expanding expanding our access to international SAF financing and investment opportunities with this we can we conclude our presentation and continue with the Q&A session.

Metin Gülşen: In this context, we signed memorandums of understanding with Tüpraş, Çalık Renewables, and SOCAR, while our planned investment in DB Tarımsal Enerji is expected to support the development of SAF production facility in Turkey. Most recently, we joined the SAF Financing Alliance Fund, expanding our access to international SAF financing and investment opportunities. With this, we conclude our presentation and continue with the Q&A session.

Speaker #2: Thank you gentlemen. Thank you speakers. Yes indeed. All right ladies and gentlemen as was just mentioned it's our Q&A session that is starting right now.

Operator: Thank you, gentlemen. Thank you, speakers. Yes, indeed. All right, ladies and gentlemen, as was just mentioned, it's our Q&A session that is starting right now. If you'd like to ask a question, please do so. You can just click the Q&A button. I see a couple of questions are coming through there. It's the Q&A button at the bottom of your Zoom screen, and then you just submit that, and our hosts would be more than happy to answer that. With that, I hand you back now to the hosts for the answering of those questions. Gentlemen.

Speaker #2: If you'd like to ask a question please do so. You can just click the Q and A button. I see a couple of questions are coming through there.

Speaker #2: It's the Q and A button at the bottom of your Zoom screen. And then you just submit that and our hosts would be more than happy to answer that.

Speaker #2: And with that I hand you back now to the hosts for the answering of those questions. Gentlemen.

Speaker #3: Thank you Rob. This is party head of investigations. I would like to thank all of our participants Murat Bey and Metin Bey for their comments.

Mehmet Fatih Korkmaz: Thank you, Rob. This is Fatih, Head of Investor Relations. I would like to thank all of our participants, Murat Bey and Metin Bey, for their comments. It was indeed very difficult quarter. Murat Bey will help us underline the main drivers of the quarter. We got number of questions from our dear participants, and I would like to start by the impact of the war. The first question is: What was the impact of the Gulf War on your H1 results?

Speaker #3: It was indeed very difficult order now Murat Bey will help us under the underline the main drivers of the quarter. We got number of questions from our dear participants and I would like to start by the impact of the war.

Speaker #3: First question is what was the impact of the Gulf War on your first half results?

Speaker #4: Thank you very much Fatih. Well let me start with the capacity is also mentioned during the presentation we were intending to place a capacity of about 8% ASK wide on the top of last year however now we are guiding somewhere around like a 4 about 4 percentage point so we are in the second quarter in particular we were about 6% below our projected capacity yet part of that impact was compensated with the three and a half percentage points higher load factor so when you translate this into numbers our passenger revenue was about 600 million dollars higher than what we projected at the before the war and it's that translates into a yield improvement of about 8% percent and cargo similarly was up by 600 million dollars so overall 1.2 billion dollar revenue increase was realized during the war with the better yields and better load factor environment.

Murat Şeker: Thank you very much, Fatih. Well, let me start with the capacity. As also mentioned during the presentation, we were intending to place a capacity of about 8% ASK wide, on the top of last year. We are guiding somewhere around about 4 percentage points. In the Q2 in particular, we were about 6% below our projected capacity. Yet part of that impact was compensated with the 3.5 percentage points higher load factor. When you translate this into numbers, our passenger revenue was about $600 million higher than what we projected before the war, and that translates into a yield improvement of about 8%. Cargo similarly was up by $600 million. Overall, $1.2 billion revenue increase was realized during the war with the better yields and better load factor environment.

Speaker #4: On the expense side of course the big biggest impact came through the jet price increase the 90% roughly 90% increase in jet fuel translated into about 1.3 billion dollar worth of higher fuel expense together with the break spread and then we had higher than anticipated inflation which also is related to the impact of this war but in the first half of the year we were a guiding of an about 11% 10 to 11% inflation in Turkish lira CPI it ended up being about 18% so it's 8 percentage points higher inflation and Turkish lira remaining stronger than our anticipation led to a Turkish lira related higher cost burden of about 400 450 million dollar and a last factor was the lower utilization Middle East region makes about six seven percent of our overall capacity and despite of the fact that we could redirect a significant portion of this capacity to some other parts of the world some other parts of our network the utilization aircraft utilization was lower about like a 9% so this also led to about like 150 200 million dollar additional loss when you combine all these impacts the net negative impact of the war you know some benefits that due to the higher yields and then the cost burden from the jet fuel the inflation and lower utilization net impact of the war was around 900 million dollars in the first half of the year which then we further tried to decrease by taking certain measures on cutting the costs improving efficiency and then you know it's brought us to an operation on the operation side a negative 120 million dollar which was the the the limiting impact of all these positive steps we took thank you Murat Bey

Murat Şeker: On the expense side, of course, the biggest impact came through the jet price increase. The rough 90% increase in jet fuel translated into about $1.3 billion worth of higher fuel expense together with the crack spread. We had higher than anticipated inflation, which also is related to the impact of this war. In the H1 of the year, we were guiding often about 10% to 11% inflation in Turkish lira CPI. It ended up being about 18%. It is 8 percentage points higher inflation, and Turkish lira remaining stronger than our anticipation led to a Turkish lira-related higher cost burden of about $450 million. A last factor was the lower utilization.

Murat Şeker: Middle East region makes about 6%, 7% of our overall capacity. Despite of the fact that we could redirect a significant portion of this capacity to some other parts of the world, some other parts of our network, the aircraft utilization was lower about 9%. This also led to about $150 million to $200 million additional loss. When you combine all these impacts, the net negative impact of the war, some benefits that due to the higher yield and then the cost burden from the jet fuel, the inflation, and lower utilization, net impact of the war was around $900 million in the H1 of the year.

Murat Şeker: Which we further tried to decrease by taking certain measures on cutting the costs, improving efficiency. It brought us to an operation on the operation side, -TRY 120 million, which was the limiting impact of all these positive steps we took.

Mehmet Fatih Korkmaz: Thank you, Murat. Obviously, the operating environment is quite dynamic. Our analysts are wondering about the operating environments. Could you update us on the status of your operations in the Middle East?

Speaker #3: obviously the operating environment is quite dynamic and our analysts are wondering about the operating environments could you update us on the status of your operations in the Middle East

Speaker #4: So the before the crisis we had we were actively operating in 12 countries and more than about like a 28 destinations currently we are flying to 14 of these destinations out of 28 in nine countries and then we are having 300 about 300 weekly frequencies before the war it was about 400 weekly frequencies Iran is still shut down Kuwait Erbil Bahrain are also shut down temporarily and yeah overall we are having about 300 weekly frequencies in terms of ASK compared to last year in the in the overall first half of the year we are about 28% below last year's traffic numbers

Murat Şeker: Before the crisis, we were actively operating in 12 countries and more than about 28 destinations. Currently, we are flying to 14 of these destinations out of 28 in nine countries. We are having about 300 weekly frequencies. Before the war, it was about 400 weekly frequencies. Iran is still shut down. Kuwait, Erbil, Bahrain are also shut down temporarily. Overall, we are having about 300 weekly frequencies. In terms of ASK, compared to last year, in the overall H1 of the year, we are about 28% below last year's traffic numbers.

Speaker #3: Thank you Murat Bey how did you manage your capacity deployment across regions due to the war

Mehmet Fatih Korkmaz: Thank you, Murat. How did you manage your capacity deployment across regions due to the war?

Speaker #4: So in the beginning of since the beginning of the war we secured about close to 100 new passenger and cargo slots 38 of these are permanent and 61 slots are temporarily obtained which allowed us to allocate capacity more efficiently and profitably across the network we saw a little bit of a demand decrease in America Middle East corridor that's why flights to and from the Americas mainly North America was reduced by 17 weekly frequencies but this capacity was shifted to Far East region about 33 additional frequencies and Africa region where the remain continue to be strong overall though there were certain Africa routes certain Middle South Asia routes and even some domestic and European routes where the demand was very weak and we were making losses overall in the second quarter which will continue to remaining part of the year we cut 400 50 frequencies and as I said earlier with the addition of 100 and about 100 additional frequencies on net we have cut about 330 frequencies in total

Murat Şeker: Since the beginning of the war, we secured about close to 100 new passenger and cargo slots. 38 of these are permanent and 61 slots are temporarily obtained, which allows us to allocate capacity more efficiently and profitably across the network. We saw a little bit of a demand decrease in Americas, Middle East corridor. That's why flights to and from the Americas, mainly North America, was reduced by 17 weekly frequencies. This capacity was shifted to Far East region, about 33 additional frequencies, and Africa region, where the demand continued to be strong. Overall, though, there were certain Africa routes, certain South Asia routes, and even some domestic and European routes where the demand was very weak, and we were making losses. Overall, in Q2, which will continue to remain in part of the year, we cut 450 frequencies.

Murat Şeker: As I said earlier, with the addition of about 100 additional frequencies, on net, we have cut about 330 frequencies in total.

Speaker #3: Your capacity in North America declined slightly, whereas overall capacity growth decelerated from 5% to 1%. Are the frequency decreases in the Americas a temporary adjustment driven by market conditions, or do they reflect a more structural shift in the network strategy? Additionally, what is your expected capacity growth for the overall network?

Mehmet Fatih Korkmaz: Your capacity in North America declined slightly, whereas overall capacity growth decelerated from 5% to 1%. Are the frequency decrease in the Americas is a temporary adjustment driven by the market conditions, or does it reflect a more structural shift in the network strategy? Additionally, what is your expected capacity growth for the overall network?

Speaker #4: So US actually in the second quarter as it was presented is brief mindly flattish but you look at the first half of the year we have added about a 1.1.5% capacity on the top of last year so we have not really completely shrunken the capacity but we have readjusted the frequencies and this is definitely temporarily because one of the main networks where which was in and outbound from the Americas was Middle East and that region was heavily affected in the second quarter and on the other hand there was a very strong demand two ways outbound and inbound to Far East then South and Central Asia regions we had to readjust the capacity to better utilize our wide body fleet so overall this is a temporarily decrease overall we in not only of course the the war but in Venezuela we also had to cut frequency because of the earthquake and we are aiming to bring this capacity these frequencies back to the US market in next year especially when we will be receiving quite a few white body aircraft so we will we view these changes as temporarily technical adjustments rather than a structural decrease in Americas capacity we very firmly believe that Americas both North and South are strategically very important markets and then we don't expect further changes to our capacity plan over the coming quarters the network wide our annual capacity growth plan is around 4% overall and this represents two and a half percentage points improvement compared to the guidance that we provided at the end of the first quarter so still capacity growth is down by about like a 5 percentage points compared to our budget but we are seeing improvement and as we see improvement in the market we are doing our best to put capacity

Murat Şeker: US actually in Q2, as it was presented, is brief, mildly flattish. If you look at H1 of the year, we have added about a 1.5% capacity on top of last year. We have not really completely shrunken the capacity, but we have readjusted the frequencies. This is definitely temporarily because one of the main networks which was in and outbound from the Americas was Middle East, and that region was heavily affected in Q2. On the other hand, there was a very strong demand, two ways, outbound and inbound to Far East, then South and Central Asia regions. We had to readjust the capacity to better utilize our wide-body fleet. Overall, this is a temporary decrease.

Murat Şeker: Overall, we, in not only, of course, the war, but in Venezuela, we also had to cut frequency because of the earthquake. We are aiming to bring this capacity, these frequencies back to the US market in next year, especially when we will be receiving quite a few wide-body aircrafts. We view these changes as temporarily technical adjustments rather than a structural decrease in America's capacity. We very firmly believe that Americas, both north and south, are strategically very important markets. We don't expect further changes to our capacity plan over the coming quarters. The network-wide, our annual capacity growth plan is around 4% overall, and this represents 2.5 percentage points improvement compared to the guidance that we provided at the end of the first quarter. Still, capacity growth is down by about 5 percentage points compared to our budget.

Murat Şeker: We are seeing improvement, and as we see improvement in the market, we are doing our best to put capacity.

Speaker #3: Thank you Murat Bey following the recent capacity reductions by some carriers in Middle East have you observed an increase in passenger numbers on your network and we also have an additional online question do you expect the competitive dynamics in the Middle East to remain favorable for the in the third quarter

Mehmet Fatih Korkmaz: Thank you, Murat Bey. Following the recent capacity reductions by some carriers in Middle East, have you observed an increase in passenger numbers on your network? We also have an additional online question. Do you expect the competitive dynamics in the Middle East to remain favorable in Q3?

Speaker #4: Sure well we experienced a shift to our network due to the absence of the Gulf carriers at the very beginning of the conflict there were some stranded passengers in their destinations that could not travel but it did not last long and then we saw that our peers in the Gulf region resumed their operations through the past months and we entered the summer with almost having the full capacity of our peer peer carriers from the region but overall we saw some of course some net impact on growth in customer in our prospective passengers in the we can say that like a 5% a net growth in our customer base there are passengers 5% of our passengers are first time passengers that flew with Turkish Airlines since March of this year and in the reasonable flight corridors we are seeing an improvement on on our passenger base compared to our competitors so which shows that we have been able to gain some market share it's a mild but still a positive amount of market share gain through this period but compared to their pricing and then their involvement I could say with the Gulf carriers we are back to where we were before this war escalated we expect from the for the reminder of the year we are expecting a gradual normalization in the overlapping routes with our peer Gulf carriers and the based on the current forward booking data the growth trend in demand from Africa to Far East and from various parts of Europe North and West Europe to Far East from South Europe to Far East and vice versa remain quite strong in the in the in the market in our customer base for example from Africa to Far East we saw a 70% increase in the number of passengers from North Europe North and West North and Central Europe to Far East we saw about 38% increase in number of passengers and with reasonable yield improvement as well Fatih what about the second part of your question

Murat Şeker: Sure. Well, we experienced a shift to our network due to the absence of the Gulf carriers. At the very beginning of the conflict, there were some stranded passengers in their destinations that could not travel, but it did not last long. We saw that our peers in the Gulf region resumed their operations through the past months. We entered the summer with almost having the full capacity of our peer carriers from the region. Overall, we saw some net impact on growth in our prospective passengers. We can say that a 5% net growth in our customer base, there are passengers, 5% of our passengers are first-time passengers that flew with Turkish Airlines since March of this year. In the reasonable flight corridors, we are seeing an improvement on our passenger base compared to our competitors.

Murat Şeker: Which shows that we have been able to gain some market share. It's a mild but still a positive amount of market share gain through this period. Compared to their pricing and their involvement, I could say with the Gulf carriers, we are back to where we were before this war escalated. For the remainder of the year, we are expecting a gradual normalization in the overlapping routes with our peer Gulf carriers. Based on the current forward booking data, the growth trend in demand from Africa to Far East and from various parts of Europe, North and West Europe to Far East, from South Europe to Far East, and vice versa, remain quite strong in the market, in our customer base. For example, from Africa to Far East, we saw a 70% increase in the number of passengers.

Murat Şeker: From North and Central Europe to Far East, we saw about 38% increase in number of passengers and with reasonable yield improvement as well. Fatih, what was the second part of your question?

Speaker #3: Does the dynamics in the Middle East remain favorable for the Turkish Airlines in the third quarter

Mehmet Fatih Korkmaz: Does the dynamics in the Middle East remain favorable for Turkish Airlines in Q3?

Speaker #4: Okay so I think I answered that I would not call it a like a favorable it's the same level of competitiveness competitive market where it where what we were saying last year or the in this year before the war

Murat Şeker: Okay. I think I answered that. I would not call it a favorable. It's the same level of competitiveness, competitive market, what we were saying last year or in this year before the war.

Speaker #3: Thank thank you Murat Bey next quarter will be on the revenue side to be honest we have been highlighting the robust demand environment for some time now especially on cargo but again overall total revenues rose by around 20 21% in the first second quarter which measures have you implemented on the revenue side to achieve this in response to surge in fuel prices and do you have any idea about the evolution of the ticket pricing

Mehmet Fatih Korkmaz: Thank you, Murat Bey. Next quarter will be on the revenue side. To be honest, we have been highlighting the robust demand environment for some time now, especially on cargo. Overall, total revenues rose by around 20% to 21% in Q1, Q2. Which measures have you implemented on the revenue side to achieve this in response to surge in fuel prices? Do you have any idea about the evolution of the ticket pricing?

Speaker #4: So the the first response at the very early months of the crisis was to close certain lower fare classes on specific routes where demand was holding up and then then we started to increase the fuel surcharges across the network I think at the first stage like in April we were we increased in about 50 routes the first fuel surcharges by about like a 10 15% and then we expanded this to more than 100 routes so incrementally we were able to increase the ticket prices throughout the network which translated to somewhere about four 400 million dollarish additional revenue overall the yields Rusk unit revenue was up by about eight nine percent levels furthermore we looked into the ancillary revenue items and about like a 10 to 15 different ancillary segments we increased the prices and it also corresponded to somewhere around 150 million dollar additional revenue and combined benefit of this actions that we implemented in the second quarter was around more than 700 million dollars compared to our budget and considering the about 8% lower capacity this was quite supportive of our bottom line together also with cargo when you include the high load factor and high yield environment of cargo we were roughly able to reflect 8 percentage of the fuel expense increase on the revenue in the second quarter of this year

Murat Şeker: The first response at the very early months of the crisis was to close certain lower fare classes on specific routes where demand was holding up. Then we started to increase the fuel surcharges across the network. I think at the first stage, like in April, we increased in about 50 routes the first fuel surcharges by about 10% to 15%, then we expanded this to more than 100 routes. Incrementally, we were able to increase the ticket prices throughout the network, which translated to somewhere about $400 million additional revenue. Overall, the yields RASK unit revenue was up by about 8% to 9% levels. Furthermore, we looked into the ancillary revenue items, and about 10 to 15 different ancillary segments, we increased the prices, and it also corresponded to somewhere around $150 million additional revenue.

Murat Şeker: Combined benefit of these actions that we implemented in Q2 was around more than $700 million compared to our budget. Considering the about 8% lower capacity, this was quite supportive of our bottom line. Together also with cargo, when you include the high load factor and high yield environment of cargo, we were roughly able to reflect 8% percentage of the fuel expense increase on the revenue in Q2 of this year.

Speaker #3: Thank you but I think we got question from stall fan could you comment on the impact of the World Cup on the second quarter performance

Mehmet Fatih Korkmaz: Thank you. Mert, I think we got question from Stoltenberg. Could you comment on the impact of the World Cup on Q2 performance?

Speaker #4: Honestly speaking the net benefit was lower than what we expected of the 16 cities the game were played we were flying we were directly flying to 11 of them and then we added no sorry of the 16 cities we were flying to 12 cities and then we added about more than 10 frequencies in the cities during the tournament and the bottom line contribution was a very mild of five to six million dollar additional revenue

Murat Şeker: Honestly speaking, the net benefit was lower than what we expected. Of the 16 cities the game were played, we were directly flying to 11 of them. We were flying to 12 cities, and then we added about more than 10 frequencies in these cities during the tournament. The bottom line contribution was a very mild of $5 to $6 million additional revenue.

Speaker #3: Thank you is it possible to provide color on current booking trends for the third quarter and for the remainder of summer season and do you have any anticipation about next year's yields

Mehmet Fatih Korkmaz: Thank you. Is it possible to provide color on current booking trends for Q3 and for the remainder of the summer season? Do you have any anticipation about next year's yields?

Speaker #4: Well the third quarter booking across the network we expect the capacity to increase around three to five percent while the load factors are in line with last year current yields are currently we are seeing that the yields in the third quarter are still up by about like a six to eight percent levels the strongest region is continuing to be Far East we expect about 15 to 20 percent capacity increase in this region accompanied by about eight to ten percent higher yield and following that South Europe booking trends are continuing to improve since the beginning of the summer season end of June and beginning of July third quarter bookings are around four percent above last year then in Eastern Europe bookings are up by about 16 percent we have put about 16 percent higher capacity and the load factors are also holding up so overall the the third quarter performance is going well the yields through I could say not only August and September but continuing to until October and November we are seeing that the yields are up by about 15 percent as compared to last year so the high yield environment is likely to to last through the remainder of the year but the visibility is still not too long we are seeing some erosion in the load factors towards the October and November months overall overall I could say like a region by region in Europe the yields continuing into the fourth quarter as well third and fourth quarter together jointly in the second half of the year in Europe yields will be up by about like a five percentage points in Europe Far East as I said earlier high single digits and Americas again like a mid single digits and overall I think six to seven percent yield improvement together with about a three percentage points capacity improvement is what we are expecting for this year for your question about the next year yield environment I think we have to see the end of summer and how this escalated tension and high fuel prices are going to turn out lead us to the last quarter of this year

Murat Şeker: For Q3 booking across the network, we expect the capacity to increase around 3% to 5%, while the load factors are in line with last year. Currently, we are seeing that the yields in Q3 are still up by about 6% to 8% levels. The strongest region is continuing to be Far East. We expect about 15% to 20% capacity increase in this region, accompanied by about 8% to 10% higher yields. Following that, South Europe booking trends are continuing to improve since the beginning of the summer season, end of June and beginning of July. Q3 bookings are around 4% above last year. In Eastern Europe, bookings are up by about 16%. We have put about 16% higher capacity, and the load factors are also holding up. Overall, the Q3 performance is going well.

Murat Şeker: The yields through, I could say, not only August and September, but continuing until October and November, we are seeing that the yields are up by about 15% as compared to last year. The high yield environment is likely to last through the remainder of the year, but the visibility is still not too long. We are seeing some erosion in the load factors towards the October and November months. Overall, I could say region by region. In Europe, the yields continue into Q4 as well, Q3 and Q4 together, jointly in H2. In Europe, yields will be up by about five percentage points. In Europe, Far East, as I said earlier, high single digits. Americas, again, mid-single digits.

Murat Şeker: Overall, I think 6% to 7% yield improvement together with about a three percentage points capacity improvement is what we are expecting for this year. For your question about the next year yield environment, I think we have to see the end of summer and how this escalated tension and high fuel prices are going to turn out or lead us to the Q4 of this year.

Speaker #3: Thank you we have been getting this question a lot for in recent times especially after the war what about the demand in Türkiye evolving and are you observing any signs of slowdown

Mehmet Fatih Korkmaz: Thank you. We have been getting this question a lot in recent times, especially after the war. What about the demand in Türkiye evolving, and are you observing any signs of slowdown?

Speaker #4: So for a very right after war March and April we saw some drop and unfortunately it overlapped with the Easter and then the Eid holiday period we saw some drop in demand but then as we as the the tension of the war impact on Türkiye decreased with the start of the summer season we saw the kind of that negative impact vanished our tourism incoming tourist to Türkiye the the statistics was announced recently by Turkish Statistical Agency overall last year we had about 31 million passengers traveling to Türkiye and this year it was a very much the same number the international tourists number shrunk by about monthly two and a half percentage points from.

Murat Şeker: Right after war, March and April, we saw some drop, and unfortunately, it overlapped with the Easter and then the Eid holiday period. We saw some drop in demand. As the tension of the war impact on Türkiye decreased with the start of the summer season, we saw that negative impact vanished. Our incoming tourists to Türkiye, the statistics was announced recently by Turkish Statistical Institute. Overall, last year, we had about 31 million passengers traveling to Türkiye, and this year it was very much the same number. The international tourists number shrunk by about mildly two and a half percentage points. It went down from 26.3 million to 25.7 million international tourists. Including the Turkish citizens, ethnic travelers who live abroad and traveling to Türkiye, we see that overall numbers is around 31 million, and it has not come down.

Speaker #4: It went down from 26.3 million to 25.7 million tourists international tourists but including the Turkish citizens ethnic travelers who live abroad and traveling to Türkiye we see that overall numbers is around 31 million and it has not come down the impact on Turkish Airlines in particular because of the cancellations of some services from the competing airlines we saw that in the first half international travelers flying with Turkish Airlines to Türkiye increased by about almost seven percent so we have seen overall a little bit of a benefit of that and when we look at the forward bookings we see that the demand to Türkiye seems to be resilient incoming packs with Turkish Airlines to domestic to Turkish market is about 12 percent more tickets and about 17 percent higher revenue is what what we are seeing for the for the Turkish market

Murat Şeker: The impact on Turkish Airlines, in particular, because of the cancellations of some services from the competing airlines, we saw that in the H1, international travelers flying with Turkish Airlines to Türkiye increased by about almost 7%. We have seen overall a little bit of a benefit of that. When we look at the forward bookings, we see that the demand to Türkiye seems to be resilient. Incoming packs with Turkish Airlines to domestic, to Turkish market is about 12% more tickets and about 17% higher revenue is what we are seeing for the Turkish market.

Speaker #3: Thank you our our peers reporting significant resilience in premium cabin and what is the situation on your operations

Mehmet Fatih Korkmaz: Thank you. Are your peers reporting a significant resilience in premium cabin? What is the situation on your operations?

Speaker #4: So on the premium business class especially after we have started the operation increase our operation to the Far East countries we see that the the business class load factors are up and then the yield environment is also up the business class load factor was about three percentage points higher the increase in business class load factor was three percentage points higher than the economic class load factor and then the yield was about again similarly three percentage points higher than last year so this as especially on the long hauls Far East outbound and inbound we are seeing a strong strong demand I think we are it's fair to say that we are having a a record amount of lot factor about 60 65 percent at our business class segment

Murat Şeker: On the premium business class, especially after we have started to increase our operation to the Far East countries, we see that the business class load factors are up, and then the yield environment is also up. The business class load factor was about three percentage points higher. The increase in business class load factor was three percentage points higher than the economic class load factor. The yield was about, again, similarly, three percentage points higher than last year. This, especially on the long hauls, Far East, outbound and inbound, we are seeing a strong demand. I think it's fair to say that we are having a record amount of load factor, about 60% to 65% at our business class segment.

Speaker #3: Turning to cargo cargo yields rose remarkably in the second quarter half sustainable do you believe the current levels are and what is your outlook for the second half of the year

Mehmet Fatih Korkmaz: Turning to cargo. Cargo yields rose remarkably in Q2. How sustainable do you believe the current levels are, and what is your outlook for H2 of the year?

Speaker #4: So when if you are saying sustainability continuing into 2027 I'm not sure it will sustain that long but definitely there is a strong opportunity into 2026 you know the the Baltic dry Baltic air fright index and Drui index are showing a very strong momentum in the on the on the positive side and then we have been benefiting from this strong environment in the third quarter we are continuing to see higher yields environment and then our the load factors are keep increasing overall for the overall year we are expecting about a 25 to 30 percent increase in cargo revenues as compared to last year and overall six to eight percent increase in the amount of cargo carried and more than 20 percent increase in the cargo yield environment for the overall year so it's a reflection of the fact that the strong momentum that we have observed in the first half will continue is likely last into the second half of this year

Murat Şeker: If you are saying sustainability continuing into 2027, I'm not sure it will sustain that long, but definitely there is a strong opportunity into 2026. The Baltic Air Freight Index and Drewry Index are showing a very strong momentum on the positive side, and then we have been benefiting from this strong environment. In Q3, we are continuing to see higher yields environment, and then the load factors keep increasing. Overall, for the overall year, we are expecting about a 25% to 30% increase in cargo revenues as compared to last year, and overall 6% to 8% increase in the amount of cargo carried, and more than 20% increase in the cargo yield environment for the overall year.

Murat Şeker: It's a reflection of the fact that the strong momentum that we have observed in H1 will continue, is likely to last into H2 of this year.

Speaker #3: Moving on to Ajet could you provide us an update regarding its performance

Mehmet Fatih Korkmaz: Moving on to AJet. Could you provide us an update regarding its performance?

Speaker #4: So Ajet had about 89 aircraft by the end of the first half which is about 11 percent growth and number of passengers had a similar ratio of growth of about 12 percent the revenue was up by about 30 percent because the yields unit revenues was also very strong and then they had reached a passenger size of about 12 percent of course these are the positive developments but on the other hand Ajet was more prone to the developments in the region Middle East region makes a bigger portion of their operation so they were just like the TK mark was able to relocate their capacity to different alternative routes but they had an at the bottom line a higher impact of this of this war they had to cut about 10 percent of their scheduled capacity ASK wide for for 2026

Murat Şeker: AJet had about 89 aircraft by the end of H1, which is about 11% growth, and number of passengers had a similar ratio of growth of about 12%. The revenue was up by about 30% because the yields, unit revenues was also very strong. They had reached a passenger size of about 12%. These are the positive developments, but on the other hand, AJet was more prone to the developments in the region. Middle East region makes a bigger portion of their operation. They were just like the TK mark, was able to relocate their capacity to different alternative routes, but they had, at the bottom line, a higher impact of this war. They had to cut about 10% of their scheduled capacity, ASK-wide, for 2026.

Speaker #3: Moving on to the cost questions sorry could you comment on the impact of jet fuel prices on your cost base and what assumptions are reflected into your outlook for the remainder of the year

Mehmet Fatih Korkmaz: Moving on to the cost questions. Sorry. Could you comment on the impact of jet fuel prices on your cost base, and what assumptions are reflected into your outlook for the remainder of the year?

Speaker #4: So providing an outlook definitely is difficult on on brand and jet there are too many moving pieces just in like in two three days we have we have seen about 20 percent decrease in brand and in jet price from the its peak level of like by the end of July 28th of July I think it reached a peak and then since then it has been coming down so it's making a making a projection quite difficult when we had the budget at the beginning of the year our projection was about 65 on the brand and currently it's around 85 our current projection on the jet we were projecting about 700 and currently year end expectation is somewhere between 900 to a thousand dollar so with this figures we are expecting about two to three billion dollar it's going back and forth additional fuel cost compared to our expectations at the beginning of the year this scenario our fuel cost is expected to be about 35 to 40 percent higher than last year another moving part is the crack spread and assuming an average crack spread of 13.8 times a dollar increase in oil price is expected to have about a hundred million dollar annual impact in the in our bottom line

Murat Şeker: Providing the outlook definitely is difficult on Brent and jet. There are too many moving pieces. Just in two, three days, we have seen about 20% decrease in Brent and in jet price from this peak level. By the end of July, 28 July, I think it reached a peak, and since then it has been coming down. It's making a projection quite difficult. When we had the budget at the beginning of the year, our projection was about $65 on the Brent, and currently it's around $85, our current projection. On the jet, we were projecting about $700, and currently, year-end expectation is somewhere between $900 to $1,000. With these figures, we are expecting about $2 to $3 billion, it's going back and forth, additional fuel costs compared to our expectations at the beginning of the year.

Murat Şeker: This scenario, our fuel cost is expected to be about 35% to 40% higher than last year. Another moving part is the crack spread. Assuming an average crack spread of 13.8 times, a $1 increase in oil price is expected to have about $100 million annual impact in our bottom line.

Speaker #3: Thank you, Murat Bey. Could you elaborate on the current hedging ratios? Also, is there any plan to review or revise your fuel hedging strategy?

Mehmet Fatih Korkmaz: Thank you, Murat. Could you elaborate on the current hedging ratios? Is there any plan to review or revise your fuel hedging strategy?

Speaker #4: We have the last revision of our fuel strategy was made at around like 27 2000 2017 after the 2016 we had a significant loss and then we had to revise our strategy and every year we review our strategy actually so far we have seen that the strategy was not working very inefficiently when you look at the last six years including the year of the pandemic our overall 20 from 2020 to 2025 our overall net hedge gain was about 50 percent where our peers had 300 200 and up to two billion dollar hedge losses when you look at for a shorter period from 2023 to 2025 a three-year window our hedge gain was about 180 million dollars again our peers especially in Europe had around like a 250 to 400 million dollar losses so you know the overall the strategy is working on the mid to long term is working efficiently but what we have seen more recently is crack spread the gap between jet fuel and brand is also increasing so the correlation is decreasing and there are alternative products like gasoil or directly the jet fuel availability is enabling us to expand our strategy so based on the most recent developments we are going to continue to work on improving our strategy to provide more flexibility and more foreseeability but the current strategy today we are hedged by as of today I think we are hedged around 50 percent and our break even price on the brand is around 73 dollars and we only hedge on the brand still but with the with the revision we will be looking into using a wider range of products and using a wider range of I mean hedging products and also widening wide wider wide range of brand gasoil or even jet will be able to hedge so we'll be expanding our strategy as well but today as I said we hedge up to around 50 percent and our break even is around 73 dollars

Murat Şeker: The last revision of our fuel strategy was made at around 2017. After 2016, we had a significant loss, and we had to revise our strategy. Every year we review our strategy, actually. So far, we have seen that the strategy was not working very inefficiently. When you look at the last six years, including the year of the pandemic, from 2020 to 2025, our overall net hedge gain was about 50%, where our peers had $300, $200, and up to $2 billion hedge losses. When you look at a shorter period, from 2023 to 2025, a three-year window, our hedge gain was about $180 million. Again, our peers, especially in Europe, had around $250 to $400 million losses. The overall strategy, on the mid to long term, is working efficiently.

Murat Şeker: What we have seen more recently is crack spread, the gap between jet fuel and Brent is also increasing, the correlation is decreasing. There are alternative products like gas oil or directly the jet fuel availability is enabling us to expand our strategy. Based on the most recent developments, we are going to continue to work on improving our strategy to provide more flexibility and more foreseeability. The current strategy today, as of today, I think we are hedged around 50%, and our break-even price on the Brent is around TRY 73. We only hedge on the Brent still. With the revision, we will be looking into using a wider range of products and using a wider range of, I mean, hedging products, also wide range of Brent gas oil or even jet we will be able to hedge.

Murat Şeker: We will be expanding our strategy as well. Today, as I said, we hedge up to around 50%, and our break-even is around TRY 73.

Speaker #3: Thank you what was the major reasons that drove x fuel unit cost materially higher

Mehmet Fatih Korkmaz: Thank you. What was the major reasons that drove ex-fuel unit costs materially higher?

Speaker #4: So x fuel cost the biggest portion came from personal expenses like half of it was related to personal expenses as I think I answered in the first question personal expenses was affected by the global high inflation and in particular the high inflation in Türkiye you know about 30 percent of our expenses are in Turkish lira and all personal expenses of Turkish airlines and all of our subsidiaries are in Turkish lira so that inflationary impact and the value the the value of Turkish lira could and put and spot in the personal expenses and following that the second big item was aircraft ownership and then airport fees we have been seeing again related to the global inflation we have been seeing an increases in airport tariff rates the air navigation fees and then you know these related items also helped increase our our x fuel cost

Murat Şeker: Ex-fuel costs, the biggest portion came from personal expenses, like half of it was related to personal expenses. As I think I answered in the first question, personal expenses was affected by the global high inflation and in particular the high inflation in Turkey. About 30% of our expenses are in Turkish lira, and all personal expenses of Turkish Airlines and all of our subsidiaries are in Turkish lira. That inflationary impact and the value of Turkish lira put a spot in the personal expenses. Following that, the second big item was aircraft ownership and airport fees. We have been seeing, again, related to the global inflation, we have been seeing increases in airport tariff rates, the air navigation fees, and these related items also helped increase our ex-fuel cost.

Speaker #3: Murat Bey we have a follow-up questions question on personnel so I will tell you about the question it's from Hanzade how do you plan to control your staff costs you have been targeting to save staff costs but there has been no progress and can you please guide us for the 2026 expectations and also can you please run over your ex cost increase target of mid single digits

Mehmet Fatih Korkmaz: Murat Bey, we have a follow-up question on personnel. I will tell you about the question. It is from Hanzade. How do you plan to control your staff costs? You have been targeting to save staff costs, but there has been no progress. Can you please guide us for the 2026 expectations? Also, can you please run over your ex-cost increase targets of mid-single digits?

Murat Şeker: Can we what? Last part?

Mehmet Fatih Korkmaz: The last part is ex-fuel CASK drivers-

Murat Şeker: Okay

Mehmet Fatih Korkmaz: for the full year. The first part is about how do we expect to contain the staff cost inflation-

Murat Şeker: Okay

Mehmet Fatih Korkmaz: going forward.

Murat Şeker: Okay. We have a union agreement. It is a 2-year agreement, and this is the second year of that agreement. Within that, every 6 months, we have to adjust the salary at the rate of the Turkish lira inflation rate. That is what we have done in the month of July. To take measures to control our personal costs, what we have done since the beginning of this year is we have frozen personal hire other than the fleet-related expansion. We have about 30 aircraft deliveries. Relatedly, we are still recruiting to a certain degree, but at a very limited level. Our flight academy, for example, this year has frozen all the cadet recruitments. We have not hired any staff. Our subsidiaries are also paying great attention to cut the hiring. This is the first thing we are doing.

Murat Şeker: There are certain items in the payroll scheme that are not led by the union negotiations, and we are trying to find ways to improve the personal efficiency. We are still working on it. We have not finalized the work, but I will be able to say more transparently the achievements of this. We are expecting about $200 million improvement on the personal expenses overall for H2 2026. The significant portion of our expenses related to our 100% subsidiaries are also related to the personal expenses. The measures we will be taking in Turkish Airlines, our main brand, are going to be also implemented in our subsidiaries as well. That is why with these several measures, we are aiming to limit the personal cost increase.

Murat Şeker: Maybe a third factor, of course, this is still beyond our control. This year, inflation was on a very steady path of decline to about 20% levels. Turkish lira depreciation against dollar was also of a similar magnitude, about 21% to 22% levels. This war, which we think is going to have a temporary impact, has led a much higher inflation rate, as a result of which we end up paying, in dollar terms, higher personal costs. Towards the end of this year, we will see more normalization. Continuing into 2027, we will see more of this normalization. The extra burden will be alleviated. The last part of the question was about?

Mehmet Fatih Korkmaz: Second part was the Q3's expected ex-fuel cost. The run rate decreasing from 16% to mid-single digits. It is mainly capacity ramp-up and base effect.

Mehmet Fatih Korkmaz: Second part was the Q3's expected ex-fuel cost. The run rate decreasing from 16% to mid-single digits. It is mainly capacity ramp-up and base effect. Murat Bey, I think we'll mention those in the follow-up questions about guidance, which now we are heading on. Continuing with the guidance, how should we think about your expectations for Q3?

Mehmet Fatih Korkmaz: Murat Bey, I think we'll mention those in the follow-up questions about guidance, which now we are heading on. Continuing with the guidance, how should we think about your expectations for Q3?

Murat Şeker: For Q3, I think Metin Bey expressed them briefly during the presentation. About 3% to 5% capacity growth is going to continue. The quarter is moving. We are in the middle of the quarter. The yield environment is continuing to be strong. That's why we are guiding an EBITDA margin of somewhere between 20% to 25%, but I believe we will be closer to the upper part of this guidance level. The number of passengers, pax site-wise, it also is likely to increase by additional 3% to 5% levels.

Mehmet Fatih Korkmaz: Thank you, Murat Bey. Given ongoing supply chain challenges at both Airbus and Boeing, have your delivery expectations changed, and can you guide us about the deliveries for this year?

Murat Şeker: Well, the delays in aircraft deliveries, we have already included them in the existing plan. From Boeing or Airbus, we are not expecting many more delays in the aircraft deliveries. We had today our 563rd aircraft. We are aiming to finish the year with 500, about 80 aircraft by the end of this year.

Mehmet Fatih Korkmaz: What is the estimated CapEx and net debt level for 2026? Do you expect EBITDA ratio to reach its peak this year?

Murat Şeker: Well, in line with the new aircraft orders, as a part of our fleet expansion strategy, we expect an increase in net debt. Considering the current operating environment, we have made selectively trimmed down this year's CapEx plan by about $1 billion. Currently, our gross CapEx is going to be somewhere between $4.5 to 5 billion. Before, we were guiding up to $5.5 billion. I think we will be closer to the lower part of this current guidance. This year, we might temporarily, I would say, exceed our long-term leverage target of 2x to 2.5x due to the negative effect of the war on our EBITDA. Last year, we had a net debt EBITDA multiple of 1.6x. This year, our expectation is to be 3.3x.

Mehmet Fatih Korkmaz: Thank you, continuing with the GTF problems and the groundings. Can you give us the details about the current number?

Murat Şeker: At the moment, we have around 40 aircraft still grounded. Aircraft are changing, but the numbers are more or less around these levels. There will be some ramping increase in the number of grounded aircraft towards the end of last year. We had a very constructive meeting with Pratt & Whitney in the Farnborough Airshow about two, three weeks ago. They are trying to increase the maintenance rate of our engines. Hopefully, by next year, we will be able to have an improvement on the induction rate of our engines. Currently, we have 40 grounded. Towards the end of this year, it will go up to about 50, 55 aircraft.

Mehmet Fatih Korkmaz: Thank you, Murat. We have a question about recent EU reform proposal on ETS. What do you think about EU Emissions Trading System proposal to expand its scope? Could you quantify the potential implications on your operations?

Murat Şeker: This was published, the document was published on mid-July. We are aware of the ETS system. We are already using some carbon emissions to comply within the trading system. What this new document brings is, it increases the scope of the operation so that a higher percentage of our flights can be affected. Currently, it's about 1% of our flights that are affected, and then it can go up to 10% of our overall flights. The financial impact is still a little early. We have seen the document, we are trying to understand the details of it. Of course, from 1% to 10%, it's a significant increase. The net financial impact and the calendar, how it's going to be implemented is not very clear yet.

it increases the scope uh, of the

Murat Şeker: Maybe in the coming months, I will be able to say more clarity how much of a financial impact this additional carbon emission credit requirement is going to bring to us.

Mehmet Fatih Korkmaz: We have two more questions. These are rather small questions. We would like to thank Görkem for his participation. Should we expect maintenance expenses to stay at this level in H2?

scope of the operation. So that more a higher percentage of our flights can be affected. Currently. It's about 1% of our flights that are affected and then it can go up to 10% of our overall flights. The financial impact is still a little early. The we have seen a document but we are trying to, uh, understand the details of it but I mean, of course from 1% to 10%. It's a significant increase uh the net Financial impact and how the kind of the the calendar, how it's going to be implemented, is not very clear yet. Maybe in the coming months, I will be able to say more clarity. Uh, how much of a financial impact this additional carbon emission credit requirement is going to bring to us?

We have 2 more questions. These are rather small questions. Uh, we would like to thank your account for his participation. Uh, should we expect maintenance expenses to stay at this level in the second half?

Murat Şeker: Well, mainly that's what we are having in mind. We don't expect a significant increase in the maintenance costs. A very big portion of the maintenance services for Turkish Airlines is provided by Turkish Technic. In H2, we expect those expenses to be brought the same. With our new capacity assumptions and updated plans for H2, probably like a mild 3%, 4% percentage point increase due to the higher inflation and personal costs of Turkish Technic, we might see some increase. On per unit basis, in terms of a maintenance cost-wise, we don't expect an increase, yet we might see some decline due to a high capacity increase.

Well, mainly we that's what we are having in mind. We don't expect a significant increase in the maintenance costs.

A very big portion of the maintenance services for Turkish Airlines is provided by Turkish technique. So in the second half of the year, we expect those expenses to be brought the same.

With our new capacity, assumptions and then updated plans for the second half of the year.

The uh, probably like a mile 3 4 percent, for forcing Point increase due to the higher inflation and personal costs of Turkish Technique. We might see some increase but on per unit basis,

Mehmet Fatih Korkmaz: Our last question, passenger flight liabilities on the balance sheet rose to $4.2 billion from $3.1 billion at the end of the year. How much of this increase is due to volume versus fare? What is your expectations regarding the forward bookings, which we already answered on the second part.

In terms of like a maintenance cost twice, we don't expect an increase yet. We might see some decline due to, uh, a high capacity increase.

All the last question, passenger flight liabilities on the balance sheet rows to 4, 4.2 billion dollars from 3.1 at the end of the year.

Murat Şeker: Well, by the end of this H1, passenger flight liabilities for Turkish Airlines increased by close to 40% compared to the end of last year. This growth was driven by more than 20% increase in the volume of tickets sold, and about remaining 10% to 15% was due to the increase in unit prices. In Q3, the forward-booking sales showed double-digit percentage growth compared to the same period of last year, with the September-November period recording the highest increase.

How much of this increase is due to volume versus Pear? And uh, what is your expectations regarding, uh, the forward bookings, which we already answered on the second part? Yeah, well the by the end of this first half,

Percentage growth compared to the same period of last year.

With the September November period.

Mehmet Fatih Korkmaz: Thank you, Murat. With this question, we conclude our earnings call. I would like to thank you both, as well as our participants for their time. We hope to be with you next quarter with positive developments on the news flow. Thank you very much.

Recording the highest increase.

Operator: Thank you very much, gentlemen. Thank you to our speakers for your presentations. Ladies and gentlemen, thank you for your participation. With that, it concludes today's conference call. Thank you.

Thank you ratty with this question. We conclude our earnings calls. I would like to thank you both uh, as well as our participants for their time. Uh, we hope to be with you next quarter with uh, positive developments on the new snow. Thank you very much.

Thank you very much gentlemen, thank you to our speakers for your presentations and ladies and gentlemen, thank you for your uh, participation. And with that, it concludes today's conference call. Thank you.

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Half Year 2026 Turk Hava Yollari A.O. Earnings Call

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