Turkish Airlines' (THY) passenger base expanded by 9.5% y/y to 2.2m in June following a 6% y/y increase in May. (38,5 EUR, 1,22%) pax base reached 11.24m in 1H09, implying 9.1% y/y growth. Passenger growth was supported by rising business class and transit passengers, with these categories showing 1.5% y/y and 43% y/y growth respectively. Available seat kilometres (ASK) increased by 21% y/y in June as THY increased its fleet size by 26 aircraft. Revenue passenger kilometres (RPK) recorded 12% y/y growth in June, supported by an increasing number of flights and new destinations. As capacity growth exceeded passenger growth, passenger load factor (PLF) declined by 550bp y/y to 71.1% in June, which is acceptable given the expansion of the fleet and the off-season. However, PLF showed a 240bp m/m improvement compared to 68.7% in May 2009, benefiting from THY's capacity reductions in June by selling two A310 aircrafts and transferring another one to B&H fleet. Cumulative PLF in 1H09 declined by 480bp y/y to 68.2%. The total weight of cargo and mail carried declined by 1% y/y in June, pushing aggregate growth to 7.1% y/y in 1H09.
The growth in pax came in line with our 9.5% growth forecast for 1H09, however the PLF remained below our 70% forecast. We do not expect any additions to the fleet in 1H09, thus the PLF should improve gradually over the coming months. Compared to the 9.5% y/y contraction in cumulative pax of European scheduled network carriers in first five months of 2009 and expected further 6% y/y contraction in June 2009, we believe that THY is one of the exceptional airlines in Europe that can expand its passenger base in 2009. According to AEA data, average PLF of the European carriers stand at 72.2% in 5M09, better than THY. The main reason for higher PLF was the 5% contraction in European carriers' seat capacity, while THY was expanding its fleet in the same time. We expect the company to sustain its operational performance in 2H09 and reach 25m passengers in 2009, suggesting an 11% annual growth. Our valuation model indicates that the positive expectations are already priced in the current share price. We need to see THY's 2Q09 financial results to revise our valuation model.