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Ladies and gentlemen, welcome to the Turkish Airlines Second Quarter 2023 Conference Call and Webcast. There's going to be a question-and-answer session after the presentation. [Operator Instructions]
Right now, it is my privilege to hand you over to your hosts, Associate Professor Murat Seker, a member of the Board and the Executive Committee, as well as the Chief Financial Officer of Turkish Airlines, and Mr. Mehmet Korkmaz, Head of Investor Relations at Turkish Airlines. Gentlemen, the floor is yours.
Thank you very much. Good afternoon, everyone. Thank you for joining us today. A warm welcome to all of you from us. The results we announced yesterday underpinned our industry-leading position with sustainable profitability. Combining the current demand environment with our structural advantages and agile execution, our post-pandemic growth trajectory continues. One of the main pillars of this success is the dedication of our staff.
Our employees are working hard to serve our customers lowest all around the world. With their efforts, Turkish Airlines is among the few global carriers to successfully adapt itself to the new normal and exceed 2019's capacity level by almost 25% in the first half of the year. Thus, I would like to thank to all of our steps for such a remarkable performance. Before going into details of our second quarter performance, I want to provide a broader perspective regarding our historical return relative to the industry.
Utilizing our structural advantages with the well-executed business plan, our return on invested capital as a measure of value creation was over 3x above the industry in the last decade. The divergence between us and our global peers on the ROIC became even more evident during the 100. While many carriers around the globe recorded significant losses, our robust business model help us to create value even in the most challenging environment. In our vision for the next decade, return on invested capital and strong free cash flow generation lie at the center as we commit ourselves to a sustainable and profitable growth. We believe this focus will provide significant value for our investors. We are also working diligently to enhance our brand recognition and create value for our stakeholders.
Recently, Turkish Airlines was recorded recognized as Turkish most valuable brand for the sixth consecutive year by Brand Finance. In terms of passenger experience, we have been awarded with best in-flight entertainment and best food and beverage awards in Europe by Apex. Furthermore, our commitment to a sustainable future was appreciated again by World Finance as Turkish Airlines was named as the most sustainable track carrier airline second year in a row. Now I would like to turn your attention to our second quarter highlights.
2023 had a strong start, although the devastating earthquake in Turkey created a direct for our operational and financial performance. Thanks to the dedication of our team, we carried 22 million passengers during the second quarter, making a 19% increase year-over-year. As a result of robust international demand, especially in the Far East and Americas, total load factor climbed by more than 2 percentage points to 71.7% exceeding the 2019 level. Our revenue performance in the second quarter saw significant improvement year-on-year despite strong headwinds from the decelerating global cargo demand and the earthquake impact.
Our total revenue for the quarter reached $5.1 billion and was recorded as our highest second-quarter revenue. Passenger revenue increased by 31% compared to the second quarter of 2022 and surpassed $4.4 billion. I believe this is particularly noteworthy considering the high base we set last year. Our cargo revenues, on the other hand, decreased by 44% to $600 million due to weaker pricing and the dedication of capacity for the earthquake relief efforts. Even in this weak market environment in May, Turkish Cargo ranked third in terms of right kilometers in the world, according to IATA.
In the second quarter, we generated a profit of almost $800 million from main operations previously only seen in the third quarter of the year. We achieved an EBITDA of $1.5 billion with an EBITDA margin of 30%. Net income was realized at $635 million, making our eighth consecutive profitable quarter. Excluding the financial impact of the earthquake and personnel compensation against inflation, profitability figures would be $240 million higher in the second quarter. During the first 6 months of the year, $1.1 billion of free cash flow increased cash, equivalents, and financial investments to $5.8 billion. Our high liquidity level and low indebtedness provide us a significant resource for our future growth.
In the first half of the year, Turkish Airlines maintained its position as the busiest network carrier in European airspace, while Assembly Airport continued to be among the top 3 Europe in Europe with over 35 million passengers. Furthermore, as we expand our global footprint, Turkish Airlines also solidified its position as a global travel hub. According to ACI Europe this year, Istanbul Airport became the most directly connected airport in Europe. We are well into the third quarter, and our current forward bookings reveal confidence about the demand strength for the rest of the year. Lack of sufficient aircraft availability, manufacturing problems in the OEM supply chain, engine durability issues, and congested European aerospace remain to be main constraints in the robust demand environment. As a result, we expect the industry's supply-demand imbalance to persist at least until the end of the year.
Considering these factors on our fleet plan, we aim to increase our passenger capacity in the third quarter by 6% to 9% year-over-year. Accordingly, for the full year, we expect our capacity to be 15% to 20% higher with low single-digit increase in passenger yields. In closing, I believe with our current momentum and second-quarter performance, we are on the track to reach our targets set for this decade. Your ongoing support and interest in Turkish Airlines play a definite integral part in our accomplishments.
Now let me turn to Fatih to elaborate on our key financials and provide additional insights.
Thank you, Murat, and good afternoon, everyone. In the second quarter, we continued to increase our passenger capacity parallel to the strong demand environment. Capacity surpassed the same period of 2022 by 14%, slowing down from 32% increase in the first quarter due to the base effect. As a proportion of the pre-pandemic level, our international passenger capacity remains substantially above European and global average. Our passenger traffic at the stable Airport continued to be robust. In the 3 months to June, the number of international transfer passengers surged by 22% compared to last year and reached 23% above the pre-COVID level.
Similarly, our direct international passengers surpassed 2019 figure by 26% in the second quarter. As you know, Turkish [ Tridien ] is the best performer in the postponing era, as became the third most visited country in the world last year. During the first 6 months of this year, the growth trends stayed on course, and the number of visitors traveling to Turkey increased by 71% to 22 million. Carrying almost half of these visitors in the first half, we are strongly contributing to TT's target of 60 million tourists in 2023.
Moreover, through our word-leading network and connectivity, we are committed to providing a platform for our country's goal of 90 million tries by 2028. From a regional perspective, areas and Americas were the top-performing regions in the second quarter. The latest opening of Far East provides a significant momentum for our revenues. The acceleration of business and leisure activities, along with strengthening group reservations resulted in higher demand and yields throughout pay. Accordingly, we increased our capacity to the region by around 26%, and load factor rose by 4 percentage points year-over-year.
Turkish Airlines continues to be the preferred choice for transit travel in the region, especially in Japan, where network and schedule consistency are particularly important. By gradually ramping our operations in China, we fully restored our pre-pandemic network as of July. With other carriers deploying more capacity in the region, we expect competition to intensify towards the end of the year. Strong in demand, along with the higher business class preferences, resulted in more than 20% higher revenue in America. ASV increased our capacity by only 3% compared to the same period last year. The region's loss factor climbed by more than 6 percentage points. We anticipate strong demand in the region to continue in the third quarter as well.
Our operations in Europe experienced a healthy growth in parallel produced capacity increases in the Far East, which had our transit destinations within the region. Champions Link finally assembled also strongly contributed to the local strategy. Even though we recorded drop in traffic following the posting brands, we reach our target load factor and yield in the country. Towards the end of the quarter, increasing congestion in European airspace also affected our on-time performance. This issue persist in third quarter as well. Fortunately, it is not treating our network integrity. In Middle East, intensifying competition protest in Israel and problems related to pigs permits have an adverse effect on the demand, causing the load factor to deteriorate by 3 percentage points. Yet the region's revenue increased by 29% year-over-year on the back of higher capacity.
Our African rose performed relatively well in the second quarter with contributions of retable and increasing group reservations in the northern part. The number of passengers in the region rose by more than 11%, with yield increasing by 12%. In July, our data passenger sales remained higher than last year. Currently, we are not seeing any negative sentiment that fits into our forward bookings. As a result, our passenger revenue trajectory continues to be encouraging. In the second quarter, strength in yields and higher volumes resulted in passenger revenues increased by over 50% to $4.4 billion.
Our cargo revenues, on the other hand, decreased by 44% year-over-year to $600 million, mainly due to the global oversupply pressures and fading impact of the earthquake on our operations. Although weakness in cargo operations persists, cargo yields and revenues were still substantially higher than the 2019 levels by 35% and 53%, respectively. On a global basis, cargo demand continues to be muted. Tighter financial conditions, decelerating global trade, and weak new orders are putting significant pressure on cargo prices.
As global air cargo capacity declines above pre-pandemic levels, the increased availability of vessels compounded supply and demand in [ Bala ] with recent declines in containerized pricing, the relative advantage of air cargo compared to C5 has deteriorated. As a result, store model shift that was experienced during the pandemic slowed down. On the bright side, even in this negative environment, Turkish Cargo unit revenues over more than 10% above the global average. Our outlook for the peak season remains subdued, with the expectations tempered by a mixed macro picture, relatively high inventory levels, and a supply environment.
Before going into the next slide, I also would like to highlight Turkish Technic's performance. One of the most important players in the global aircraft MRO market, our subsidiary continued its operate an increased external revenues by 34% in the first half. For the full year, we are targeting to circa $400 million of third-party revenues for the first time. Let us now get to the financial highlights. As you can see, our on-hand liquidity increased by around more than 1.1 billion in the first half to over $5.8 billion. Strong operational cash inflow reduced net debt by $6.6 billion to $7.5 billion as of June from its peak level of $14 billion at the end of 2020.
As a result, our LTM net debt-to-EBITDA multiple decreased to a slower level of 1.4x by the end of the second quarter. Our total revenues exceeded 2022 by 25% in the first half. Robust operational performance on the back of lower fuel prices translated into $2.3 billion of EBITDA, up more than 25% versus last year. In the first 2 quarters, we had several one-off items due to extraordinary circumstances. Following the earthquake in February, we conducted recreation flight and transport dues materials to the vision. These operations had $92 million impact on our profitability on a net basis and concluded as of May. Furthermore, we made $108 million of cash and in-kind donation related to our commitment to fund construction of 1,000 tons to review in the earthquake affected region. In the upcoming months, we expect to incur additional $75 million of cost supra over a couple of quarters.
On the positive side, we recorded around $65 million of compensation income related to late aircraft lease and $74 million of expired ticket revenues in the first half. Excluding these one-offs and personnel compensation against inflation, our profitability figures would be $37 million higher. Looking at unit expense breakdown, we recorded a 3% decrease in total cash and an increase in extra costs during the second quarter compared to the same period of last year. The main driver of the decrease in unit expenses were lower jet fuel prices. On the other hand, the increase in export cost largely resulted from inflation and personnel compensation against inflation.
Additional contributors to the increase or tariff escalation in airport expenses and higher commissions due to rising sales. Excluding bonus, our ex fuel cost would increase by around 10% instead of 22%. In the second quarter of 2023, the capacity and passenger number of analog growth by 28% and 40%, respectively, compared to the same period last year. With 17 net additions in the first half, this number of aircraft reached to 81. We are aiming to expand aircraft by the year-end.
In line with our 2033 targets, we are investing in analogy by redesigning its revenue and cost base again to higher profitability levels. To that end, we recently announced our decision to incorporate our logic brand as a separate entity called AGS. After obtaining the necessary operating permits, we expect AGS be fully operational within next year under the new structure. In the coming quarters, we will also unlit new corporate identity and brand repositioning with details.
Turning to our outlook. As Murat mentioned, for the entire year, our capacity is expected to be 15% to 20% higher than the last year, excluding any unexpected aircraft-related profit.
Currently, we are not seeing any significant change in the global travel appetite as the demand environment remains constructive. At the same time, we observed that the seasonality and booking windows are working better pre-pandemic patterns increasing predictability. We will continue to monitor our bookings macroeconomic backdrop and adjust our projections if necessary. On the cost side, as one of the impacts from the earth trade relief efforts and inflation payments abate, our extra unit cost increase will normalize from the levels we have seen in the first 2 quarters. Accordingly, we anticipate that the ex-fuel cost to be up by high single percentage point compared to the last year.
Annual gross CapEx, on the other hand, is expected to be around $5 million to $5.5 billion with 41 net additions aircraft additions, which also includes other fixed investments. On sustainability, our modern fleet and careful design of sustainable initiatives are key to listening to our environmental impact. Working with the operation policy, we are carrying out several projects such as dep usage and R&D collaborations with prominent nurse in Turkey to combat climate change and offer our passengers a sustainable talent. To that end, we also signed the global SAF declaration, which aims to decarbonize aviation industry.
Additionally, we recently committed to implement TCFD recommendations to have a better understanding about the impacts of climate change on our business model. In our vision for the coming decade, sustainability indebted center of our plants by increasing the number of new aircraft in our Pet expanding SF consumption, and boosting renewable energy usage in our building, we are aiming to manage our carbon footprint carefully and became a carbon-neutral Airline by 2050. Our dedication for a sustainable future remains steadfast as we still tour forcing our objectives.
With this, we call to our presentation, and now we can continue with the Q&A session.
[Operator Instructions]
Murat, we are starting our Q&A session with one of the issues on the headlines about recent quality issues on spread Whitney engines. One of our analysts asked about this issue. And could you comment on the quality issues on GTF engines and their effect on your operations? Do you have any grounded aircraft related to these problems?
Sure. As you know, this turns out to be quite an introduced quite uncertain growth projection for a lot of the airlines that have 20 new aircraft. And we have currently about 56 meals in the fleet that have GTF engines. And additionally, we have about 10% additional spare engines. And also this 56 aircraft, we have grounded 9 aircrafts. And overall, we have included 9 aircraft. And in the coming months, we are -- a technical team is looking in the situation closely. We might be adding 2 or 3 more aircraft to the list. So overall, we might finish the year with about 11 or 12 aircraft -- narrowbody aircraft grounded due to the GTF engine problem.
Murat, I combined several questions on a similar basis about the increasing competition pressures. Do you feel intensifying global competition? And also, what are your initial thoughts about the evolution of the demand environment in the upcoming quarters?
In particular, this year, as the recovery was more well distributed around the world. We have been seeing observing more competition coming through the Europe and Middle East regions. In Europe, the long coal capacity additions of our peer airlines and the aggressive pricing of the low cost have been putting somewhat pressure yet still on our scheduled consistency and availability, along with the increasing transfer traffic from our Far East routes allow us to withstand this competitive pressure. The diversity of the network and having a huge connection power as we expressed in the presentation through our Istanbul hub, we have been providing more alternatives with better connection times. So that is helping us to face this competition.
In the Middle East regions, the addition of new capacity we observed in the Gulf region, in particular, have intensified the competition and the demand is somewhat weaker, but there are other challenges like the schools this year are going to start earlier in a lot of the Gulf countries. So the summer season is going to be shorter than the earlier years. So that is also putting some demand pressure. On the global basis, our connection power and then the fleet composition, the composition between our narrowbodies and widebodies, provides us an efficient allocation of the fleet and allow us to serve more profitably. And additionally, constraints due to aircraft and engine availability and aerospace congestions are putting all airlines in the same level of pressure. So we are not in a more disadvantage than many of our peers.
Consequently, in this current supply/demand environment, we believe, is still placed in our favor, how the situation is going to develop, still remains to be seen. There is a lot of factors that are in place. And I think at least until the end of the year, our strong position is going to continue.
Some of our analysts rates, they're concerned about peak earnings. Murat, conceptually, how do you think about sustaining our earnings capacity over the next years?
Well, alter strong results and margins in the last 2 years have set a really high base. And going forward, we expect our margins to converge toward more sustainable levels. If you look at our long-term averages, they are above 20% and below 25% level. So we expect to be within this range in the coming year. And in our strategic plan, we also specified additional growth levers to support our margin, and embedding these levers to our business plan is going to allow us to reach our profitable targets.
Just to recap some of those, we are trying to increase the fleet efficiency with a higher proportion of new-generation aircraft. We have engaged some of our old aircraft with changing into high-density form. We have introduced a logistic ecosystem. And we are going to be focusing on special cargo segment, and we are going to keep enhancing our network, adding -- looking into adding new destinations in the Far East region, our Chairman and the C-level executors were headed to Asia about a month ago, covering a large set of countries to increase our operations in the region.
And additional new runs on the Americas is also going to contribute to our network debt, and furthermore, we are planning to increase our penetration in the low-cost segment as we have announced earlier through our low-cost [indiscernible] and increase the customer experience with improving our product and bringing more standardization in our aircraft and so on and so forth, like improving the Turkish cargo and increasing our digitalization capacity are going to be the pillars to keep our profitability high.
One question is about the potential effect of the recent credit card installment restrictions in Turkey for outbound trail expenses.
So this -- the outbound from domestic to international makes actually quite a small portion of our total sales revenue. Usually, it's between 1% and 1.5% level. And so that limitation, and given that we are in the middle of the summer, I mean, almost the middle of August. For this year, it's not going to pause a big uncertainty for our sales. But even if it's going to decrease the potential demand of Turkey citizens who want to go abroad for vacation. The overall impact on our revenue stream is going to be limited.
Murat, could you give us the details of one-off items in the first half also should our analysts expect any additional charges for the rest of the year?
So a big chunk of those one-offs were materialized in the first half. On the positive side, the late aircraft deliveries, we got some compensation and there were the expired [ ticket miles and ticket refunds ] revenues. Overall, these were around $150 million on the positive side. On the negative side, the earthquakes-related expenses as we announced in our first quarter results and publicly disclosed, they were around $200 million on the negative side. And due to high inflation in Turkey, the compensation on the personnel in the first 6 months ended -- and some of the premiums that we paid and is up around like $300 million. So overall, about $150 million positive one-offs and about $500 million in negative one-offs. So total, it would make a $350 million losses.
For the remaining part of the year, we are expecting about like $70 million to $80 million further spending for the earthquake-related construction support that we are going to make in the region. And on the positive side, with the upcoming aircraft deliveries, some of those compensations are going to come up again. So net-on-net, we don't expect to have a further change in this one-off losses.
You got numerous questions on our yield expectations and capacity evolution. What are your expectations for the full year?
On the capacity, as we announced in our earlier calls, we expect to have about 15% increase in ASK terms for this year. And in the first half has been on par with our expectations. Far East region compared to last year is going to be the main driver of this capacity increase. And second to that, Middle East region is going to follow in ASK terms. For the third quarter, in particular, ASK growth is going to be around 6% to 9%. Regarding the yields, we expect to finish this year with about 1% to 2% increase in revenue yield compared to last year.
And as Fate explained, in the first half, the yield increase as well as the rough increase was much stronger than that. But through the third and fourth quarter, as the base was higher last year, we had quite a high yield environment in 2022, especially in the third quarter. So we will see some normalization in the yields and kind of a reversion to me. And we will finish the year with about mildly 1% to 2% above the 2022 yield environment.
And about a little bit of the capacity and compared to last year, as I said, the highest capacity increase is going to come from Far East and the Middle East and then domestic and then Americas and Europe regions.
[ Goenka ] from the previous asked one question about the current transit market. Could you comment on the impact of current increase in international to international transfer tax here on your conservative yield? How value to are they when compared to point-to-point passengers?
Actually, we are observing the share of international transit passengers is returning back to its historical levels. In the past, before the pandemic in like 2017, '18, the share of transit passengers among international passengers was about 55%. And in the first half of this year, we observed it at 57%. So last year, because a lot of the countries were still shut down for summer vacation, the demand to Turkey was very strong. So the share of this trade passengers were up to 51%, but that year was an abnormal year. So this is this year and for the coming years, we expect that to be within our historical levels of around 55% levels. Of course, the direct traffic passengers provide a higher yield, at least like 20%, 25% higher yield than the stranded passengers, but given the depth and best of the network, the about 55% strengthen passenger is within our expectations.
[indiscernible] is asking about some of the news in the current flow. Do you expect material impact on your operations from the recent decision of China's lifting to Ben groups to more than 7 countries?
Indeed, we do even at the Ministry level, we have been -- our Ministry of Tourism, and Ministry of Foreign Affairs have engaged a lot with the respective Chinese authorities to take Turkey out of this zone. And we are very happy to hear the news. Initially, in our budget when we were making the budget at the beginning of the year, we were not very sure how much Chinese market would open. But at the end of June, we have recovered all of our operations in China.
Before the pandemic, we were flying to 3 cities daily, and we are back on that capacity level. And compared to what we have budgeted, our capacity provided to the region is 50% higher. And then the revenues are almost 70% higher and so we are quite satisfied with this decision taken by the Chinese authorities.
What portion of your capacity will be allocated to domestic flight in 2023? And also, do you have any talks about the current price decision on domestic service?
This year, we added a significant amount of capacity in the domestic market, as I said in the earlier question, of about 30%. But it was because last year, the capacity was -- we had a lot of shortages due to traffic issues, delays, we could not put the capacity, we intended to. With the capacity introduced this year, the domestic market came back to its normal level. Usually, our overall domestic share in terms of capacity is about 10%,10.3% in the first half, and we expect that to be around this level for the remaining part of the year.
And this is within our expectations. With the new price cap, this was an item we have been discussing with the Ministry of Transportation for quite some time. And we are very happy with the increase from 11,110 to 16,500, and there is also an additional price increase allowance for the high load factors introduced in the aircraft. We can increase the price up to 2,500. So that is going to also provide some additional comfort for the yield of the domestic market.
We are now heading to financial ARPU questions. Is it possible to provide updated revenue and margin guidance for this year?
For this year, overall revenue, we expect to be -- we expect that to grow given the strong summer season about low double digits on the revenue front. And as a result of which, we are going to revise our EBITDA margin to 25% to 27% levels. earlier, we announced it as somewhat between 23% to 25% levels. So given the strong profit environment in the first half and the strong outlook we have for the summer months, we are revising our EBITDA margin up by about 2 percentage points. And regarding next year, I mean, this summer is going along strongly. The demand for Turkey is also strong. We are expecting the number of tourists to increase by about 17% on top of last year to reach 60 million tourists to Turkey. And given our dominance in the Turkish market, we'll be able to get the benefit out of it. But for next year, it's still a little early, and we have started our budgeting process for 2024. Hopefully, by our third quarter results, I'll be able to elaborate more on our '24 expectations.
What ex-fuel cost level should we expect for the full year?
So this was a pressing issue for us throughout the first half, and the high inflation that we have been observing, not just in Turkey but globally, have put pressure on our cost items and despite the decreases we see in fuel CASK ex-fuel cost and almost all around the place, our handling items, catering, ATC costs, maintenance costs, and personnel costs, they all went up for throughout this year. We expect the ex-fuel cost to increase in very high single or very low double-digit figures for 2023.
What is the expected fuel cost for this year on which assumption? And what is your current hedging ratio?
So the fuel cost -- well, first of all, the Brent price is continuing to be quite volatile, like about 2 weeks ago when we had end simulation where the brand could be for the end of this year, we were looking into $828. But today, we revised that to $84. So that is in a volatile market, and that's going to affect the fuel cost. But overall, we are expecting the fuel cost in '23 to be about 15% decrease as opposed to last year. And about the hedging, our current hedge ratio is about 18% and we keep adding new positions. We expect to finish this year with about 25% to 27% hedge ratio.
[indiscernible] a similar kind of question. Considering the current market price and your relatively low fuel hedging ratio, you seem to be in a good spot. Yes. Are you comfortable with current hedging level? What is your plan for next year?
So we look at it as a whole package, not just our hedge ratio, but how much of the increase in fuel price, they are able to reflect on the ticket price through the surcharge. And when we combine those hedge ratios and then the surcharge as a percentage of ticket revenue, we cover almost 80% of the change in brand price, on the fuel price. So we are comfortable in the current environment because we have been able to benefit from the strong demand environment significantly.
But going forward, of course, as the demand is going to -- sorry, as the competition is going to increase, we will be facing more pressure on the yield side. So we are definitely going to be increasing our hedge ratio. As I said in the previous question, currently, it is at 18% by the end of this year, it's going to be around 25%, 26%. By next year, it's going to be probably around a 35% to 40% level.
We got one question on fuel efficiency. Based on the recent additions to fleet and current capacity allocations, do you expect any decline in fuel consumption per ASK in this year or the next?
In the first half of this year, our fuel efficiency, fuel consumption per ASK increased by about 1%, and this was pretty much benefited with the addition of new generation aircraft in the fleet. And through their inclusion, we expect to have a fuel efficiency of about 1% to 2% annually. And in the meantime, to increase -- to decrease our fuel consumption, we are running certain projects on the operations side, like reducing APE usages, decreasing fuel consumption through the taxi times and more efficient takeoffs, and better fuel consumption actions taken through our maintenance practices and ground operation practices. So we expect this project to contribute overall 1%, 2% decline in our fuel consumption.
We are having one of the most important question on fleet. What is the year-end fleet size? And could you provide details regarding aircraft entries [ and exit ]?
This year, overall, we expect 56 deliveries. And actually, we have already received 40 -- more than 44 of them. For the remaining part of the year, there are 11 more deliveries that are scheduled, and they are -- and yes, so overall, as a result of -- after this entry, we are expecting to finish the year with about 435 aircraft and an increase of roughly 40 aircraft on the top of last year. We finished 2022 with about 394 aircraft.
Murat, you got similar questions from [ Adam, Kyle and Hoffman ]. After you announced your intention to order up to 600 aircraft, there wasn't any update. What is the current status on that issue? And also where are you planning to finalize the deal, how do you secure these orders on assuming the sizable backlog on the OEM delist?
Exactly the last portion of the question is the reason why we have not made a public announcement regarding our RFP. This is a very, very large-scale of order. And given the close relations Turkish Airlines has with both of the OEMs, we are working closely, and we have got the revised proposals. But of course, here, the engines are playing a key role. So while we are placing -- while we are trying to decide on which aircraft type took place, we are also very close to investigating which engine types to get and which kind of a maintenance contract to get in addition to it. That's the reason why we have not announced any decision yet, but it's not going to take too much further time in the coming soon, let me put it that way. Soon, we will be able to announce the results of this tender.
[indiscernible] from JPMorgan asking about the replan for the upcoming years.
So I mean, yes, that has a lot to do with the previous question. Currently, with both OEMs, we have an order book of about 78 aircraft remaining on the news, and then there are the A350s and 787. So this, we know how many we are going to be having in the coming 3, 4 years until 2028. Yet, as there are difficulties to get the new orders, we are trying to fill that plant with the operating leases and even some wet leases. We got -- that's how we received for this year about 35 operating lease aircraft to fulfill our aircraft needs. But going forward, our intention is to grow the capacity in terms of ASK by about 7% to 10% growth year-on-year over the next 5 years. So we will try to accommodate the necessary aircraft through operating leases if we cannot get new contracts with the OEMs.
Putting this into some perspective, it's difficult to provide exact fleet numbers for the coming years, but as we are on tire finishing this year with about 435 aircraft, next year, we expect to reach a size of 460 to 70s, roughly speaking. And then in '25 to roughly 500 aircraft, and to reach a fleet size of 600 by 2028, which we believe is going to give us that 7% to 10% ASK growth for the coming 5 years.
Of course, we are going to be much more clear with this fleet growth as soon as we finalize our tender with the OEMs.
What will be the estimated CapEx this year?
So as we are getting new aircraft, the CapEx is increasing. This year, we expect that to be around $5 billion, $5 billion to $5.5 billion and roughly $3.2 billion is going to be on aircraft. And the remaining $2 billion is going to be on heavy maintenance, spare parts, some infrastructure needs.
I think one of the highlights of our second quarter performance was obviously net debt levels, and we decreased what we achieved compared to the last 2 years. So we got a lot of questions on that front from Adamson than DCS. We would like to thank them all. What is your expected net debt level for this year?
In the beginning of this year, we were anticipating about 2 to 2.5x leverage in terms of net debt to EBITDA. But given the strong financials we achieved by the end of the first half and with our strong outlook for the remaining part of the year, we expect this year's leverage to be around 1.5x to 2x levels and for the next year, given the deliveries of especially the widebody aircraft, it can be around 2 to 2.5x in 2024.
Cargo continues to be a weak spot. Martin, could you please comment on the unit revenue in terms of [indiscernible] and your forward expectations?
So regarding to the cargo, we have been expecting to come to these days. And on cargo had a very strong few years, actually, almost 2 years. It's very strong 2 years, '21 and '22. And we are seeing the normalization. The yields dropped by about 35%. Overall, we expect to finish this year by about 25% to 30% drop in cargo yield terms. And in terms of the total to carry, probably like a very low single-digit drop can be observed in terms of total ton carriers.
And on top of this, as we set out through the presentation, during the most profitable month some of the month, April and May, a huge portion of our cargo capacity was dedicated for the earthquake zone. So that also played a role in the decline in total revenue we observed. But still, cargo compared to our peers, service cargo is showing a very strong performance. And we are optimistic that by the last quarter of this year when the cargo high season starts, we'll be able to see some recovery in cargo operations. But going forward, we keep investing in cargo. We got 2 wet-lease cargo freighters this year, which wasn't in the plan, and we increased the cargo fleet to 24 aircraft, and we are looking into new cargo freighter aircraft for our coming year demand.
Murat, we got a question about one of the strategic levers that you mentioned at the beginning of the Q&A session. [ Gorkem ] asks me about the details about our door-to-door delivery platform launch.
This project came as a part of our growth building and care ecosystem and plays an important role in e-commerce logistics market in Turkey with the advantage of our higher unit revenue in a door-to-door project compared to the conventional air cargo, which is more from airport to airport, we are expecting to increase our sales and add a new stream of profit center to our cargo operation. We will be starting in the first phase of this project, we will be starting to export shipments originating from Turkey to U.S., EU, and U.K. markets. And until probably until '26, this company is going to be targeting to carry out transit transports in Turkey to these 3 pilot regions and countries I expressed.
And then it's going to keep growing. I mean, it's -- we are still working on the feasibility regarding how much income we expect to receive from this operation. But at the earlier stages, its gross profit margin is going to be on the vicinity of 15% levels, but it's going to be utilizing our deep cargo network. We have been flying to more destinations than any other cargo operators which are hundreds of destinations with freighters and then more than 300 destinations with the passenger aircraft. So this is going to bring us huge connectivity with this door-to-door project. And by 2028, we are expecting to be an important player in this business sector.
Is it possible to provide an update on logic spinoff? And what is your mid- and long-term targets?
The teams are working quite hard on the sole project. We recently completed incorporation. And in the coming weeks, we are going to announce its new corporate identity and its new brand repositioning. And after getting to -- probably in the next few weeks, we are going to apply to the Civil Aviation Authority for the respective permits. And our intention is, of course, this is a very vast change. We are not establishing a low-cost carrier from scratch. We are trying to transform an existing body with about 80 aircraft with a significant amount of staff to a new company. So there are a lot of technical details that we are trying to solve. But our intention is to prepare an ability to have the analog operates on its own sales by the -- before the summer of 2024.
[indiscernible] is asking about our recent subsidiary, Turkey sports services. What drives you to set up that subsidiary.?
Turkey Support Services was established for 3 key factors. We wanted to -- I mean, we are receiving such personal services through at least we have been, I mean, at least 5 different companies. And then we pay commissions to each of them. And then we have less flexibility in their adjustments of the personnel, and the obligations on the expenses, and then the severance payments were on our shoulders anyway. So we decided to streamline all these operations and increased efficiency.
We are talking about the size of almost 11,000 employees who were under different companies and different management fees, and we wanted to optimize this, generate cost advantages and optimize human resources, standard, die our HR policies on these different companies and establish a more quality assurance, and internally, we transferred about 7,500 staff at the beginning. And then through the past few months, we increased that number to almost 11,000. And of course, there is a certain cost we had to incur through this change. But in the coming years, we expect cost savings by reducing the overhead costs, eliminating the commissions, and there is also potential to generate revenue by providing third-party services.
What if you got a number of online questions? You already asked for most of that. Just one I would like to highlight is that, corporate traffic versus 2019 levels. What is the premium load factor versus 2019?
In the first half, the business class passenger increased by more than 20% compared to 2019 levels. And the low factor is also up by roughly around 10 percentage points.
One additional question from [indiscernible]. Is there an expansion strategy, which is aiming in expansion similar to Bosnia, the [indiscernible] on the select partnership that we have observed in the past?
I mean, noting that nature, but we are looking into more collaboration efforts in the clients that we have with IndiGo in India, some JV agreements, and increase our presence, especially in the Far East and America markets, but having an establishment or joint venture in Balkan region or Europe region is not on the top of our agenda.
I think we answered all of the questions. With this, to conclude our call, I would like to thank all of our participants for joining us, and we are looking forward to meeting with you in the next quarter.
Thank you, gentlemen. Thank you, speakers. Thank you for the presentation. Ladies and gentlemen, like we said, this concludes today's webcast call. Thank you for your participation. You may now disconnect.