Turk Hava Yollari AO
IST:THYAO.E
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Welcome to the Turkish Airlines First Quarter 2022 Earnings Call and Webcast. Thank you so much for waiting. [Operator Instructions]
I will now hand you over to Associate Professor, Murat Seker, Member of the Board and Executive Committee as well as Chief Financial Officer; and Mr. Mehmet Fatih Korkmaz, Head of Investor Relations. Gentlemen, please the floor is yours.
Thank you very much, and good afternoon, everybody. Welcome to the presentation of -- for the first quarter of 2022. When we started the year Omicron variant was on the top of the global agenda. Fortunately, we have seen that the effect of the Omicron on global mobility created the status given the high transmissibility and lower severity of cases. However, first quarter was mainly characterized by geopolitical conflicts, which changed the course of trends. Even in such uncertain outlook, we carried out our operations smoothly. As airlines around the globe travel with operational difficulties due to the staff shortages resulting from layoffs during the pandemic, we kept our workforce and endured all the hardships together. For this reason, right now, we are able to ramp up quickly without any major operational difficulties, while keeping customer satisfaction at high levels. Receiving world-class rating and a 5-star Global Airline award from APAC show that we are on the right track.
Throughout the first quarter, we remained agile, use our geographical reach and capture demand wherever possible, similar to last year. Combining these with our low cost base allows us to conduct substantially more profitable operation compared to our peers. As a result, we are happy to present you a quite strong first quarter results. Turkish Airlines continues to prove itself increasing its global market share while remaining profitable. During the first quarter, we carried about 13 million passengers, which is 76% of 2019 level. Our first quarter capacity realized at 91% of 2019 levels, which resulted in Turkish Airlines to become one of the busiest network carriers in European Aerospace. In the upcoming quarters, we are aiming to gradually increase our operations to exceed 2019 levels. For the second and third quarter, we expect to increase our capacity between 5% and 15% compared to 2019, if there are no adverse developments.
While increasing our capacity, we are carefully considering the effects of soaring fuel prices in order to achieve positive contribution margin. To that end, we are giving utmost attention to network profitability by actively managing capacity. Additionally, our current hedging position relieve some pressure from impact of higher fuel prices. As of April 2022, our fuel hedge level is 34% for the remainder of the year. Assuming full capacity recovery and yearly average Brent price of $100, we expect our unit fuel cost to increase by 25% to 30% in contrast to 40% increase in Brent price compared to 2021. Continued increase in both passenger and cargo traffic led to substantial improvement in our financial performance.
Total revenue reached to almost $3.1 billion in this quarter, surpassing the 2019 level by about 10%. Thanks to continued cost discipline, combined with the increase in revenues, we recorded around $160 million profit from main operations and $710 million EBITDAR with 23% EBITDAR margin, which is substantially above prepandemic levels. And net income of $150 million was another highlight of the quarter as the first quarter is generally the weakest one considering seasonality. Our liquidity level remains strong with $3.1 billion cash and equivalents and over $3 billion available credit line. With these financial results, Turkish Airlines stands out among its peers.
After exceptionally good fourth quarter, Cargo continued to perform well in the first quarter. Even in this seasonally softer period, cargo revenues reached almost $1 billion with a year-over-year increase of 19%. We observed that global air cargo demand remains relatively strong due to inventory building cycle, ongoing disruption in supply chain, congestion at ports and insufficiency price capacity. We expect these trends to continue at least until the end of the first half of the year.
Service cargo led us sustainable growth and maintains its status as the fastest-growing air cargo brand and it became the fifth biggest air cargo carrier. In February, we successfully completed the transfer of our remaining cargo operations from Ataturk airport to our new cargo facility, SMARTIST, in Istanbul Airport. Operating in a single hub will certainly improve efficiency of our operations and support our target to be among the top 3 air cargo carriers globally.
As governments across the world continue to ease COVID surge international restrictions, path to a better outlook should accelerate. The trajectory of our revenue recovery continues to be positive despite geopolitical backdrop. We remain optimistic for the upcoming spring and summer travel season as our passenger sales have already exceeded 2019 levels starting from mid-February and sustaining a positive trend so far. Also, we recorded passenger yield increases in March and April compared to the same period of 2019.
On a regional basis, we are seeing signs of significant pent-up demand for international travel, especially in Americas. Currently, we are able to respond to increased travel demand with our 373 aircraft and a large network covering 128...
[Technical Difficulty]
Ladies and gentlemen, there are some technical difficulties being experienced. We'll be back shortly. Please hold the line. Thank you so much. [Operator Instructions] Thank you for your patience. Once again, I do apologize for the slight technical difficulty, our speakers will be reconnecting shortly. Thank you very much for your patience. All right, ladies and gentlemen, as luck would have it, some more difficulties are being experienced, some very clever people are attending to get it all sorted. We do appreciate your patience. And just a reminder, when speakers return, and it looks like they are returning now. And speakers, good to have you back.
Hello, everyone. Sorry for the technical difficulties. Now I would like to start with the last quarter's capital development to give you further detail about the recovery progress.
Following the fourth quarter's strong performance, we continue to restore our capacity in the first quarter. As the negative effect of Omicron variant anticipated through the quarter, geopolitical risks emerged, threatening the pace of recovery. Even in these adverse circumstances, we were able to increase our capacity by strategically allocating our resources. Driven by strong international demand, revenue passenger steadily increased throughout the last quarter, reaching 87% of 2019 levels in March. Despite the weaker niches of winter season, direct passengers in Turkey almost fully recovered just 2 percentage points below 2019. Cargo capacity continues to overperform. For the first time since 2020, daily capacity exceeded pre-pandemic levels by 8%. Compared to the fourth quarter of 2021, we experienced a slight decrease in cargo -- sea cargo, mainly due to the low season effect, decreasing number of prices and harsh winter conditions.
However, strong cargo yields alleviated this negative impact by increasing 31% year-on-year. As the recovery in passenger operations continued, we reached 95% of 2019 international capacity levels in March. As you can see from the lower side of the slide, Turkish Airlines international capacity considerably higher than European average of 64% and the global average of 49%.
The bubble chart on the upper part of the slide shows the regional performances in terms of load factors and capacity compared to 2019. In the first quarter of 2022, North America outperformed all the other regions, excluding South America, 42% higher ASP than 2019. Strong air freight demand from the regions spotted the year and load factors. Capacity of South America doubled compared to 2019 and realized the highest international loss factor. Despite domestic capacity dropped to 77% of 2019 level, with this 84% loss factor in the first quarter making the demand. Europe is the biggest capacity contributor, generated 86% of 2019 capacity, while maintaining relatively high load factors.
Due to travel restrictions, Far East still worst performing region in the first quarter. Fortunately, we observed recent restrictions in some countries, further losing would be a catalyst for our operations, supporting customer traffic and provide considerable upside.
As you can see from the line chart below, our passenger sales have exceeded 2019 levels starting from mid-February. We perceive this as a clear signal of pent-up demand, which will translate into passenger revenues in the second and third quarter. Shipping cost rate together with ongoing disruptions in supply chain continue to support air cargo in the first quarter of this year. As shippers prefer to avoid long delays, there was a continued shift from ship to air freight. Strong e-commerce and inventory building cycle kept cargo demand elevated. These factors led to a conductive environment for cargo platforms. As a result, cargo revenues continued to be strong in this quarter by more than doubling 2019 level and reaching to almost USD 1 billion.
We are closely monitoring the situation in Ukraine, lockdowns in China and their effects on Asia-Europe freight lines. Negative impact of Ukraine-Russia conflict on our cargo business was considerably limited as those countries sharing our cargo operations were less than 1%. On the other hand, capacity loss in the market due to the conflict lifted the unit revenues. In Asia, recent lockdown in China led to capacity constraints as a result of lower handling processes, both air and sea freight which in turn contributed yield positively.
Now let us head to the financial highlights. As you can see, our hedge position increased by around USD 400 million to almost USD 3.1 billion at the end of the first quarter. Additionally, we had approximately USD 3 billion available credit lines, which increased our total liquidity to around USD 6 billion. As [ these derived ] in the left bottom chart, operational cash inflow has reduced in net debt to USD 10.7 billion in the first quarter.
As you might recall, last year, we were able to decrease the net debt-to-EBITDA ratio to 3.4x, thanks to the strong cash generation. Our leverage ratio is expected to increase slightly above our long-term target of 3x this year.
Next, allow me to talk about the key financial and operational data. Increasing taxes and cargo yields, along with the high volume, less passenger revenues in the first quarter to lease over 87% of 2019 levels and cargo revenues to more than double. With its strong revenue generation during this quarter, we exceeded 2019 levels by 10%. Both profit from main operations and net income realized around USD 106 million and continued to develop 2019 levels. As a result of the strong operational performance, our EBITDAR margin reached 23% in this period, up almost 10 percentage points over 2019.
Let me talk about our expense in the first quarter. Looking at the cost breakdown compared to 2019, we recorded increase around 7% in the first quarter, which is mainly driven by higher fuel expenses and lower capacity. If we normalize cost with our cargo operations, ex-fuel costs would decrease by 1.6% compared to the same period of 2019. Since our hedge positions release some pressure from the impact of rising oil prices, fuel expenses per ASK increased by 20%, contracted 41% increase in grant price. Personnel CASK is still below 2019 levels, mainly due to the depreciation of Turkish lira against other currencies. In 2022, we expect personnel cost to be still lower than 2019. Increase in airports and air navigation lease costs stem from higher plans and lower capacity compared to pre-pandemic. Sales and marketing costs, on the other hand, decreased by around 20% due to lower incentives and advertising spending.
Fuel expenses increased by USD 100 million in the first quarter compared to 2019. The increase in fuel prices, partly compensated by declining volumes and USD 37 million hedge gain. The share of fuel expresses in our total cost base in the first quarter we were expected to prepandemic levels to around 30% as operational recovery gained momentum. We paused hedging in February and March due to relatively high Brent price. As of March, our hedge level for the remainder of the year was around 34% with a breakeven price of USD 73.
Yet another risk, our aims to contract a strategic lower cost base further by implementing new corporate structure of giving this new fleet entries and high utilization through increase point-to-point exposure. As almost -- this revenue almost doubled in the first quarter compared to 2021, we are planning to deploy 25% more capacity here. Our international routes are concentrated mostly on short and medium haul destinations in Europe and the Middle East. Additionally, we are targeting to capture underserved air freight demand from Europe to Turkey, especially through direct international flights to holiday destinations, such as Antalya, Dalaman and Bodrum. It's relatively low cash allows us to target price to customers. Profitability of cargo is more than enough for us to penetrate the market deeper, as its annual contribution margin is above 15%. With a new generation aircraft entries in 2022, we will be able to upgauge, drive the unit costs and thus increase the margins further.
Now let us talk about our 2022 expectations and mid-term priorities. After seeing much traffic results and current forward looking, we became more confident for this spring and upcoming summer season in terms of demand. Even though it is still early to pinpoint exact targets for the full year capacity right now, we expect it to be higher than 2019. In any case, we are able to adjust according to the market conditions and ensuring capacity discipline and higher loss factors. On the cost side, our ex-fuel cost target is lower than 2019 level as we will continue to add more capacity throughout the year. We expect CapEx to be around USD 4 billion to USD 4.5 billion, including aircraft engines, spare parts and other fixed investments.
We aim to develop and maintain our sustainability efforts in line with United Nations sustainable development goals, along with the vision, mission and general strategic incorporation. As sustainable aviation fuel started to play a key role in reducing carbon emission, we have begun using this on 6 of our routes to Europe. Our plan is to expand use of sustainable aviation fuel in the upcoming period. Besides, we aim to implement the voluntary carbon offset project to reduce the impact of our operations. With this project, emissions caused by ethanol will be neutralized. Our passengers on the other hand, we've had the opportunity to offset slight emissions through our website. In order to reach higher sustainability standards, our company participate in one of the world's most respected platform, carbon disclosure project, climate change program and received B minus rating.
Also, by strengthening the implementation of ISO environmental management systems, we obtained the highest level certificate in [indiscernible] system and became the first airline to directly obtain the state 2 certificate. All of our efforts in the first quarter of this year allowed us to save almost 5,000 tons of fuel and prevented emissions of almost 15,000 tons of carbon to the atmosphere. With sustainabilities left, we will conclude our presentation and now we can continue with the Q&A session.
Thank you very much for these presentation speakers. And yes, indeed, we are now going to move to the question-and-answer session. [Operator Instructions] And with that, speakers, over to you for those written questions.
Thank you. Murat, we got numerous questions from our analysts, they are mainly asking about current trading environment and our expectations for this year. Let's start with the first question. First question, which part is better-than-expected financial results in the first quarter?
Well, the reasons for our Q1 performance is more or less overlapped with our year-round performance of 2021. And I can divide that into a few sections. First section is the yields becoming higher. Passenger yields are in this quarter was above 2021 and even 2019 levels of the respective quarter. And as a result of which, the passenger revenues reached almost 90% of 2019 levels and number of passenger increased by almost 80% of 2019 levels. So on the passenger side, there was a strong demand that we could facilitate.
And second reason is the strong continued cargo demand. We were expecting the cargo yields to decline in a faster pace, but because of the continuation of closing down of Far East Asia, in particular, and then the disruptions in the supply chain, we are still seeing about 30% higher cargo yield compared to Q1 of last year. And there is the loosening of the restrictions -- flight restrictions also contributed us to have -- to increase our global reach and provide more connectivity. And the last factor is the continuation on the cost discipline side. We are -- our fuel CASK in the quarter stayed almost the same as of last year.
Next question will be on fuel and hedging, which is a hot topic right now. What is your quarterly fuel hedging ratio and breakeven pricing this year?
As I briefly touched upon in the presentation, the overall hedge ratio is around like a 35% to 40% levels. And for the remaining part of the year, it's going to be about 34%, and the breakeven price is $72. And due to higher expected capacity and as we stopped hedging in February, the hedge ratio is going to be lower for the remainder of the year compared to first quarter, assuming that the Brent price is going to be staying around in these levels.
Are you planning a different strategy such as its very implication for the remainder of the year, what is your expectation about fuel prices for this year?
It's quite difficult actually to come up with a point estimate for the year-end. It's around $100, but it's really rather difficult to have a really strong estimation on it now. We are not planning to change our hedge strategy, but we -- because of the high levels in the Brent price and also the high levels in the volatility, we started hedging in February. And as soon as we see more visibility, we are going to continue to hedge again. But for us to start to do hedge again, we would expect the prices to go below $100 per barrel level.
2 questions, should we as expected pass-through to passengers in terms of higher yields?
Well, even though the ticket prices are mainly decided by the market, the supply and demand imbalance within each specific market just increased ability to pass on fuel prices to tickets. In the past, we were able to reflect the fuel prices to ticket prices between 3 to 6 months. However, the shortening of the horizon in making travel plans and the decrease in the booking tariffs for flights is allowing us to be faster in reflecting the higher Brent prices to ticket prices. And combining the fuel surcharges with our current hedging position, we believe we can alleviate some portion of the negative impact caused by the higher fuel prices. Also, when fuel prices increase, additional capacity deployment to those markets by industry players seems like declining, and this could be supported for higher yields in such markets.
How do you manage your interest rate risk stemming from floating part of your debt composition as we see rising interest rates around the globe.
Well, currently, roughly 50% of our APAC and commercial debt portfolio had a forcing rate. And we feel comfortable with the current level since increasing interest rates also give us an opportunity to get higher returns from our portfolio investments. So we don't feel much pressure from the rising interest rates.
Now we are heading to demand and forward-looking questions. First question is, can you give us some color on your forward-looking momentum? How is the current customer booking behavior?
From our experience in 2021, we saw that when the restrictions on mobility yields passenger demand comes back very quickly. We believe that this is going to be the case for 2022. We are actually seeing it as a government across the globe have started to ease a COVID-19 related restrictions. And most of the countries have relatively reasonable numbers of vaccinated population. What we see is in -- especially towards the end of the first quarter in particular, March and in April of this quarter, we are seeing the sales numbers are quite strong. And thus, we are optimistic for the spring and summer travel seasons. Passenger sales has already exceeded 2019 levels starting from mid-February and sustained a positive trend so far. Also, we recorded yield increases in March by about like 10% and in April compared to the same period of 2019.
And of course, not all regions are recovering at the same speed, in particular, Americas overall, both North and South America, we see a very strong demand. We see the of the pent-up demand from those parties who not traveled last year. And the booking behavior since like it's shifting back towards the prepandemic level, and -- we see increased preference for change flights as price sensitivity and Brent perception takes hold. However, forward-looking visibility is still not to write as customers prefer to book their flight in closer days of travel.
What is your current capacity and yield expectation for 2022 as of 2019?
2022 capacity will be higher than '19. I remember at the beginning for the year-end results, we said it could be around 4% above 2021 level. Now we might be maybe a few more percentages on top of that, which is like roughly around 6% higher than 2021 -- sorry, 2019 level. And not only the capacity, I mean ASK, but also the yields are likely to be slightly higher compared to 2019 levels. And when I break this down into the quarter, in the first quarter, the capacity plan was about 90% of 2019 level. In the second quarter, we are expecting to exceed it to 111% as we showed in the presentation, and in the third quarter to 118% of 2021 level.
And as I said in the earlier question, Americas will be the main driver for 2022 yield and capacity increase. And Far East will be the lagging region in recovery because of the slower rollback of restrictions. The current situation in China is going to have a limited effect on our capacity ramp up since we were already anticipating closures until the fourth quarter in this region. And on the positive side, we started to get group reservations from some of the Far East countries like Malaysia, Indonesia, Japan, in particular. And also demand will drive increased capacity offering by our peers. We anticipate that their operational deficiencies like the lack of staff and pilots and their lack of training and their fuel prices will slow down the capacity recovery among our peers and is going to provide an advantage for Turkish Airlines.
Next question is about domestic markets. What percentage of domestic tickets are sold on price kits? However, domestic ticket price change in first 2Q compared to 2021 and '19.
The price cap ticket sales on domestic was around 40% in first quarter, whereas it was around 17% in 2019. And in March, this was even of this year, it was even higher than 40%. So there is definitely a strong demand and the lack of sufficient capacity is helping us to get the higher yields. And recently, about a week ago, the price cap on domestic ticket prices was increased again to TRY 799. So we believe that also will contribute to our margin in domestic market and alleviate the negative impact of Turkish lira depreciation.
What are your expectations on Turkish winter season this year?
We are very positive. I mean, even in last year, where a lot of the countries had severe lockdowns and imposed strong flight restrictions, we had about 25 million tourists to Turkey. This year, we were planning to exceed 30 million and probably finish about 35 million tourists. But the distress in Russia and Ukraine is going to -- might -- I mean, I shouldn't say for sure, because we are seeing a very strong demand, incoming demand from Europe and Middle East, could prevent us to reach the 35 million tourists. But we believe, overall, this year is going to be a good year for Turkish tourism sector.
Now we are heading for our expectations for 2022. Could you give any color on guidance for the year?
So it's still a little bit of a challenge to put a full number for the year-end. But as I said again at the earlier question, we are definitely expecting to pass the 2019 capacity level, ASK level by about 37%. And the revenue also, we are expecting to increase 2019 level by 10% to 15% and the first quarter was already a strong reflection of it. EBITDAR margin, we expect it to normalize in 2022. And yes -- so we are definitely more optimistic about, not just the traffic numbers, in terms of CASK numbers and ASK production, but also in terms of yields and profitability. We are optimistic for 2022.
We are heading for just a few questions. How do you expect fuel cost for 2022 on this assumption?
So if the brent price stick around $100, $105 levels, then our fuel cost could go up by about 20% to 30% including compared to 2021 levels. And here, again, our assumption is $105. And we also see some faster growth actually on the jet fuel on much more stronger than the Brent. So that might put some further pressure on fuel cost of this year.
In terms of actual cost, what should we expect for this year? Also are there any deferred payments from prepandemic period -- pandemic period?
The actual costs -- we believe the actual cost will be down by mid-single digits versus -- sorry, will be lower than 2019 level due to increasing capacity, a significant boost in capacity and operational efficiency. We do not have any deferred payments inherited from the pandemic period. The Turkish lira depreciation also contributes to this performance in actual CASK.
What is the estimated personnel CASK this year compared to 2019.
This personnel CASK is expected to decrease by about 15% to 20% compared to 2019, and compared to last year the decrease is going to be about 10%, and this is including the inflation adjustment that we introduced on salaries at the beginning of the year. And in midterm in July, we are also going to make an adjustment in salaries with the inflation.
This question is on everybody's agenda right now. It will be about inflation. What will be the effect of inflation on your operations? What are your plans to manage any impact on that...
[Technical Difficulty]
Gentlemen, it's one of those days, lots of difficulties, technical issues creeping in. Our speakers seem to be having some connection trouble. We will attempt to get them back as soon as possible. And thank you for your participation and your patience. Welcome back.
Hello, everyone. Today will be the day of technical difficulties. Sorry about that. Okay. I'm going to repeat my question. What will be the effect of inflation on your operations? What are your plans to manage any impact on that front?
So the inflation is definitely -- is going to be a burden on our operations. Yet the operational performance in terms of the demand is also strong. So we feel like we might be able to reflect that cost burden or we could alleviate the effect of the cost burden with increasing our sales and having more full aircraft. And we definitely are close to monitoring those factors, especially in fuel prices, ground handling and catering. We aim to reduce the possible effect of inflation through hedges and pushing the budget tightly and monitoring it very closely. And -- but so far, and in our indications for the second quarter, is that it's not going to be too much of a concern.
About our fleet plan. Is there any update on UN fleet of Turkish Airlines and AnadoluJet?
Yes, there are definite developments. We have been seeing the strong demand. We are trying to add new aircraft through fleet. And at the beginning of the year, our initial plan was to get about 29 deliveries. And currently, we are in a position where we are seeking about 39 deliveries and some deliveries are going to be utilized for AnadoluJet fleet about 11 of those, 11 additional, I mean. And we are getting some new white budgets for Turkish Airlines. So the fleet is growing stronger than we planned from the beginning of the year.
Can you give an update on deliveries beyond 2023?
That's a little bit more vague, but I can roughly try to put it in some perspective. Between '23 and '24, we are expecting about 34 deliveries. And between '25 to '28, we are expecting about 50 deliveries. And it's again a mixed bag of the overall including '22, we are going to be getting about 120 aircrafts.
How do you see the cash burn generation for this year?
This year, excluding the financing expenses and the loan repayments, we actually are not foreseeing cash burn. We are expecting the cash generation. But of course, financing -- I mean, loan payments as well as the aircraft financing is going to be a significant burden. Yet on the operational front, we are not expecting any cash from 2022.
What is the CapEx and [ PDC ] plans for this year changed compared to previous call.
The addition of new aircraft, as I just mentioned, is going to increase the CapEx needs. We were initially guiding for about $3.5 billion worth of CapEx. Now we anticipate that to be around $4 billion to $4.5 billion.
What is your expected net debt for the year -- at the end of 2022 and leverage?
The net debt expectation for '22 increased around $13 billion to $14 billion as a result of new aircraft entries. And the new debt to EBITDA target for this year is around 3.8x to 4.2x level, which is a guidance that we have shared for quite some time now. And hopefully, by after '23 or '24, we could come back to the 3x level, which is our midterm target.
We are heading to cargo questions. Could you comment on [Technical Difficulty] and capacity in the last quarter.
Cargo unit revenue was about 30% higher compared to the 1Q of '21. And this quarter, of course, as I also mentioned in the presentation, we were expecting a faster decline in the yields, but supply chain disruptions have kept the appetite for air cargo very strong. And the e-commerce -- the development in e-commerce also was another factor that lead air cargo businesses stay -- to produce strong yields and revenues.
What about cargo outlook? When do you expect the normalization?
We're seeing the situation developments in China is making it difficult to answer to this question, but and also the supply chain disruptions caused by the Ukraine and Russia crisis and increase in the travel times is also putting some further pressure on land and sea transportation. So we could have a year in terms of yield perspective, maybe not as strong as '21, but it's not going to come down to the 2019 levels throughout 2022.
Could you provide details on AnadoluJet operations?
AnadoluJet is, as you also saw in the slide, is increasing its international capacity starting from about like a 13%, 14% level. It reached about -- above 50% levels. The amount of ASK that contributes from international routes in AnadoluJet. And we expect that to reach to 66 aircraft by the end of this year. And we are actually renewing the fleet, changing from retiring to old aircraft with and it's changing with the new generation aircraft. And so we expect that also -- AnadoluJet to contribute more to the bottom line with its new and largest fleet.
Any update on the [ plan to carve out ] cargo operation.
That project is still ongoing, but yet it's a slower pace. As I also said in our year-end results, that's an ambitious project that we are still ambitious, we are still interested in. Yet the pros and cons of the timing when that should be done exactly is where we are putting our emphasis in currently. So we don't have a clear time line of when that is going to happen and in which methods we are going to be doing it, but yes, we are still continuing to work on that carve out project.
Why did you decide to merge THY into parent company?
If you recall, we established that subsidiary about 4 years ago with the aim to provide a housing opportunity for our staff as the new airport is outside the city. And a lot of the staff, pilots and cabin crew and headquarter staff live on the vicinity of the current Ataturk airport. However, after the pandemic kicked-in in the very early 2020, we could not, of course, take any steps towards making a construction investment. And the land investment that we had there was losing value. So we decided to include that -- merge these 2 companies. And the land, which is a great asset and our engagement with [ ENKA ] which is the biggest construction company in Turkey is continuing. So -- but now we will be having more time to make the decisions, and it's going to relieve the burden from our subsidiary because that subsidy doesn't have any income to pay for the debt incurred with the land. But the land is continuing to gain value. We see other housing projects on the vicinity of that land. So now with the land being in our balance sheet, we can have, with no rush, had a more reasonable planning ahead of us.
Can you elaborate on your plans to merge [ KSI, TCI and Convair ]?
These 3 companies have -- we have had them for quite some time now, but they take in small sizes, which is matching of each of these [Technical Difficulty] companies, we are expecting to create a scale -- a bigger scale, combining an ISA team and [indiscernible] team and production team so that they can have a bigger and stronger marketing power when they address, meet with the airline and then try to get their business. So the sole purpose is to gain from scale efficiency to be able to provide the whole package together under 1 umbrella and to provide the whole internal systems when they visit the airline and also to remove some of the inefficiencies like supporting units like finance, procurement, HR. So it should generate both efficiencies in terms of the operation. And we are also going to be able to see the benefit of providing the whole package for -- in our marketing capacities.
I see some of the questions here asking is whether we can replicate the '21 profitability in this year? Well, '21, that $1.4 billion operational profit was, of course, 1 at the time. It definitely can be replicated. But it's going to require quite a strong demand recovery. Remember that we increased the salary by about, let's say, 60%, 70% and adjusting for Turkish lira inflation and then giving back some of the salary cuts that we have to go through in 2020. So all those cuts had an impact of about $700 million overall for a year.
So to bring strong yields and strong demand to compensate those salary increases -- personnel expense increases is going to require a strong effort. But we believe maybe not $1.4 billion, but we could maybe achieve something close that depending on the, of course, how much pressure we will be getting from the fuel side and how much of the demand we will be seeing towards Turkey.
Another question is, what is our outlook on domestic passenger yields for this year? Is increase of the incentive to Turkey going to support the demand on domestic growth? The first part, the -- as I said also, as the cap increase on domestic ticket prices, it's going to benefit our yields on the domestic side. As I was saying, we could talk about 40% of the tickets on the cash price in '21. So now the cap is going up. So it's going to definitely provide support on the Turkish -- on domestic market yield.
And it is also true that increasing internal traffic is going to also contribute to domestic yields. There is a lot of ethnic travelers that come to Turkey from Europe in particular and the U.S. So that is going to play in favor of domestic yield.
One last question I see here is, can lack of guarantees for Russian planes not to be ceased when entering Turkey visible to improve your operational finance number in the near future? Well, that issue is really Russian planes being able to fly to Turkey or not is not going to make a major change in our business because where we earned income from Russian market is in our regular planning. And from the charters, charter business, which does Russian planes usually come to Turkey, is an area where we have very, very little penetration anyway. So we don't see much of a threat or much of an impact on the positive or negative side from Russian planes coming to Turkey.
I think that's all of the questions. I think with this answer, we will conclude our call. Thank you all for your participation and hope to see you in our next event.
Thank you, speakers. Thank you very much. Ladies and gentlemen, this concludes today's webcast call. Thank you again for your participation. You may now disconnect.