Turk Hava Yollari AO
IST:THYAO.E
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Ladies and gentlemen, welcome to Turkish Airlines Second Quarter 2020 Results Conference Call and Webcast. I now hand over the call to Mr. Ilker Ayci, Chairman of the Board and Executive Committee. Sir, please go ahead.
Hello, everyone. Thank you very much for your participation. Thank you very much for the organization. And I would like to thank you for joining our first half financial results presentation. We're happy to be on the line with you.
Aviation industry has been experiencing, the hardest challenge by these unprecedented crisis. We started to see the impact of the pandemic in March and then in April and May, activity levels stopped completely for passenger operations. We started operations in June with mild signs of recovery, mainly in domestic and short-haul traffic. We acted quickly to offset the negative impacts of the pandemic. We took all the necessary actions to manage our liquidity levels to remain prepared to operate in this new era affected by the pandemic. Postponing uncommitted capital expenditures, cutting nonurgent and nonoperational expenses, renegotiating payments with major vendors, providing alternative solutions for ticket refunds, renegotiating operational lease contracts, freezing recruitment, deferring tax payments and fees, seeking new financing and benefiting from various state aid programs, such as short-term work allowance were among the actions we took throughout the second quarter. On top of these, we are still discussing with the aircraft producers on alternatively delivery schedules, and we are discussing with the union on a long-term wage reduction schema.
Despite of the weak passenger operations in the second quarter, cargo operations were strong with almost doubled cargo unit revenues and profit margins. In second quarter, cargo revenues were up by 90%, while the cargo volume was down by 7%. In the following quarters, we expect to see strong cargo performance with around 25% to 35% higher unit revenue for the second half. The industry experienced similar unit revenue performance, but the average decline in cargo volumes were roughly 30%. We utilized more than 30 wide-body aircraft to limit the decline in cargo volume to single-digit levels.
We entered into the crisis with a strong cash position. As of the end of March, our cash position was $1.8 billion and we completed the quarter at a similar cash level. In this quarter, we used up around $250 million of our available lines, which means the monthly cash burn was limited around $100 million in this quarter. In the second half, monthly cash burn will be higher than one we saw in the second quarter. Our projections show that our existing cash position will be sufficient to cover 2020.
The undrawn credit lines consisting of cash and noncash credits is around $2.7 billion as one of the beginning of July 2020, that can be utilized from commercial banks.
Well, regarding to initiation of operations, at the beginning of June, we started with domestic flights first and then opened some of our deep short-haul destinations, especially in Europe. You can see the number of domestic and international destinations in the table. We are planning to fly around 137 international, 41 domestic destinations by August. But of course, with a limited frequency. With these traffic developments, in our base scenario for 2020, we expect around 55% ASK and 60% passenger drop compared to 2019 levels.
I would like to briefly update you about the discussions with the aircraft producers. I mentioned in the previous call that we are trying to postpone the deliveries so that we do not have excess capacity in 2021 and 2022. Another motivation here is also to defer predelivery payments for these years. We continue our discussions in a cooperative way based on our long-lasting relationship with both of the producers. We will inform you as soon as we reach an agreement.
Now let me briefly comment on key financial and operational figures for this quarter. We generated around $900 million revenue in second quarter, which is almost 30% of the revenue for the second quarter of last year. With the help of the measures on cost side, and the solid cargo performance, we achieved to limit the operational loss to $118 million for this quarter. We recorded $308 million EBITDAR with around 34% EBITDAR margin. Although presented very limited capacity of around 4% for the whole quarter compared to 2019, passenger load factor was around 66%. Comparing these figures with major peers, we can say that we passed the peak of the crisis with quite reasonable losses.
I will stop here and let Mr. Murat Seker to continue with the presentation. Thank you very much.
Thank you, Mr. Chairman. I'll continue with the passenger traffic. As the virus -- the widespread virus caused over 95% of our capacity to be cut in the second quarter, results for 2020 are not very comparable. Our total passenger load factor -- so our total passenger number for the first half of 2020 fell by over 40% due to the decrease in the second quarter over 93%.
Towards the end of the second quarter, domestic flights contributed about 80% of the total passenger numbers. It is expected that domestic flights will have a significant role in the near future recovery of operations. Our total load factor in the first half decreased around -- by around 4.5 percentage points, while our domestic load factor remained fairly strong, around 80%. In the second quarter, many legacy carriers recorded load factors less than 50% levels, while our load factor was around 65%, which shows faster recovery compared to the industry.
Looking at the next slide, we see international-to-international passengers in the second quarter were almost inexistence. The number of these passengers is almost unchanged compared to the first quarter. Similar to the previous graph, international passenger breakdown by geography graph also has no changes compared to Q1 due to the lack of contribution of the second quarter. The major decrease in the Middle East was mainly caused by early flight restrictions to Iran by the end of February, which caused some minor shifts in other regions.
Passenger breakdown by transfer type graph, again, shows the already mentioned lack of international transfer flights in the second quarter. Although Q2 made a little contribution to the first half results, number of domestic passengers was high enough to cause a 2% increase in domestic segments.
Let me comment on the recent traffic results. Considering domestic operations, we reached around 65% of 2019's capacity with 72% load factor level. As we already mentioned, that the recovery of domestic operations will take place in a faster manner. The second assumption we had regarding the recovery of operations was the faster recovery of short and medium-haul operations compared to long haul. When we look at the details, we observe that over the half of the international capacity in July was located in Europe.
Looking at this table, we can see that our capacity in July compared to June more than doubled, whereas international capacity almost tripled. Number of passengers jumped to 2 million in July from 1 million in June. The rate of recovery was accomplished while load factor remained fairly stable. We will see increasing capacity figures in August and September depending on the demand and the flight approvals of the suspended destinations.
During COVID-19 outbreak, air cargo became crucial for transport of medical equipment to fight the pandemic. While the absence of belly cargo for the most part of the second quarter was a major constraint in terms of capacity, the decision to utilize some of our wide-body passenger aircraft as freighters turned out to be highly profitable. While the industry freight tonne kilometer declined by 15% in the first half, Turkish Cargo increased the market share by adding 4% FTK for the same period. By doing so, we reached a flat cargo tonnage for the first half of 2020. Cargo yields almost doubled in the second quarter, increasing the Cargo revenue. Thanks to strong unit revenues, our Cargo revenue increased by almost 52%, reaching over $1.2 billion in the first half, which corresponds to about 35% of our total revenues.
In key financial data, we see the effects of the results in the second quarter. Although we generated less than 5% of the passenger ASK in this quarter, compared to the same period of last year, with the help of Cargo revenues, our top line reached $900 million for the quarter. We limited the operational loss by $118 million in the second quarter with higher contribution of Cargo operations and the contraction in cost items, mainly led by personnel expenses.
Even though our EBITDAR decreased by 45% parallel to the decline in the capacity, our EBITDAR margin by -- increased by 17 points in the second quarter. One of the 2 main reasons for this increase was the exceptional cargo revenue, which enabled our top line to be at a higher level. The second important factor for the margin difference between EBITDAR and profit from main operations is the increasing depreciation expenses. While all of our expenses decreased due to lower operational activities, our depreciation expenses remained at a normal level and made up about 35% of our total expenses in the second quarter.
Looking at the EBITDAR margin graph, we see past 5-year data followed by the half year figures. While total revenue in the first half decreased by 42%, EBITDAR margin increased slightly due to the 64% decrease in total expenses in the second quarter.
Nominal EBITDAR for 6 months decreased by 39% to USD 560 million, and EBITDAR margin has been an important KPI for the comparison of operational profitability and cash generating ability. However, as a result of the severe decline in capacities and direct operational costs during the COVID-19, the weight of depreciation and the rent portion increased among the total costs, which partially led an artificial increase in EBITDAR margin.
Turkey, with its rich culture, well-developed summer tourism sector and geographic location plays a crucial role for our strong diversified revenue generation capacity against possible regional volatilities. When we look at the revenue by geographic graph, we see a shift from Far East and domestic to other regions, mainly to Europe and Middle East. This was due to capacity shifts from domestic to international routes in early 2020. And COVID-19 caused flight restrictions to China.
When we look at the revenue by business type breakdown, the most important shift is the major increase of almost 202 percentage points in cargo revenue portion, which is due to the strong cargo unit revenues and 8.8% higher utilization of cargo aircraft in the first half.
When we look at the unit revenue development in the second quarter, we see an increase in RASK due to higher cargo unit revenues. Cargo tonnage in the second quarter remained almost flat, whereas the prices increased.
Passenger RASK also had a strong positive development in ex-currency terms. We observed the same [ tendency ] for the first half, where cargo unit revenues drove the total RASK in positive areas and passenger RASK decreased due to falling load factors. In terms of revenue yield, we observed around 20% increase.
When we look at the regional yield development in the second quarter, the first thing that stands out are the COVID-19-caused drastic capacity cuts in every region. Capacity cuts more than 95% were realized in all regions, except the domestic segment. Slightly lower capacity cut in Europe is due to the first steps of recovery starting in June. The recovery of long-haul destinations is expected to take more time, whereas short-haul destinations in Europe are relaunched in a faster manner.
Some of the first relaunches in June are Bosnia, Serbia in Balkans, France in South Europe, U.K., Denmark and Sweden in North Europe and Germany in Middle Europe regions. The most important destinations in these regions are Paris, London and Berlin, due to the high amount of ethnic and leisure travel.
In June, we realized 7 weekly frequencies to Paris, 5 to London and 21 weekly frequencies to Berlin. Also we can state that for June, our U.K. operations were around 10% of 2019's capacity. RASK and yields increased by over 30% in the second quarter due to highly profitable cargo operations and limited planning of passenger capacity. Passenger RASK, on the other hand, was flat.
The relaunch of domestic destinations is an important part of our second quarter operations. It is expected that the recovery of domestic capacity will be faster than international capacity. By the 4th of June, we started to operate to some major Turkish cities with lower frequencies. By the 11th of June, frequencies to all cities were relaunched. Due to the COVID-19 pandemic, demand was low. Moreover, domestic peers also relocated some of their available capacity to domestic destinations, which further pressured load factors and pricing in the domestic market.
While RASK and yields are in the negative area, ex-currency yield increased by almost 14% due to depreciation of Turkish lira against dollar. In the remaining regions, we observed similar developments for each region. Yields increased by a higher percentage than RASK, whereas ex-currency yields were slightly stronger. Cargo RASK in Americas and Asia were stronger, while passenger RASK were stronger in Africa and Middle East.
When we look at the yields developed in the first half, we see the significant effect of the flight restriction dates around March. Capacity cuts in Middle East are the highest due to early restrictions to Iran at the end of February followed by the flight suspensions in Europe. Opposite point, flights to Americas and Africa were still continuing. Besides already high capacity increases to America in January and February, North American destinations provided profitable reallocation opportunities, which is why the capacity cuts in these 2 regions are the lowest.
Passenger RASK for the first half is negative for all regions due to the inefficiencies -- inefficient operations in March. Similarly, capacity cuts in Asia were not too high in relation due to high increases in January despite the flight cancellations to Chinese destinations in early February.
Revenue development in the second quarter is dominated by the already mentioned 2 factors: 1 of them -- on 1 hand, a dominant negative volume effect caused by flight restrictions due to COVID-19; and on the other hand, a considerable positive cargo revenue effect. The remaining effect nearly phased each other out. As a result, our total revenue decreased by 72% in the second quarter, which is, compared to our peers, a strong performance in the current environment.
Looking at the cost breakdown, we see an increase of over 42% in total cost for 6 months ended. In general, we can see that expenses, which are linked to the scale of operations, increased by a relatively moderate amount. Expenses on aircraft ownership which include aircraft rents and depreciation and maintenance expenses were less affected. On the other hand, measures were taken to achieve flat sales and marketing expenses.
On the personnel cost, I would like to mention the implementation of temporary voluntary unpaid leave option to our staff and our application of corporate-wide part-time employment, starting from the first of April. This implementation continued until June, which helped us to decrease our personnel expenses by over 76% in the second quarter.
Aircraft ownership unit costs increased the most, mainly due to the increase of depreciation expenses by around 7% in second quarter. This increased caused the depreciation expenses to make up around 35% of our total expenses in the second quarter and over [ 12% ] in the first half of 2020.
Four A321neo aircraft were delivered in the second quarter of 2020. As a counterpart, aircraft rent expense decreased by almost 45%. Sales and marketing expenses decreased by 81% and ground handling passenger services expenses by almost 73% in the second quarter, which is largely linked to the low scale of operations. Our maintenance expenses decreased by around 52%, representing a moderate decline compared to other cost items. This was caused by the deferral of some of the planned maintenance activities from the last 2 quarters of '19 to the upcoming quarters.
Since we do not include cargo capacity under ASK definition, but the costs related to cargo and total costs are included, there is a discrepancy between total capacity ASK and total cost calculations. Cargo operations increased significantly so that ex-fuel CASK, including available tonne kilometer the capacity of cargo, almost doubled in the second quarter. Fuel expenses in the second quarter decreased by 80%. Obviously, the fight restriction-caused positive volume effect was the main contributor. In addition, the lower crude oil prices further lowered our fuel expenses, whereas negative hedging effect, on the other hand, made up almost 60% of the total fuel expense.
When we look at the breakdown for 6 months, we see that the most of negative hedging effect took place in the second quarter. However, we do not expect further losses due to overhedged position in the following quarters.
Our profit from main operations in the second quarter fell by $133 million compared to the same period of last year. Several positive effects, including RASK effect, which contributed $366 million, was helpful in keeping the loss at a relatively low level. And overwhelming negative effect consisting of the utilization and ex-fueling cost effects totaled $667 million. When we look at the profit from main operations for the first half, we see a wider gap to results of last year. The loss from main operations increased by $300 million. The main reason for the increase in the loss is a constant negative utilization effect, which reached almost $400 million for 6 months ended. Also the entire negative load factor effect was realized in the first half due to the limited number of flights were planned in the second quarter.
As shown in the graph, we continue to be long in euro and short in Turkish lira. The share of Turkish lira maintained at around 10%. Compared to the first quarter, we observed that there is around 3% shift from Euro to U.S. dollars and U.S. dollar correlated income. We used a monthly-based decreasing layered hedging policy with a maximum 24-month contract period. In this policy, we modify hedging parameters regarding current circumstances and developments. Hedging levels for euro-dollar and Euro-Turkish lira is very limited with 3% and 1%, respectively.
The share of fuel expenses within our total cost base in a normal time is around 30%, but it declined to 17% in the second quarter. 60% of the fuel consumption in 2020 and 14% of the fuel consumption in '21 is hedged as of end of June. We had a mild overhedged position in the second quarter. We have recorded [ $5.7 million ] from overhedging of fuel and charged it to the financial expenses in the P&L. As already mentioned, we do not expect overhedge losses in the coming quarters.
Our financial lease liabilities are around $9.4 billion by the end of June 2020. As there is no new entries to the fleet in this quarter, and we continued to pay principal payment for the financial leased aircraft, we have $200 million decline in financial lease liabilities. On the operational lease side, our total obligations are $1.9 billion by the end of June 2020. Attractive aircraft financing deals done in '19 and '20 led the weighted average interest rate, cost of funding come down to 2.19%.
While the pandemic had a positive effect on the environment, global environmental problems still do exist. We see sustainability as a crucial requirement of our growth strategy. Now everyone is talking about the new normal, which started to take place during the pandemic period. We consider this as an important objective to reach IATA's environmental industry targets, to which we already aligned ourselves in the previous years. These targets are the guidelines to achieve net zero CO2 emission by 2050. In the process, we will continue to monitor, calculate and verify greenhouse gas emissions according to ISO 14064 specifications. We provided detailed information about our achievements in 2019 in our sustainability report, which has been recently published.
This concludes our presentation. We can now continue with the Q&A session.
[Operator Instructions]
Hi, everyone. This is Kadir from Investor Relations. Today, I will be reading up the questions for Mehmet to answer.
Mehmet, obviously, this quarter -- it's cargo's quarter. So there are a lot of questions regarding cargo operations' solid performances. So we prefer to consolidate those questions and address to you.
Can you elaborate more on the strong performance of cargo business? Has the strong momentum in that business continued into third quarter when the flight restrictions are lifted?
Another question says that how do you expect volumes, pricing and revenues to shape up in the second half, belly capacity kicking in from third quarter onwards?
And another question says, could there be any M&A activity on the cargo front to further strengthen and accelerate current growth for cargo?
It's true that cargo came to the rescue in the second quarter as the passenger operation was really suffering, and we stopped -- suspended all operations in April and May. Coming to the question, the main driver of surge in cargo unit revenues are limited -- or not to only belly operation in the second quarter. As of June, we started passenger operations and increasing number of destinations, depending on the permissions we got.
We expect unit revenue increase to be around 25% to 35% in the second quarter of the year compared to the same period of last year. Currently, in August, we see increasing demand for medical supplies, again, from Far East parallel to the increase in new cases. This might be pushing our units revenue expectations to 30% to 40% increase in the second half. We utilized about 30 to 40 wide-body aircraft in the second quarter, our 777 aircrafts for cargo purposes. This number reduced for third quarter. But in case the passenger operations is not performing as we expect, and we cannot open up some of those long -- medium to long-haul destinations, we may shift back again [indiscernible] the passenger aircraft to cargo operations.
We might see a single-digit decline in cargo capacity for the second half because of the reasons I mentioned. We expect normalization in cargo yields with more belly capacity coming into the picture. The yields will not decline to '19 levels. And as of now, we are not evaluating a new M&A process for cargo, but it is within our thoughts that -- especially after we complete our new terminal in the new airport, we might be considering spinning off of our cargo operations.
The next question is about cost savings and the monthly cash burn. Have you achieved any permanent savings in costs and payments? How should we think about your monthly fixed cash costs and cash burn in third and fourth quarter compared to the second quarter?
Yes, we got some cost savings. The biggest -- 1 of the biggest cost items was the contract with the new airport authority operating company and we got some discounts on some of the airport-related fees. And in the meantime, during the peak of the pandemic episode, we revised some of our contracts -- procurement contracts with our suppliers and service providers and subsidiaries as well, mainly because part of our expenses on technical maintenance, on catering and handling come from our subsidiaries, and we have renegotiated the contract with them, and we will get some discounts on those expenses.
And the discussions with the union are still continuing. So we are also expecting some cuts on the personnel salaries going forward. And after this, we expect our monthly cash burn to be around $300 million to $350 million for the remaining part of the year.
The next set of questions are a bit difficult type of questions. They are about the fleet. Are you planning to downsize your fleet and/or cancel the pending orders? Or is it still too premature for those measures? What else? About the deliveries, delay in deliveries. Can you give us an update on ongoing talks with aircraft manufacturers? Is there any concrete steps being taken to delay or reduce the deliveries?
So the fleet, yes, is obviously the most difficult item at the moment. We are continuing the discussions in a very collaborative and cooperative way with both producers. Unfortunately, we have not reached -- and we have made progress, but we have not reached yet any final agreement on the delivery schedule for the remaining part of the year. Our purpose is to reduce the load, to reduce the deliveries for the next 3 years in a way that would be both acceptable by us and by the manufacturers.
So not yet. We are not there yet. But we are making progress, and we'll let you know as soon as we have reached an agreement with them. And so this negotiations include deferrals and -- both on the wide-bodies and narrow-body sides and also includes the [ PDP ] reschedules. So it's a comprehensive discussion. And hopefully, as soon as -- in a very short period of time, we will be able to reach some agreements.
The following questions are about the personnel expenses. Because important part of the fixed costs are composed of personnel expenses. Could you please provide an update on potential personnel savings in the second half? You already mentioned a bit about it. Should we expect any decline in number of personnel in the second half? And how sustainable is the current drop in personnel expenses? And how the negotiations with the union is going on?
So on the personnel cost expenses, in the second half, unfortunately, we have not finalized the negotiation with the union. It's, again, just like the aircraft produced -- manufacturers. We are continuing to discussions. I believe it will be able -- we will be able to reach some consensus, some agreement in the coming weeks. It's already -- we have done a lot of progress that is and come to a level that is mutually agreeable. But there have been some remaining minor issues. Hopefully, we'll be able to resolve those in the coming weeks.
And the expectation on the cost savings side will be about further -- on average, year-on-year, 40% to 50% -- no, about 30% reduction in personnel expenses year-on-year. 30% to 40% is where we want to reach. Our prior -- with these wage reductions is to preserve our staff, so we don't expect any major layoffs. And we would like to hold on to our staff as long as we can maintain the wage reductions going forward.
Now about the sustainability of the current drop, obviously, we had extraordinary situations, and we had implemented very stringent wage cutting in the peak months of the pandemic in April, May and June. And then in July, we scaled back and brought in about 50% of partial work scheme. Planning to continue that in August. And as the traffic resumes, we might bring more of the work back. But that will be -- we are making all these decisions on monthly development phases, and we will see how that goes further.
The next question is about the competitive landscape and the possible flight restrictions. Do you see the previous competitive landscape of the market will change after the COVID-19 pandemic subsidies? There are a lot of competitors who receive subsidy? Will the barriers -- will the carriers be able to resume their previous slots?
Well, that's a difficult question. And it's difficult in the sense that we presume -- our base case scenario, obviously, is all these airlines got the subsidies because they have been in urgent needs of cash. I mean, we are all burning cash, and then we need those cash to be fulfilling our fixed cost -- fixed expenses, aircrafts, personnel and rentals. So I don't think these subsidies -- I don't expect these subsidies to play a role that will provide an unfair advantage to any particular airline.
Regarding the slots, we expect to resume our slots. And as you can see, actually, if you look at the traffic results, we are 1 of the airlines that had the fastest come back in terms of traffic. When we look at the amount of ASK put in the second quarter and compare it with our peers, we had the fastest recovering or relaunching aircraft, that relaunched our suspensions. So the -- we don't think there will be any problem from our perspective to resume the flights to our already existing slots.
Compared to a year ago, what is the level of your ASK in August? And what are you projecting by the end of year compared to a year ago, about, ASK?
About ASK, as you saw in our recent July traffic, we resumed about 25% -- close to 25% of our traffic compared to 2019. In August, we expect to increase it to about 35% of the ASK in 2019 August level. And -- so there is a slowly increasing amount. We started about 8% to 9% in June, about 25% of the capacity in July, about 35% in August and we expect that to reach to about 50% to 55% levels by the end of 2020.
The next question is about full year for 2020 and 2021 ASK expectations.
That is very related to the earlier question about aircraft deliveries. Our base case scenario is, for 2021, to have an ASK cut of about 15% to 20%. But it's difficult to judge at this point. This is our expectation, and we believe we will be able to attain this 15% to 20% cut of ASK. But this is yet to be seen.
How long is the monthly fixed cost of around $165 million -- this is the part of the question, in second quarter sustainable, considering savings might be coming from personnel cost savings?
So I guess the question is aiming that we are going to have more monthly cash burn in the following quarters. So the questioner is asking, how do we handle this?
As you know, we started our passenger operations in July, and our cargo operation still performed well and gave us a crucial amount of contribution. The revenue side seems promising. All the routes that we have started operations are producing positive contributive margin. On the expenses, we got discount on some of airport fees, as I mentioned earlier, in our main hub. Additionally, we revised some of our contracts, existing contracts, with the service providers. So these will be lowering our cost basis.
When do you think Turkish Airlines can reach 2019 unit cost levels? And what might be the possible drivers?
Well, if you follow the other airlines, and there is a quite a wide range of spectrum here on the date of recovery, some -- and including the IATA, it varies between the summer of 2022, goes to the end of 2023, even goes to '24. Our base case scenario, if the recovery will be -- we will see the glimpses of it in some time in 2022. And we expect to reach '19 -- 2019 unit costs in 2022. The main driver will be the recovery of ASK to 2019 levels in this year. Besides the permanent cost reductions like personnel costs will be also contributing to this lower cost base.
Can you estimate what share of flights you have been operating throughout July and August so far have been covering their variable costs?
Yes. As I just mentioned in the earlier question, we are -- on the most of it, I could say, on the most of our relaunched flights, we are attaining contributive -- positive contributive margin. But of course, the frequencies are very small, and the restrictions from the countries are being removed slowly, not in a pace that we were prepared, but it's positive. So the contributive margin on this about 30% -- 25% ASK that we made in July, we had, in most of them, positive contributive margin, most of the international flights, in particular. And that was the essence of having the positive EBITDAR in the second quarter.
What are your expectations on domestic and international yield development in third quarter?
The domestic -- when we look at the domestic, of course, we should pay attention to the ex-currency terms. We expect the ex-currency domestic yields to be at the same level of 2019 in this year. And we expect some decline in international yields. But as the months progress, we see also that is recovering slowly.
There is a question -- online question for the confirmation of what you mentioned. Your base case ASK scenario for 2021 is 15% to 20% cut from 2019 level?
Yes.
It's not from 2020, right?
Yes, yes, yes.
Okay.
Yes, not from 2020 levels, from 2019 levels.
The next question is about the year-end net debt. What's the net debt expectation for 2020 year end.
We expect our net debt to be around $14 billion to $14.5 billion by the end of this year.
And the CapEx, what level of CapEx should we expect in '20 and '21?
In this year...
The remaining of '20, of course.
Yes. The CapEx for the second half of this year, we expect that to be about $1.20 billion to $1.3 billion. And for next year, we expect the total CapEx to be between $2.5 billion to $3 billion. That, of course, will depend on the fleet as the biggest contribution of the CapEx will be fleet. We have stopped all major investments, including our infrastructure investments and the nonoperational CapEx expenditures.
Would there be a discount for passenger fee at new airport? What is the cash CapEx left for full settlement in new airport, including haul transfer of cargo and catering operations?
We don't expect any further discounts on the airport fees. With the State Airport Authority, we are discussing this issue, and there is nothing concrete yet there. And we postponed some of our projects, construction projects. We only continued the projects that were close to -- that were only remaining 10% or less than 10% of the investment. And the cargo will probably be deferred towards third or fourth quarter of 2021. And the catering building, at the moment, we won't act on it too quickly. But overall, this could be around $150 million to $200 million, probably around $200 million more CapEx investment for our infrastructure needs in the new airport, including the catering and including the remaining investments of the cargo building.
What is the current view on the reservations? Forward looking, I mean.
Forward bookings are very difficult to foresee. For 1 reason as recently, it was announced in Germany, the kind of the travel ban was lifted with certain conditions. And Russia, that recently remained at ban, and then right after, like a week after, we started to see very strong incoming travelers from both countries.
When we look at the August, currently, we see progress on top of July. But it is -- and we also see this new habit of the passengers, they make their travel plans in very short horizons, less than a week to their travels, they start making their bookings. So the visibility is really not too long going forward. But I can speak for the months of -- sorry, for the month of August, which we are now halfway through. We see progress on top of July and September looks okay. And -- but beyond that, there is really not too much to be able to share.
What will be the cost of extra measures for COVID-19 on your operations?
The costs are actually all related to the catering and in-flight services. Currently, we don't provide any food in the short-hauls in domestic flights and in the short-haul international flights. The -- so that's on the savings side.
On the expense side, we provide a hygiene set, including the face mask and the sterilized wipes to each passenger. But that is overall like about a $2 million additional expense. And there is not too much. Given the low frequency and low number of passengers, there is not much additional expense that we are incurring due to the COVID-19.
The next 1 is an online question. Globally, airlines are focused on ensuring they can meet 24 months of cash burn under stressed markets. How are you positioned over the next 24 months?
24 months is a long horizon, obviously. But I can -- to shed some light, as of the June -- end of June, we have about $2.7 billion available credit lines. And the end of second quarter, we had about $1.7 billion cash at hand. So together with the operations starting in June and in July, which also contributes positively to our cash position. And as I mentioned, the limited frequencies we started operations have positive contributive margin. And so we feel -- on top of this, cargo seems -- even it's a low season for cargo, cargo seems to be operating in a profitable manner, even in this low summer months.
So we feel very comfortable until the first quarter of '21, with the additional credit lines and then with the additional cash-generating capacity. But beyond that, it's still -- we have to be careful before we can make an assessment.
When do you think the operating cash flow will reach the breakeven?
Well, the -- despite passenger operations contribution is lower due to the lower limited number of flights, we are using the advantage of our cargo business, which gives very reasonable and generous contribution. In the second half, we'll be reaching only 40% to 45% of our budgeted passenger operations. However, we will be continuing to use some of our wide-body passenger aircraft for cargo operations to benefit from the increased cargo demand. We expect cash flow to reach a breakeven level probably towards the end of '21.
Mehmet, again, an online question for the confirmation. They want to confirm something you said. Is the cash burn USD 250 million to USD 300 million per month?
So I thought I said $300 million to $350 million.
Yes. Okay.
$300 million to $350 million per month till the end of the year.
Yes. The next question is about the outlook. What's your outlook on short-haul versus long-haul demand in the remaining part of '21 and '22?
Long-haul overall seems a little bit more challenging, especially on the Asian routes. I mean, in July and August, we have resumed strongly in Americas on the long-haul and increased a significant number of destinations in Europe, especially after some of the countries remaining -- removing the bans. But long-haul could -- we could see the full recovery towards 2023 based on the current expectations and the short and medium-haul towards the summer or end of '22.
An online question asking the EBITDAR target for the second half. I don't know if you want to give an answer on this?
Well, the first half was a surprising about $500 million -- close to $500 million EBITDAR. And the second half -- well, the third quarter looks promising, but the fourth quarter is still far ahead of us, and we have relatively low visibility, but our expectation would be that it would be higher than the first half. So I could say probably between $600 million to $800 million EBITDAR in the second half.
Another question is about -- can you provide some details on $2.7 billion undrawn credit lines? How large is the facility? What is the total size of facility? Is it secured?
It's not secured. I don't know if I was not clear, but $2.7 billion is the credit line available at the banks that is not drawn. So when I go to ask for the bank, I need some further cash. They have this amount of that is available for Turkish Airlines. But again, I want to underline it, it's not dedicated. I mean it's for Turkish Airlines, but it's not secured. So it's dedicated, but it's not secured. So it will need their board approval and all that process. But I mean, with our brand name in the Turkish market, since the beginning of this year, we got about more than $600 million. And we are the most -- 1 of the most reputable and -- corporate in Turkey. So being it secured or unsecured, we don't think it would be much of an issue for a corporate at the size and the reputation of Turkish Airlines.
There is a question asking, could you please repeat your capacity projections for the second half? There is a 55% decline in ASK in second half. That's what mentioned earlier. It's just a confirmation.
Mehmet, we are running out of time. So let me ask you the last question. Will you share a new guidance for 2020?
Well, yes, unfortunately, sharing a guidance even though we want it, it depends on -- for the biggest factor is that how many aircraft we'll be getting and how the demand is going to be resuming. So far, we could only guide, and it's our base case scenario, is the capacity ASK. And ASK, we expect to reach about 50% -- 50%, 55% of the overall last year's ASK. Anything beyond that, I would probably, after our third quarter results, we will be able to -- sorry, third quarter traffic results, we can be a bit more clear about it. But unfortunately, there is really not too much of a visibility beyond September at the moment.
Thank you. Thanks, everyone. This is the conclusion of today's call. You can disconnect.
Thank you. Ladies and gentlemen, this concludes today's webcast. Thank you all for attending. You may now disconnect.