Economics Politcs Turkey

Turkey is one of the most fragile countries currently

Men sit outside a discount clothing retail store in Istanbul, Turkey July 13, 2016. REUTERS/Murad Sezer
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Thestar Economist B.Dishu says that Turkey is one of the most fragile countries currently because of high political risk and its Turkish Lira has lost 10% of its value against the US Dollar this year

The weakness of the Turkish lira remains a challenge for Malaysia Airports Holdings Bhd (MAHB). However, the impact is mitigated because its revenue is in euro and acts as a natural hedge for its investment there.

The initial contract was crafted in such a way that cost is in Turkish lira and revenue in euro for its wholly owned investment in Istanbul Sabiha Gokcen (ISG) airport.


“There are headwinds in Turkey and like any investor we are concerned,” MAHB managing director Datuk Badlisham Ghazali said in an interview.

He added that the “currency swings help on the cost side and since our revenue is in euro, it is a natural hedge. We are analysing and watching the geopolitical situation there, beyond that we leave it to the government.”

Air travel in Turkey was hit by two major incidents in 2016 – a terrorist attack on the key international Ataturk airport and an attempted military coup.


Turkey is one of the most fragile countries currently because of high political risk and its Turkish Lira has lost 10% of its value against the US Dollar this year, and double digit in 2016, and the spate of terrorist attacks has rattled investors confidence.

Despite the slowdown, ISG ended 2016 with a 4.8% rise in passenger traffic to 29.6 million from a year ago.

Of this, Badlisham says there was a 18% drop in international passengers but domestic traffic grew by 8.2%.

But the outlook appears gloomy for now, though Badlisham hopes the situation will change with the lifting of the visa ban for Russian tourists into Turkey and if that happens the traffic volumes will help in passenger numbers and revenues. Both countries are still mulling over the visa lift issue.

ISG is now home to low cost airline Pegasus and even though the main airport, Ataturk is bursting through the seams with traffic, Turkish Airlines is not likely to shift some of its operations to ISG since a new airport (Istanbul New Airport) is being built and is expected to be ready in 2018.

Possible extension to Ataturk Airport’s concessionaire period will likely further intensify competition, which analysts see as a negative for ISG.

The earnings disappointment from ISG due to the lingering passenger traffic weakness remains a near term hurdle for MAHB, writes an analyst.

“There is still growth at the airport. Land connectivity to the airport is important though congested, but with the opening of the third bridge will see more from the East side taking flights from ISG. The overflow at Ataturk will come to us and that works for us,” Badlisham said.

With such headwinds, will MAHB consider selling off its investment?

“We sold our stake in Delhi Airport some years ago, it is part of our international strategy and we are always discussing.

“If there is a buyer, yes we will sell, but it is a question of valuations, the right pricing and timing,” he said.

He added that “ISG is an attractive asset, but there are no active offers on the table, and we will continue to work towards improving passenger loads at the airport.”

To him, “ISG is still an underserved airport, we have to look at a longer time frame, but we still have great faith in the market. Travelling passengers are still way below of OECD countries, it is strategic location and better to be in Turkey than somewhere else,” he said.

He believes that Turkey remains a hub for those who fly from east to west and vice versa and he sees no reasons why it cannot be the thriving hub, minus the recent events.

For now, it may seem a burden “but it is also a growth story and about value creation,” he added. .

Despite the efforts, analysts are concerned whether ISG will be able to break even by 2018.

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