Turk Hava Yollari AO
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Ladies and gentlemen, welcome to Turkish Airlines First Quarter 2021 Earnings Call. [Operator Instructions]
I will now hand you over to Mr. Mehmet Ilker Ayci, Chairman of the Board of Directors and the Executive Committee of Turkish Airlines; Professor Murat Seker, Member of the Board and Chief Financial Officer; and Mr. Kadir Çoskun, Head of Investor Relations. Gentlemen, the floor is yours.
Thank you very much, everyone, distinguished participants. Good afternoon. Thank you for joining our first quarter financial results presentation. We are pleased to be on the line with you today.
The aviation industry started the year under continuing pressure of the pandemic. New virus variants, changes and delays in vaccination, rollout schedule has so far kept travel restriction largely in place. This caused many airlines, including Turkish Airlines, to schedule less capacity than originally planned. One lesson we learned after experiencing summer and winter months of 2020 was that the recovery would not follow a straight path. Recently, IATA reduced 2021 global RPK estimation from 51% to 43% of 2019 level.
Well, we observed almost 10% less capacity realization, net higher yield and stable load factor in the first quarter compared to our budget, which eventually led to higher operational profit performance. We saw continued improvement in average daily sales level month-over-month in the first quarter and in March. Last year's monthly ticket sales were exceeded.
Turkey is currently experiencing a third wave of the pandemic. In order to curve the spread of this wave, Turkey entered into full lockdown, starting from the April 29 until May 17. Although the lockdown does not include a restriction for domestic and international air travel, it still have an impact on the demand and cut on the speed of recovery. However, the timing of the lockdown coincident with the month of fasting in the Muslim world.
In this month, we usually observed relatively weaker demand in the domestic market and in the Middle East region. Forward booking are showing an upward trend starting with the end of May, which is a good news. Turkish Airlines recorded strong traffic and financial results in the first quarter. According to Eurocontrol data, we were ranked as the most flying airline in Europe in the first quarter. We flew 165 international and 44 domestic destinations at the end of 2020. We increased the number of international destinations to 180 by the end of the first quarter. We are planning to increase the number of international destinations served by AnadoluJet from 20 to 58 by the summer, along with the 38 domestic destination. By the end of March, we reached around 50% of the capacity utilized in 2019 and 47% of the capacity in 2020.
Similar to the reduction in capacity, the number of passengers carried dropped by the 52% year-on-year to 6.4 million, and load factor dropped by 13.4 percentage points to 63% in 2021.
We reached $1.8 billion revenue, which accounts for almost 71% over the last year and 65% of 2019 first quarter level. With the help of the continuing cost discipline, we recorded USD 41 million operating loss, a better performance than our 2019 and 2020 first quarter results. We recorded USD 478 million EBITDA with around 25% EBITDAR margin. A positive net income of USD 61 million was achieved mainly due to the strong financial income attained by foreign exchange gains from financial activities and fair value gains on derivative financial instrument. The deferred tax income contributed positively by USD 31 million.
We maintain the strong cargo performance in the first quarter, which reached over USD 820 million in revenue with a year-over-year increase of 77%. This level corresponded to about 46% of total revenue. Cargo units revenue increased by almost 55% compared to the first quarter of 2020. We continued to utilize wide-body passenger aircraft for cargo operations and reached a market share of 5.1% in terms of cargo revenue at the end of March. We are currently serving to 94 destinations with Turkish Cargo. And right now, we are in the fifth ranked position globally.
We completed the quarter with around $1.8 billion cash and cash equivalent, which is almost the same level at the end of 2020. The average monthly cash burn in this quarter, including lease payments and commercial loan supplements, was around $20 million, indicating a solid improvement compared to 2020 levels.
Going forward, we expect to decrease year-over-year market cash burn through 2021. And when you look at the lines exceeding USD 2 billion, ensure that we will have sufficient liquidity throughout 2021.
On the CapEx side, as you would remember, we shared details of the Airbus deal in our 2020 year-end investor call. Recently, we signed the agreement with Boeing. According to this agreement, 10 of 75 Boeing 737 MAX orders will be canceled. 40 firm orders are converted to options and are rescheduled to be delivered between 2024, 8. The remaining undelivered 13 Boeing 737 MAX aircraft are rescheduled to be delivered mostly in 2021. With these amendments, we reduced the number of aircraft deliveries for huge reasonable levels for the next 3 years. With it, liabilities will reduce and the amount of the financing needs will decrease as a result of this agreement until we observe the full recovery from COVID-19.
And I would like to thank also the contribution and also really great performance of my financial team, especially their leader, Mr. Murat Seker. Now I will let Mr. Murat Seker to continue with the presentation and elaborate on some important results. So I would like to thank you for all participants. Thank you for your patience and joining us. Have a great day. Thank you so much.
Murat Bey, now the floor is yours.
Thank you very much, Mr. Chairman. I will continue with Slide 6. Let me show the capacity management here for the first quarter of '21. By the end of March, we reached 50% capacity of 2019 level. We witnessed a steady ASK increase since June, with a minor setback in February. Load factor dropped in January with increasing concerns related to daily COVID cases and the appearance of new mutations. However, load factor rose in the last 2 months of the quarter. Nonetheless, another slight holdback is expected to occur in April since the month of Ramadan not only affects our domestic operations, but also the travel demand in Muslim world, especially on ethnic leisure travel site.
Since July, we observed lower year-on-year international capacity cuts compared to the IATA average. While the recovery of the sector's international operations is not in sight yet, we managed to boost up our international capacity compared to the IATA average.
The aforementioned setback in February was much more impactful for the sector as it was for us. According to Eurocontrol, Turkish Airlines was the busiest operator with an average of 674 flights per day in March, almost twice as many flights as the second place airline. Also our main hub, Istanbul Airport, was the busiest airport in Europe, with an average of 562 flights per day, leaving London Heathrow and Frankfurt Airports behind.
On the cargo side, capacity generated by cargo aircraft increased by 66% in the first quarter compared to the same period of '19. By adding passenger aircraft and utilizing our cargo fleet in a much tighter schedule, we managed to increase freight tonne-kilometer by 19% in the first quarter of '21 compared to the same period of 2020.
After the total savings of around $1.1 billion achieved through cost-cutting activities in 2020, we achieved a total of $200 million cost saving in the first quarter of '21. The most impactful item continued to be personnel expenses with around $130 million cost savings driven by the salary reduction agreement with the labor union and the application of short-term employment loans starting from 1st of April 2020, which continued until the end of August of last year. However, the scale of savings from salary reduction agreement dropped a little bit due to inflation rate-linked salary increases implemented in '21. More savings were achieved by reducing marketing expenses and by maintaining a new in-flight menu concept in international flights. A discount of 50% in State Airport Authority-controlled airports and Sabiha Gokcen airport in Istanbul will continue until the end of 2022.
Additionally, we've got a discount of about 10% for the rental areas in Istanbul Airport. Although cash generation performance of 2021 seems better than 2020, strong liquidity management is still crucial. The master cash burn in the last quarter of 2020 was around $100 million, down from around $300 million in the third quarter. These high cash burn levels were mainly due to refunded tickets and mark-to-market outflows, which fell to mild levels in 2021. Thanks to strong revenue generation and strict cost management, we accomplished a limited cash burn in the first quarter to $50 million in total for 3 months.
Another impact for the limited cash burn is that the financial items, cash outflows are lower in this quarter compared to the previous quarters, especially on lease and commercial loan payments. Operational cash generation maintained at the level of the last quarter and even increased slightly due to higher yields caused by limited capacity generation.
The negotiations with Boeing and Airbus on fleet growth will decrease aircraft financing needs by around $4.5 billion in 2021 and 2022. We expect around $300 million net PDP inflow between these 2 years. The monthly average cash burn for the rest of the year is expected to be between $60 million and $90 million. We expect to maintain a cash position of around $2 billion with currently over $2 billion undrawn credit lines.
Now let me show you the net debt to revenue ratio projection. Before the pandemic, our net debt to revenue ratio was around 80%. This was around 5 percentage points higher than the airline industry average ratio, which is natural because Turkish Airlines is a fast-growing airline and a young airline. At the end of 2020, this ratio was above 220%, but is expected to drop under 170% in 2021 and steadily continue to decline. It is expected that the airline industry's net debt to revenue ratio will be somewhere between 110% and 124% by the end of 2024. We expect to be below this level by 2024.
We proved during the pandemic that our high versatility enables us to keep the revenue generation at the highest possible levels. We continue to evaluate our network in order to meet the low-cost demand for certain routes. We separate our point-to-point operations from our transit network by using AnadoluJet brand. Lower airport fees in Sabiha Gokcen airport, modified narrow-body aircraft with 189 seats and adaptations on passenger services and the luggage rights in order to increase ancillary revenues are crucial for our low-cost model.
AnadoluJet is targeting especially price-sensitive short-haul destinations in Europe and Middle East. Although there were various flight restrictions in several countries, we served 13 countries and 20 international destinations in 2020. We plan to increase the international flights of AnadoluJet in '21 with a new business strategy. In this context, we started to strengthen East-West connectivity by flying to Ardabil, Urmia, Tehran, Baghdad, Baku and Tabriz in the first quarter. Also, in total, we plan to operate 31 additional routes from Antalya, Dalaman and Bodrum; 12 new routes from Istanbul, and 8 from Ankara, Izmir and Hatay in 2021. Looking forward to a summer season, with a pent-up tourism demand, if the vaccination progress continues smoothly, we will be ready to meet the competition in the low-cost segment.
In order to have a strong summer season, a widespread vaccination rollout on a global scale is very essential. The acceleration of the global vaccination speed gives us hope for a swift recovery of the sector. We believe that widespread vaccination will increase appetite to travel to Turkey.
As of April 30, the portion of Turkish population who were fully vaccinated reached 11%, while over around 23 million doses have been given in Turkey. In terms of the total doses given, Turkey ranks seventh place globally. Additionally, a new full lockdown with more strict measures starting in April 29 until May 17 will help decrease the daily COVID cases.
Now let me quickly recap traffic results of 2020. After the restart of operations in July of 2020, while international capacity mostly increased, domestic capacity was volatile. For the full year, carried cargo decreased only slightly despite capacity deficit caused by the absence or lower portion of belly cargo being available throughout the 2020 year.
In 2020, we launched operations to Malabo and Tokyo Haneda. In the second quarter of 2021, we plan to launch operations to Vancouver in Canada, Turkestan in Kazakhstan, Fergana and Urgench in Uzbekistan, Newark in U.S., Sialkot in Pakistan, and Hargeisa in Somalia.
The first quarter of '21 was mostly successful when we look at the month-over-month development. As mentioned before, a minor setback was realized in February, but it was more than compensated in March performance. The increasing load factor shows us that we have not decreased our operations profitability by offering overcapacity. March was strong in almost every aspect. Total load factor increased by almost 4 percentage points, despite a high-capacity increase of almost 24%. When we look at the breakdown between domestic and international, we can see that the majority of the load factor improvements took place in the international segment. While long-haul operations still recover in a slower pace than the domestic and medium-haul operations, we were glad to have reached almost 50% international ASK levels of 2019 in the first quarter of this year.
Additionally, reallocations of destinations in our route network will further increase the profitability of our transit operations, which steadily continued to improve in the recent months. By the end of first quarter, capacity portions of all regions reached normal levels.
2021 began with a high portion of cargo revenues in the first quarter, although we observed steadily increasing passenger revenues, quarter-over-quarter, solid cargo revenues continue to be crucial for total revenue. Unit cargo yields performed better than we initially expected, decreasing only by around 5% compared to the last quarter of 2020. Also, carried cargo volume continued to increase slightly due to the increasing amount of belly cargo as passenger operations slowly recovered. Overall, cargo revenues increased by almost 77% in the first quarter of '21 and even more than doubled compared to '19.
Turkish cargo increased its market share by adding 19% freight tonne kilometer during the first quarter. Especially, March was a very productive month, with a 25% increase in the freight tonne kilometer, after a slowdown in February limited the freight tonne kilometer increase to around 10%. With increasing both FTK and unit revenues, we achieved a market share increase of 0.5 percentage points in terms of revenue.
Now let's look into our key financial data. Naturally, the first quarter is a weak quarter in demand, yet we were still able to increase passenger revenues by around $35 million compared to the last quarter of 2020. Steadily increasing capacities, higher passenger yields and especially the supportive advance of transit operations contributed to this rise. Additionally, solid remaining cargo revenues drove down the total revenue contraction to 29%.
To give a better understanding about speed of the recovery of total revenues, I would like to remind that we had a 46% total revenue contraction in the last quarter of 2020. The weak nature of the first quarter generally causes losses in the bottom line. However, owing to our cost-cutting initiatives, we minimized those losses. The loss from main operations improved to $41 million, while net income was positive at $61 million. EBITDAR margin moved to 27% level after reaching 39% in the fourth quarter of last year. While high cargo revenues caused the margin to be at a high level in the previous quarter, higher expenses in the first quarter were the main reason for the decrease.
Unit revenue development in the first quarter are similar to those of the last quarter of 2020. However, RASK increase was 3.6 percentage points higher, while passenger RASK decrease was 3.6 percentage points lower compared to the fourth quarter of 2020. Although passenger RASK decreased by 14% -- 14.2%. Rising cargo revenues drove total RASK climb to almost 6%. Passenger RASK continued to be under pressure by low load factors as we introduced additional international routes and capacity.
After a drop in January, load factors steadily increased in February and March, which contributed to the slight improvement. By the looks of the current state of recovery, the divergence between increasing cargo unit revenues and decreasing passenger unit revenues will remain significant during the first half of the year. The development of yields, which turned positive in the last quarter of 2020, continued to climb by 4.1% in the first quarter.
Looking at the regional yield development of the first quarter, the quarter was once again shaped by major capacity cuts and diversified unit revenue development in the region, mainly driven by contrasting measures that have been taken by governments, which had a high-impact on loss factors. As in the earlier quarters, highest capacity cuts were observed in the Middle East. While total revenues in the region decreased slightly higher than the capacity, unit revenues were strong, driven by cargo revenues.
Pilgrimage travel, which still -- sorry, the pilgrimage travel was still restricted from countries other than member states of the Gulf Cooperation Council. Capacity to Israel was down around 90% due to the restrictions implemented by the Israeli government throughout the quarter. Capacity to Iran was near 2020 levels with the reallocation of flights to Mashhad, Shiraz and Isfahan. However, due to restrictions in Turkey and concerns of further restrictions, revenues were down by about 15%.
The Arabian Peninsula is still shaped by strict restrictions. Saudi Arabia, for example, only permits departing flights, while Kuwait allows a maximum 35 passengers per flight.
Far East was the second region with most capacity cuts. The tendencies of unit revenues are similar to those of the Middle East. While total unit revenues increased highly, passenger unit revenues fell off. Total revenues for the whole region were higher-than-expected, though. However, a lifting of current restriction is not in sight yet.
Due to flight restrictions, we were not able to fly to India, Mongolia and Turkmenistan in this region. Besides, in all of our destinations in the Far East, arriving flights were restricted in some way.
Ethnic travel between Europe and America to Pakistan, Afghanistan, Nepal and Bangladesh were remarkably high compared to the demand of the other countries in the region.
Operations in Middle Asia are carried out with the maximum number of frequencies permitted by the state authorities, while load factors remained high. For example, in Kurdistan, frequencies are at pre-pandemic levels. Africa was the only region where passenger unit revenues [ grieved ] in the first quarter, whereas cargo revenues climbed even stronger, mainly due to the loose restrictions in some major markets of the region. While capacity in Africa decreased by over 51% compared to the same period of last year, capacity in North Africa was down by 42%. We even observed higher capacities than 2020 levels in destinations like Sharm El Sheikh and Hurghada.
By the end of March, we reached 2019 ASK levels in Cairo. In some destinations, we began to utilize widebody aircraft in short-haul destinations instead of narrow-body aircraft due to the rising cargo demand. In some sub-Saharan destinations, imposed flight restrictions from the countries in the region -- sorry, from other countries continue to be in our favor in the first quarter and are expected to continue in the second quarter. In some destinations, passenger numbers were maintained at 2019 levels or even increase despite the same capacity level.
Passenger unit revenues in Europe remained strong, with a slight decline. As in all other regions, cargo unit revenues outperformed in this region as well. Capacity was at around 47% of the first quarter of 2020. Even though on a global scale, flight restrictions in Europe are restricted, we were able to increase our capacity slightly quarter-over-quarter. As a result, a slight decline in the load factor was natural.
In East Europe and in the Balkan region, capacity was over 60%, around 10 percentage points higher than in the fourth quarter of last year. Restrictions caused by limited competition in Azerbaijan and Georgia, leading to better-than-expected unit revenues.
The mandatory PCR tests and quarantines for arriving passengers in South Europe, especially towards Turkish passengers, affected the demand in the region negatively. Still, capacity in the region increased slightly compared to the fourth quarter. While additional restrictions reduced operation in France by around half in the end of March, compared to January, operations were unaffected and stayed at the same level as in the first -- fourth quarter in Italy and Spain.
Ethnic travel from North Europe to some countries, such as Pakistan or Bangladesh, got affected negatively by the restrictions. Operations in Russia continued at the same level as in the end of 2020. The restrictions imposed by Russia, which started in the 15th of April, will show some effect in the second quarter. This restriction is expected to last till the beginning of June. Generally, North Europe is highly affected by the quarantines that were introduced in this region. However, by planning our capacity effectively, we managed to increase RASK in the first quarter.
Americas was the region with the least capacity cuts with over 72% of the normal capacity back in operation at the expense of falling current revenues. Total RASK was almost flat and the yield decline was around 10%. Passenger RASK was down by around 27%. Looking at forward bookings, ethnic travel to Pakistan, Ukraine, Lebanon and Egypt from North America will continue to enhance our transit operations profitability in the region. Increasing restrictions opposed by Canada caused load factors to fall under our expectations.
After the pent-up demand in South and Central America caused high load factors in the last quarter of 2020, load factors normalized to around 68% at the end of the first quarter. However, those factors were slightly under our expectations due to the restrictions imposed by Argentina and the restrictions of Turkey towards Brazil. Since June, 41 of our domestic destinations are operational. We observed a strong recovery of domestic demand in the past summer months. Yet, the traffic in the last quarter of 2020 slowed down. Since the beginning of '21, domestic capacity increased steadily and even jumped with an increase of over 24% in March month-over-month, thanks to the release in Turkey during that month.
While capacity increased, load factor also increased. Unit revenues, however, were pressured by the depreciation of Turkish lira against hard currencies since mid-February.
The full lockdown, which started in April 29, will continue until May 17. And this lockdown has caused to cancel roughly half of our domestic flights. When we look at the expense breakdown, we see that total expenses decreased by 34% compared with the same period of last year. Variable costs increased compared to the last quarter of 2020 due to the increasing activity in passenger operations.
Improving passenger operations limited the increase of CASK by 25% in the first quarter. If we combine our passenger operations with the already strong cargo operations in the CASK calculation, CASK increase drops to almost 1%, and ex-fuel CASK drops to almost 9% in the first quarter. Ex-fuel CASK, however, remains at a high increase of almost 35% due to the lower fuel CASK.
Personnel expenses decreased by 38%, showing a slower decline compared to the fourth quarter of 2020. Despite the decreasing personnel expenses, personnel CASK increased by 17% in the first quarter due to still low ASK levels.
Lease expenses decreased by almost 27% due to 11 less operating lease aircraft compared with the same period of 2020. Airports and air litigation expenses decreased by around 32%, not only because of the low level of operations, but also partly due to a 50% discount we got in airports run by the State Airport Authority and Sabiha Gokcen Airport for '21 and '22.
Sales and marketing expenses and maintenance expenses both decreased by around 43%. The highest decline was achieved in passenger services and catering due to the catering changes -- the concept changes we initiated during the pandemic.
Fuel expenses in the first quarter decreased by 47%, exactly the same decrease as the capacity drop. Due to the low jet fuel price in the fourth quarter of 2020, the fuel expense decrease was higher than the capacity decrease. In the first quarter of '21, however, rising jet fuel prices closed the gap. Still, jet fuel prices in the first quarter of '21 were lower than in 2020. Thus the negative hedging and price effects made up a fuel expense decrease of $114 million.
The share of fuel expenses within the total cost base was around 19% in the last quarter of 2020. As the operations recovered, the share increased to over 22% in the first quarter. 31% of the fuel consumption in '21 and 4% of the fuel consumption in '22 is hedged as of end of March. In December, we started to add new hedge positions, especially for the second half of the year. We are planning to reach 50% hedge level by -- in 2021.
We continue our sustainability efforts in line with the vision and general strategy of our incorporation, considering the expectations of our stakeholders and related parties. We consider our impact on the supply chain and the environment in line with the United Nations Sustainable Development goals. We optimize our flight activities, invest in new technologies and prioritize fuel-efficient aircraft while adding new aircraft to the fleet. As a result of these efforts, in the first quarter of '21, we saved 3,300 tonnes of fuel and prevented the emission of more than 10,000 tonnes of carbon to the atmosphere. The average fleet age in the end of first quarter was 8.5 years.
This concludes our presentation, and we will continue with the Q&A session.
[Operator Instructions] Speakers, it's over to you now.
Thank you, Rob. It's Kadir from Investor Relations. Hi, everyone. We received a couple of questions regarding our '21 capacity guidance from HSBC, Goldman Sachs, JPMorgan, Ata Invest, Ak Invest, [indiscernible] investments.
Have you revised your base scenario of '21 ASK production, 60% to 70% of 2019 levels, considering increase in COVID-19 case numbers, decline in vaccination, Russia travel restrictions and current lockdown?
Well, current capacity estimate for the full year is about slightly just about 10% lower than our budgeted levels. So there is not a big discrepancy. And in '21 budget, it was about -- we were planning to come about 60% to 70% of 2019 capacity levels, which we announced to you earlier. And current expectations, after this 10% slight decline, we are still within this range. So we don't plan to make any change in our capacity plans yet.
Ticket sales was higher-than-expected in March, yet we see some slowdown, as I mentioned during the presentation, because of the Ramadan and because of the increased COVID cases, and to be on the more precautionary side. But we believe after this month of May, starting from June with the summer season, we will be seeing a strong recovery with the demand. And if we don't see that capacity recovery or demand recovery, then we might reconsider making any changes on the capacity plan, but we are not planning to do that probably until we see the summer months like July.
What is the capacity plan for the third quarter? A question from [indiscernible].
In the third quarter, we are planning to reach about 75% to 80% of our 2019 Q3 capacity levels.
Again, next question about lockdown. How do you expect lockdown measures and ongoing case numbers to affect summer season? Goldman Sachs and HSBC asked this question.
This is kind of an episode that we lived through last year as well. Before the summer came in, there were several episodes of lockdowns. And -- but then we saw a quite steady, growing incoming tourists to Turkey. So similar to that, this lockdown and, in particular, being into the month of Ramadan is going to have a limited impact. In particular, even if it doesn't have an impact, it will be on the domestic market, which by June, we expect to see the recovery. And on the transit network, we don't expect this to have any major impact. And even through the lockdown, there is no travel restriction. With the permits and the necessary costs, people can travel between cities in Turkey.
Next set of questions are about forward bookings. How does the forward bookings look for the upcoming months and summer?
The daily booking -- the daily forward bookings in March were about 50% higher than the January levels, which is ahead of its normal seasonality. In April, the numbers came back a bit with the reasons I already expressed, but we expect to see improvements again by the end of May. The holiday is going to be in the 13th -- between 13th to 15th of May. So the Ramadan month is going to finish by then. And then by the end of May, we're expecting to see again a recovery in the forward bookings. And with higher vaccination rates and softening travel restrictions, we are anticipating a strong customer demand for the summer months.
HSBC asks, what makes TKA the most active airline in Europe on a daily basis? Is it mainly cargo and domestic flights?
As you would recall from our earlier calls, we iteratively expressed that we are the airline that has -- that is flying to most destinations. And just in Europe, in 2019, in a normal season, we were flying to 115 destinations. So throughout the pandemic, our kind of a recovery was faster than our peers. And what makes us in a -- what puts us in an advantaged position is -- one of the factors is our low cost base, which provides us an advantage in being able to attain a positive contribution margin with lower unit revenues. And we have a high exposure to ethnic and leisure travel base, even before the COVID, and we see the impact of it continuing throughout the pandemic. And since there is early recovery on ethnic leisure, we are carrying -- we are being able to carry more passengers.
Goldman Sachs and Ak Invest asks about the Boeing deal. Can you give us more color on the deal with Boeing, which you recently announced?
In the deal that we recently also announced in the public disclosure platform, we will be canceling 10 out of the 75 Boeing 737 MAX aircraft, and 40 of them are going to be converted into option orders, which are rescheduled to be delivered between 2024 and 2028. The purchase option exercise is going to be valid until the end of this year. The remaining undelivered 13 MAXs are rescheduled to be delivered mostly in '21, maybe a few of them could be delayed into 2022, but we are planning to get them mostly by the end of this year. There are no cancellations with the 787s, but there are some rescheduling of these remaining widebodies until the end of 2023. And furthermore, we are not going to be paying any cash, PDPs for the MAXs and 787s going forward, subject to the cancellations that I expressed earlier.
And just a maybe side note, in April, we got the authorization from Turkey Civil Aviation Authority and 2 of our MAX aircraft started operations. And then the remaining 10 that we had in storage are being prepared to return to service soon.
What can you tell us about the new entries and exits in -- to the fleet in '21?
In this year, after the agreement that we had with Airbus and Boeing, we are going to have 3 A350s, 3 787s, so overall, 6 wide-bodies. And we will have 6 A321neos and 13 MAXs, and there will be around 10 aircraft exiting the fleet.
Last question regarding the fleet. Can you tell us the fleet plan for '21, '22 and '23 based on the latest development?
So this is -- look, I could say 80% settled, but there is still some question marks, some uncertainties we are trying to finalize with the OEMs. And as soon as we get more clarity, we will again start to publish the future deliveries in our website, in our investor presentation. Original plan, but I could say this, over the next 3 years, we were expecting to get about 140 deliveries. And after the agreements with both producers, now we will be getting about 50 deliveries over the next 3 years -- sorry, '21 to '23.
Regarding financial results, Goldman Sachs asks, financial income boosted your bottom line in the quarter. What is your expectation for the remainder of the year?
Yes. So the positive news came in the net income was highly affected by the foreign exchange moves as the euro and the Japanese yen depreciated against dollar by about 5% in this quarter, and we have significant amount of debt -- financial debt in both of these currencies. There was some improvement on the financial earnings, financial income due to this depreciation because we are short in both of these currencies on the balance sheet. And as a result of this, we recorded about $90 million gains under financial income.
Although most of this gain, as you can see in the balance sheet, is recorded under OCI, some of it, as I said, at around $90 million of it was recorded in the P&L statement. And of course, depending on the exchange rate volatility, this may change in the following quarters.
We are trying to control this volatility and the discrepancy between operational profit and then the net income by implementing a hedge strategy, but there is still -- when the volatility is too high, part of the impact needs to go to the P&L statement.
A question from HSBC. Why a much better quarter for the P&L compared to the first quarter of '20? Is it cargo profitability, sustainability of the new cost base?
There are a few reasons. And as I try to shed some light in the presentation, one factor is the -- on the cost side, about $200 million cost saving was introduced, mostly the personnel expenses and some other cost-cutting initiatives. The widespread network, we are flying -- we have the most number of destinations that we are flying and which is bringing -- giving us a huge connectivity. So in this limited time, the more option you provide, the more passenger you carry, so that's in our advantage. And we are running the operation with a positive contribution margin, so that is also contributing to the bottom line. Of course, cargo is continuing to provide a strong contribution to the bottom line with its increased capacity.
JPMorgan wonders if there is any progress on airport fee negotiations with iGA?
We already got a 10% discount on the rental area fees. And other than that, currently, we don't have any other negotiation talks with Istanbul Airport Authority.
How much of cost savings are expected to stay next year as well?
We are currently negotiating with the government and the Airport Authorities to get some further discounts, especially with the privately led airport operating companies. And we are working on an organizational change, kind of getting a more lean organizational structure so that we could get some efficiencies. We are trying to reduce the commissions and fee payments to the agencies by investing in -- more on our direct distribution channels and trying to also run down some of our CapEx needs for the coming years.
Ground handling costs seem inflated in the first quarter. What is driving the increased costs? And is it a temporary one?
This is mainly -- as the passenger side of the operation is recovering slowly, this strong increase on the handling expenses is mostly led by the cargo operation. In the first quarter, there was a significant jump on cargo available tonne kilometer in the capacity we provided, as a result of which the handling -- carbon handling expenses increased, but we expect that to normalize throughout the summer months when we get into the low month for the cargo operation.
The last question about the costs. Would there be a lump sum compensation payment or similar type of favor you are planning to provide or contract to provide to your employees based on your agreement with the union once things started to get normalized?
At the moment, we don't have any such commitment and the new collective bargain agreement with the union is going to be negotiated next year in 2022 and where we will be discussing these terms. And at the moment, and that by that time, such issue will be discussed if we see a reasonable progress in the operation and the recovery in our financials.
Regarding fuel hedge, do you expect rising fuel prices to add some more pressure on your fuel cost? Or you are fully hedged for the increase?
As of the first -- end of the first quarter, the hedge ratio was around 30%. And incrementally, we expect to increase this to above 50% by the end of this year. The increase in the demand and fuel price will have a limited impact on our bottom line because we are expecting a higher positive revenue to offset this negative cost impact.
Now cash and liquidity question. What was the Q1 cash burn? Asked by HSBC.
In Q1, actually, it was lower than we anticipated. Overall, we had about a $50 million cash burn. And the main reason is, of course, a strong operational performance from both the passenger side and the cargo side, as I expressed earlier. And the lease payments and commercial loan payments were lower in this quarter compared to the other quarters. So that also had an impact in relatively low cash burn. And the increasing passenger flight liabilities limited the cash burn also, which means we sold a significant amount of tickets, but for the following months to come.
So the next question is about the full year cash burn guidance. 1Q '21 cash burn was better than your guidance of $60 million to $90 million, any upside risk to guidance here?
So as I just answered in the earlier -- previous question, the first quarter ended up being better than we expected, but additional travel restrictions in April and then May is probably put us a little bit behind our projections than we anticipated. But overall, the impact in the first 2 quarter will set off each other. And as a result, we have not changed our year-end monthly cash burn target expectations, which are around $60 million, if we exclude commercial credit flows, inflows and payments. So monthly cash burn is expected to be between $60 million to $90 million, as we have earlier provided.
What is the expected cash balance range by year-end based on current forecast?
The cash bill -- okay. Our -- usually, we think about $1 billion cash and cash equivalents to finish the year is going to be sufficient for us with our projections of revenue generation capacity. So that's what we are aiming for, to have at least $1 billion cash.
Net debt position dropped to USD 14.3 billion as of 1Q '21 end from USD 14.9 billion 2020 end. What is your current -- what is your net debt position expectation for '21 end?
We don't expect a significant change there, the net debt, but of course, there are new aircraft coming to the fleet. As I expressed earlier, there will be 25 new deliveries, aircraft deliveries, and about 10 retiring aircraft. So it means about 15 net growth. And we are still continuing to try to finalize the construction of our cargo building. So the year-end net debt is going to come to about a 15 point -- roughly speaking, $15.2 billion to $15.4 billion level.
Next question is with this one. Net debt and lease liabilities are down compared to Q4. Is it the impact of agreement with points on delivery?
This is mainly due to the exchange rates, as again, I expressed in an earlier question. As you can see in the -- actually in our balance sheet, the long-term borrowings, the change in the long-term borrowings and long-term lease liabilities, they are -- there is a lot of euro-denominated debt there, both on the aircraft side and on the commercial side. Actually, all of our commercial debt is euro-denominated. So the devaluation of euro against dollar has brought this item down, this debt down. And that's mainly, as I said, that's mainly led by the exchange rate movements.
There are questions about CapEx. Post scheduling aircraft deliveries, can you please run over your CapEx schedule this year and next year? How should we think about PDP inflows, outflows over the next 3 years?
On the gross CapEx side, we are planning to spend about $1.4 billion to $1.5 billion for new aircraft, and this includes the PDP payments, and about $800 million for heavy maintenance and spare engines and equipments, and about $200 million for Istanbul Airport infrastructure needs. So roughly, they make about $2.5 billion worth of CapEx needs. And this is for '21.
And for '22, it's going to be similar. There is again going to be $1.3 billion to $1.4 billion worth of aircraft investment and roughly $1 billion worth of heavy maintenance and spare engines, and about $200 million to $300 million for Istanbul Airport.
Next question is about cargo. Cargo business seems to be a crucial income generator for THY, the increase in unit revenues, thanks to supply shortage in global cargo capacity, was a key driver for this development. How do you see the trends for unit revenue so far? Should we expect some normalization until the restrictions ease?
Yes. So cargo has benefited from higher unit revenues due to the low capacity available globally. And as the air travel was restricted, the belly cargo capacity was negligent in the macro scale. And -- but currently, where we are, the unit revenues that we charge today are still higher than the pre-pandemic levels. And depending on how the global aviation capacity, airline capacity -- passenger capacity, sorry, is going to recover, the yields might normalize to the -- to come down to the pre-pandemic levels.
Can you give more details on the restructuring of cargo operations? Is there any ongoing talks for the potential partner?
There are definitely interested parties on our cargo. Currently, our focus is fully on the carving out of our cargo operations as a separate entity. We expect this to take place towards the end of this year or early 2022. And we are currently in no discussions with any particular party as a shareholder. And -- but throughout time, after we have the spin-off, this is something definitely we could be considering as the cargo, together with our moving to the new hub in Istanbul Airport, is going to be able to provide a large amount of capacity to move cargo around the world.
We exceeded our time already. So last question is about AnadoluJet. About opportunities, challenges at the higher AnadoluJet international flights from Antalya, Dalaman and Bodrum suggest to the THY, is there any upside risk to THY yields outlook? Do we expect a fleet increase for AnadoluJet?
With these new destinations and frequencies, we are planning to add additional 48 routes and about 150 new frequencies. And this addition is going to bring about $120 million to $130 million revenue, and about $20 million to $30 million contribution, margin contribution, one expectation. By the end of 2020, the fleet of AnadoluJet was about 48 crafts, and 30 of them was operating from Sabiha Gokcen. Currently, it has 52 aircraft. And by the summer months, we expect that to reach to 68 with using some of the TK aircraft that are currently grounded.
Upside risks for this reasonable outlook. Is there any upside risk for THY yields also? So yes, we expect with this AnadoluJet with this current -- especially point-to-point flight schedules, which is Antalya, Dalaman and Bodrum flight, is going to provide a new alternative that we expect to tap a market that we were weak before, and there was other place there. So we're tapping this market, we definitely expect to get some yield contribution to our bottom line.
Thank you, Murat Bey, for answering the questions. Rob, we can dismiss the meeting.
All right. Thank you, gentlemen, and -- is there any conclusions you would like to make first before we close?
Well, no. Well, thank you very much for all attendees for being with us today, and we are very pleased to introduce -- announce our Q1 results. It definitely was a big surprise to have these strong results. And hopefully, we will be able to show continuing good results to our investors in the coming quarters.
All right. Thank you, gentlemen. Thank you, speakers, and thank you, ladies and gentlemen, for your questions. And that concludes today's webcast call. Thank you for your participation. You may now disconnect.