Turk Hava Yollari AO
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Ladies and gentlemen, welcome to Turkish Airlines Full Year 2019 Results Conference Call and Webcast. Today's speakers will be Associate Professor Murat Seker, PhD, Chief Financial Officer; and Mr. Kadir Çoskun, Manager of Investor Relations. Dear speakers, the floor is yours.
Thank you very much. Good afternoon, everyone. We do apologize for our Chairman not being able to attend the last-minute request. I'll be leading the presentation.
So as you know, we left a very challenging year behind us. And let me start with briefly going through the important key points of 2019. As you know, we accomplished the great move to our new hub at Istanbul Airport in April. It was the biggest and the fastest move realized in aviation industry. We completed moving in only about one night, faster and more smoother than we anticipated. Even though we managed to start the operations without any inconveniences and complication, due to certain limitations, we could not fully utilize our capacity. Before the move, we had to cut frequencies and managed to move off 326 aircraft to the new hub. In the first week at Istanbul Airport, we had to gradually increase our operations in order not to have an operational issue. Overall, during April, we had to cancel about 5,000 frequencies.
Soon after the move, Istanbul Airport successfully completed 2 busy periods. First one was the Easter holiday at the end of April and the second one was the Ramadan holiday. The elimination of the slot constraints in Istanbul Airport will enable us to increase our capacity.
We started to see also important service quality improvements. On-time performance increased since July by about 5 percentage points. Also, despite the fact that transfer passenger numbers constantly increased throughout the year, we were able to decrease the number of misconnections by about 24% in July compared to Atatürk Airport. The average taxi time increased from April until August, but in September, taxi time started to decrease significantly towards similar levels observed in Atatürk Airport. In addition, the overall service quality increased the higher number of boarding bridges, passport control decks and check-in counters.
For transit passengers, there is a higher accommodation capacity. The size of the lounge area is almost tripled, whereas overall size of terminals more than tripled, being much more comfortable for passengers.
In Atatürk Airport, a maximum of 72 ATM, air traffic movements, per hour was possible, whereas Istanbul Airport's maximum ATM per hour was at 88 points at the beginning. And we expect this to go up to 120 when we complete the third runway by the middle of next year. Our cargo capacity will be reaching 2.5 million tons, up upon the completion of the first phase of the cargo facility completion.
At the beginning of the year, our plan was to attain a high single-digit capacity increase. However, because of the unexpected Boeing MAX issue and delays in Airbus new deliveries, we were not able to reach our targets. In the EMEA region, we are among the few airlines that have MAX orders. We were planning to include 24 MAX aircraft to the fleet by the summer season of last year. This issue had a notable impact on our 2019 capacity plans. 1.5% of the ASK increase we planned could not be realized.
We also had some capacity issues concerning late new deliveries. We planned to receive 18 neos, but ended up receiving only 11 aircraft, most of which came towards the end of the year. Delivery problems caused another drop of about 1% in ASK increase. The unplanned maintenance requirements for some Boeing 737 and 777 aircraft and the move to the airport caused further capacity losses. Yet, we did our best to schedule our constrained capacity in the most efficient way possible. With the delivery of Dreamliners and some of the neos, we were able to recover some of the capacity growth. We finished the year with 3% ASK growth.
I will start with a summary of the financial and operational performance of 2019. Our total revenue increased by 10% in the fourth quarter leading to an annual increase of 3%. Yield environment in the last quarter was fairly strong in terms of passenger yields. The overall yields were pressured by a slight decline in cargo yields, but still positive in total. Despite the global slowdown in cargo demand and trade, our cargo business is still an important contributor to the top line. Even though we consider 2019 as a transition year with many challenges, we managed to increase our net income by 2.1%. Concerning factors to our production related to the move and missing aircraft, led to a 26% decrease in profit from main operations. However, the strong contribution of the fourth quarter, with a revenue growth of 10% and cost-cutting initiatives introduced, helped us achieve $788 million net income in 2019.
Capacity constraints and low demand caused a drop in domestic capacity by 6.9% and passenger numbers by 7.5% for the whole year. The same factors also affected international passengers. However, the arrival of Boeing 787 wide-bodies generated a positive international ASK growth of about 10% in the last quarter, which led to almost 4% increase in international passengers. Despite the decline in domestic passenger numbers, overall, we observed 1.7% increase in total passengers in the last quarter.
We announced our guidance for 2020 in January. It is a guidance which was announced before the virus impact. There are various scenarios we are working on and monitoring the global developments very closely. At this point, it is quite hard to predict the outcome of the situation and a guidance revision looks certain, yet we will need some more time in order to be able to provide you more reliable information. This year, we planned 14 wide-body, 12 narrow-body and 2 freighter aircraft deliveries. In addition to these financial lease aircraft, we plan to include several narrow-body operating -- operational lease aircraft in place of the grounded MAX aircraft. Nonetheless, we have the option to drop out those with incomplete contracts. Together with all phaseouts, we plan to increase the number of fleet by about 10 aircraft in 2020.
Regarding to the virus update, operations to Shanghai, Guangzhou, Xian in China were suspended until the end of March. And the flights to Italy, Iran, Europe, South Korea are also suspended as well as some flights to Saudi Arabia for religious purposes. Some frequencies in other regions are also [ canceled ] due to decreasing demand. The suspended flights make up around 6% of our total passenger number and 9% of our total ASK. However, we will reconsider the developments before resuming operations again. We have not grounded any aircraft so far. We will try to allocate their capacity to destinations that are able to accommodate this shift. If needed, we may also cut more capacity and frequencies. We are working on several alternative scenarios at the moment.
The number of tourists coming to Turkey reached 45 million in 2019, which was a surge of 14% from 2019 levels. This is also in line with the official expectations shared by Ministry of Culture and Tourism. According to the 2020 annual report of the Presidency, the number of tourists coming to Turkey is expected to reach 51 million. It is still early to predict how the virus will impact summer tourism. However, we are positive that the impact of the summer tourism to Turkey will be limited. High-quality of service provided by the tourism sector in Turkey, in combination with reasonable prices, will affect the demand positively.
In 2019, the number of international passengers, excluding transit, increased by 2% and reached 19.3 million passengers. The increasing demand from tourism has been more than compensating the decreasing domestic outbound demand. 14 million tourists traveled to Antalya, and more than 80% of Antalya passengers were international direct passengers. In 2019, we assigned new direct flights from Antalya to some European and Middle Eastern cities in order to capture more of this premium demand. Similar frequencies and assignments are planned for 2020 to further increase our market share in Antalya, Dalaman and Bodrum.
Now I'll pass the word to Kadir to continue the presentation.
Hi, everyone. Let me continue with the operational overview for 2019. With a stronger performance in the fourth quarter, especially in domestic demand, we were able to decrease the passenger number contraction to 1.1% at the end of the year from 2% at the end of the third quarter. The decrease in passenger numbers was caused by mainly domestic capacity cuts throughout the year as discussed earlier.
The joint impact of the slowly improving domestic demand and ample and capacity cuts led to the decline of almost 2.5 million domestic passengers while the domestic load factor increased by 0.9 percentage points to 86.2% in 2019.
On the other hand, we achieved an increase in the number of international passengers by 2.8% in 2019 compared to 2018. Because of the softening demand and relatively high competition for Europe and Middle East, the international load factor decreased by 0.4%. Overall, we had a slightly declining load factor in total, in line with the guided range.
In passenger breakdown slide, in the fourth quarter of 2019, the international-to-international transfer passenger number increased by 8.4%, which led to an increase of 5.4% for 12 months ended. This segment represents 56% of the total international passenger number.
Regarding the international breakdown by geography. We maintained the portions of 2018. The breakdown of passengers by transfer type shows the decline of domestic passenger numbers in combination with the increase of the number of international passengers. This resulted in a shift from the domestic category to the international passenger categories. Even though the number of international direct passengers increased by 1.9%, the overwhelming increase in transfer passenger numbers caused a small shift in the international passenger categories from international direct passengers to transfer passengers. The increase in the international passenger categories could compensate the declining domestic demand.
In the fleet development, as we expand our fleet and enjoy the higher capacity in Istanbul Airport, we opted to invest only in new generation and environmental friendly aircraft. Using this aircraft is among the key factors to achieve environmental targets given by IATA. Our fleet will be expanding in this regard with more than 200 new generation aircraft until 2024. We received 17 new generation narrow-body aircraft and 6 wide-body aircraft in 2019. The narrow-body aircraft consists of 12 Airbus 321neo and 5 Boeing 737 MAX, which are around 15% fuel-efficient compared to the conventional aircraft types in our fleet. Additionally, we received 6 Dreamliner wide-body aircrafts. These aircrafts are 20% more fuel-efficient and have a 60% lower noise footprint.
On the other hand, the delivery of 7 Airbus 321neos aircraft, which were planned to be delivered in 2019, were postponed to future years. 50 new generation wide-body aircraft that are planned to be delivered between this year and 2024, will be utilized for additional frequencies to existing primary long-range destinations and for growing our network in Asia, Americas and Africa.
In cargo side, growth in terms of demand and capacity in cargo operations continued during 2019. After observing double-digit growth in the past 2 years, we realized a more conservative cargo growth in 2019. The global slowdown in trade continued to affect the cargo business in the fourth quarter of 2019. Therefore, the World FTK decreased by 3.3%, while Turkish Airlines achieved an increase of 13%. This made for an increase of 9.3% in total tonnage of cargo carried in 2019. Our cargo revenue increased by 2.5%, reaching almost USD 1.7 billion, which corresponds to about 13% of our total revenues, like in 2018. Our cargo terminal construction is continuing in Istanbul Airport, which we expect to be completed by early 2021. Freighter operations are still executed from Atatürk Airport, yet the belly cargo operations are being performed from Istanbul Airport.
In key financial data slides, when we look at the financial data, we see a substantial increase in total revenues in fourth quarter. This was mainly driven by an increase of 10% passenger revenue. The strong performance in the fourth quarter boosted the total revenue increase from 1% in the 9 first months to around 3% for the 12 months ended. The strong performance in the last quarter was also supported by further aircraft deliveries, increasing operational efficiency at our new hub and the recovering Turkish outbound demand. We generated around USD 3.1 billion EBITDAR and 23.5% EBITDAR margin in 2019. This is 2.5 percentage points lower in the same period of 2018. The decline in the EBITDAR margin was mainly caused by the increase in personnel and airport expenses offsetting the increase in the top line, which resulted in a decrease in profit from main operations.
The impact of IFRS 16, which we started to implement at the beginning of 2019, caused an increase in total operating lease liabilities of around USD 1.5 billion on the balance sheet. Regarding EBITDAR margin, when we look at the past 6-year data, as explained earlier, the slow revenue growth together with the increasing cost, pulled down the margin by 2.5%, notwithstanding a 3-point -- 4 points improvement in the fourth quarter compared to the third quarter. For the full year guidance, though, we managed to fulfill our initial guidance of 22% to 24% EBITDA margin. This was the initial guidance at the beginning of the year.
In looking at the geographic breakdown in the revenue breakdown slide, we see a diversified revenue generation capacity against possible regional volatility. In case of coronavirus-related capacity cuts, we have the opportunity to relocate capacity to various destinations. We fly to 59 cities in Africa; 19 cities in Americas; 28 cities in Middle East, except Iran; 106 cities in Europe, except Italy; and 33 cities in Far East, except China Mainland and South Korea. The picture is unchanged compared to the third quarter. 90% of the revenues in 2019 are generated outside of Turkey, with the largest contribution coming from Europe. The portion of the revenues from Europe and Turkey shifted to Americas and Far East due to the weakening of European demand and the slow speed of recovery in domestic markets.
Despite the intensive competition, we managed to maintain a high portion of revenues in Europe, Europe with more than 115 destinations we fly, continue to be an important region for our network. We believe that the codeshare agreement with Indigo, which was made at the end of 2018, will stimulate our revenues in the Indian market.
When we look at unit revenue development in ex currency passenger RASK, we observed a strong increase of 4% in the fourth quarter. Due to the contraction in cargo unit revenues, the ex currency total RASK is lower, but still slightly positive. With a strong performance in the last quarter, we managed to have a flat ex currency total RASK for 12 months. The depreciation of Turkish lira and euro against USD caused our revenue yield to be flat in 2019, strengthened by a moderate increase in the last quarter. With a constantly strong ex currency revenue yield development during the year, we maintained our almost 4% increase for 2019.
In the next slide, we have been increasing our capacity in Far East and America markets, where demand has been relatively solid throughout the year. Additionally, this quarter, we increased our capacity in America to double-digit ASK growth in this region, but to a decrease in RASK and yields in Far East and Africa, of course, while RASK is mainly pressured by the contraction of cargo unit revenues in Far East. We observed the opposite in Africa where cargo units revenue decreases are lower than the decrease in passenger unit revenues. This is mainly caused by capacity increases by our peers in sub-Saharan Africa and an increasing demand for low-cost carriers in North Africa.
The U.S.-China trade war had negative impact on China to Europe demand, both for passenger and cargo unit revenues. Despite the single-digit capacity increase in America, we realized increasing unit revenues. This was mainly caused by the strengthening of USD against other currencies, increasing the demand for U.S. outbound flights to Turkey and beyond.
In Europe and Middle East, we realized revenue yield growth, while capacity increase was moderate. Especially strong unit revenue improvements have been realized in Middle East, while passenger unit revenues were the main driver. Europe-to-Turkey and Europe-to-Middle-East traffic got partially impacted by low-cost carriers' capacity shifts.
In the domestic market, the ticket price gap increased from TRY 352 to TRY 450 in the third quarter, which led to unit revenue increase. Despite the increasing ticket price gap, we increased the load factor by 0.9 points in the fourth quarter, as capacities was still reduced for the domestic market. Ex currency yield growth was positive or at least flat in all regions, except Africa, where we introduced significant capacity growth in the fourth quarter. And even higher capacity growth in Far East caused ex currency yield growth to be flat.
In the next slide, the developments for 12 months are lower in terms of capacity increase, but higher -- and accordingly positive in terms of ex currency revenue yield in all regions. The late deliveries of neo aircraft and the deliveries of wide-body aircraft enabled us to increase our capacity significantly in the last 2 quarters. This created a much better picture in terms of capacity increase in 2019. Other than in the fourth quarter, we see a more moderate capacity increase in Africa and Far East. What we also can see is a slight shift from domestic capacity to other regions.
In the next slide about the revenue dollar in the fourth quarter, there is 10% growth in total revenue. The main driver in Q4 was the increase in volume, supported with strong passenger RASK and cargo development. However, a negative currency effect created some headwind. Load factor created a negative effect in the first 3 quarters but entered the positive zone in Q4.
In the next slide, when we look at the revenue development for 2019, we see that most of the positive volume effect occurred in the last quarter due to the limited capacity increases in recent quarters. The ex currency RASK improvement contributed almost USD 350 million to the revenue. On the other hand, year-to-date depreciation of Turkish lira and euro as well as many other emerging market currencies against U.S. dollar led to a USD 438 million loss.
In the next slide, the CASK breakdown. Our costs under ASK continue to be the lowest among the peers despite the increase in 2019. The cost-cutting target of USD 100 million was achieved. Further cost-cutting initiatives that have a structural nature are planned for 2020 and 2021. Ex fuel CASK slightly increased by 1% in the fourth quarter, lowering the cumulative ex fuel CASK increase to 7.4% in 2019. Especially in the fourth quarter, we observed drops in fuel costs due to drops observed in fuel prices despite the capacity increase we introduced.
At the end of third quarter, our current hedge level for 2019 was 58%. This enabled us to benefit from the decrease in fuel price. Another CASK supporting item were decreasing personnel costs compared to the same period of last year. In June and October of 2018, pilot salary increases drove the passenger expenses higher -- drove the personnel expenses higher, I'm sorry. Since the full impact of the salary increases was already reflected in the last quarter of 2018, we observed flat personnel expenses in the fourth quarter of 2019. An ASK increase of over 7% in the fourth quarter caused the personnel CASK to drop by almost 7%. For 12 months ended, the personnel CASK increase dropped to around 13%. While the increase for 9 months ended, this was over 20%. Another factor behind the higher personnel expenses was linked to neo and MAX salaries that were scheduled in 2019 but were not delivered or could not be operated. As we could not perform the internal production, our personnel CASK increased. With the deliveries in the last quarter, we were able to increase the utilization of our flight personnel. The aircraft ownership costs for 12 months increased due to the increase in depreciation expenses after the IFRS 16 change in the third quarter of 2018.
Airport and air navigation costs further increased in the fourth quarter, in accordance with our guidance, due to higher rent costs in Istanbul Airport. Also linked to the move to the new airport, ground handling cost increased due to the increased size of the operating area, an increased number of temporary employment and higher unit costs. The low base effect will continue to be reflected in this cost item until the second quarter of 2020.
Sales and marketing costs increased due to almost 61% higher commissions and incentive costs. Part of increase in commission expenses was because of a change in the payment rules we implement in certain regions. With this change, we become more aligned with the peer airlines. This year, we also revised provision allocation for commissions and incentives of next year in order to decrease the volatility across quarters.
A third factor was the increasing interest rates and credit card commissions in 2019. Despite the increase of commissions and incentives, the increase of sales and marketing cost helped compared to the third quarter. In terms of passenger services and catering, a crucial factor for the increase was the Turkish lira inflation. In addition, there's also an increase in the cost of the lounge areas at the new airport due to the increased size. The lounge size in Istanbul Airport is about twice the size of the lounge in Atatürk Airport. Similarly, the ground handling costs increased with the bigger size of our new hub.
Maintenance costs decreased consecutively in the last 2 quarters, also for 12 months. The main reason for this decrease was the deferral of some of the planned maintenance activities. We expect these planned overhauls to take place in the following quarters. And the reason was the revisions on the scope and frequency of cabin interior maintenance checks in the first half of the year. In the last 2 quarters, almost 1/3 of the decline in maintenance costs come from this source. Overall, the total CASK decreased by 1.9% in the fourth quarter.
In CASK calculation presented here, we do not include cargo capacity under the ASK definition. However, we include the costs related to cargo in the total cost. With the increase in cargo capacity, cargo-related costs also increased significantly. When we adjust total ASK with cargo capacity, the ex fuel CASK increase drops from 1% to 0.3% decrease, and the total CASK decreased from 1.9% to 3.2% in Q4.
In the next slide about fuel costs. Looking at the fuel cost breakdown, we can see that the lower fuel price in the fourth quarter more than offsets the hedging effect and the volume increase effect. Most of the positive price effect has been realized in the third quarter so that the total fuel cost increase in 2019 is around 3%. Even though the unit costs are not affected, the main reason for the fuel expense increase is the lower hedging profit.
In the next slide, about profits from main operations. The main contributors for the increase in the fourth quarter are the positive RASK and fuel effects. Increasing load factors further supported the strong RASK development. A positive fuel effect, despite the high-capacity increase was caused by decreasing fuel prices. The negative ex fuel unit cost effect, which has been observed in a high manner throughout the year, declined significantly in the last quarter.
And profit for 12 months in the next slide. With the exception of the third quarter, a solid positive currency effect was observed over the year. Most of the positive fuel effect occurred in the last quarter. Despite the positive development in terms of load factor in the fourth quarter, the overall effect was still negative for 2019. The main reason behind the significant decrease in profit from main operations lies in the increase in ex fuel unit costs and underperforming revenue development.
In the next slide, about hedging currency risk. As shown in the graph, we continue to be long in euro and short in Turkish lira. Share of Turkish lira declined to 10% level due to depreciation against U.S. dollar and the decline in domestic capacity for the year.
We use the monthly based decreasing layered hedging policy with maximum 24-month contract period, and this positively modify hedging parameters regarding current circumstances and developments.
In the next slide, about hedging fuel price risk. Share of fuel costs within our total cost base is around 30%, even though we used the layered hedging strategy. The volume and type of the hedging contracts are aligned depending on the forward fuel price curve. When it exceeds a certain level, we decreased the hedge ratio and use alternative hedging tools, 4% to 5% of the fuel consumption in 2020 and 7% of the fuel consumption in 2021 is hedged as of the end of 2019. Our breakeven price for Brent is around USD 60.
In the next slide, about aircraft financing and debt management. Our financial lease liabilities are around USD 9 billion by the end of December 2019. On the operational lease side, our total obligations increased from USD 1.4 billion by the end of September to USD 1.7 billion by the end of December. Weighted average interest rate was around 2.6% in recent quarters. Attractive aircraft financing deals done in 2019 led to rate decreased to 2.34%.
In the next slide, about sustainability. We aligned ourselves with IATA's environmental industry targets. These targets are the guidelines to achieve net 0 carbon emission by 2050. In order to do so, we prioritize using environmental friendly technologies in aircrafts, and performed 20% more efficient flights compared to 10 years ago. We conduct projects to manage environmental aspects and minimize environmental impacts according to ISO 14001 Environmental Management System. Turkish Airlines signed Zero Waste. Declaration, which was drawn by Istanbul Airport operator in line with Zero Waste Project in 2018. We also monitor, calculate and verify greenhouse gas emissions according to related ISO specifications. CORSIA arrangements adopted in 2016 by ICAO will enter into effect in 2021. Within the scope of the EU-ETS, carbon credits is purchased from the international carbon markets.
This will conclude our presentation. We can now continue with the Q&A session, Murat, where I'll read the questions for you to answer.
[Operator Instructions]
Yes. First question is from TEB Yatirim, Erdem Kayli and [indiscernible] about the forward booking. Can you give us color on your forward-booking metrics in terms of yield, RPK, load factor as much as possible?
Yes. Well, at the moment, it's actually rather challenging, of course, to provide too much of an insight but just to provide some -- just provide you some feedback. Our forward booking for the coming 2 to 3 months, we see a decline of about 5 percentage points on load factor compared to the forward bookings we were looking at before the outbreak. And due to the virus, international forward booking, in particular, had been negatively impacted and the most impacted regions were Far East, Asia for most of the month of February, but then we started to see some decline also in the Americas. Especially March and April, we see the biggest drop so far.
However, as we have been iteratively mentioning, due to the depth of our network and a widespread destinations we are flying to, we are being able to find some destinations out of these whole affected regions that still have relatively positive developments, yield developments and the load factor development or that were relatively less impacted, such as Indonesia, Pakistan in Asia, Egypt from Middle East, and in some of the sub-Saharan African countries, we have slightly negatively affected load factors looking into the future as well.
Yes. Next questions -- by the way, we bundled the questions for easiness. Next questions are about demand and yields. Yield demand following the outbreak of coronavirus are softening currently. Our unit debt revenue in 4Q '19 were strong. How should we think about the passenger RASK in the current environment?
This, I tried to shed light a little bit in the earlier question, but for further information -- well, we haven't disclosed the February traffic results yet, but it is not -- I might say, the February, especially because the impact of the virus was mostly contained in the Asia region, the overall impact was relatively contained. As you know, February is usually our lowest month in terms of production anyway. So the negative impact came through the outbreak was contained. And we expect to have about 2% to 2.5% drop in load factors in the month of February, and we expect the yields to be relatively flattish in the month. And if I might try to give clarity overall on the first quarter, actually, as it was addressed in the January traffic, we had a very strong January month beyond our expectations, actually. And when we combine that with the month of February and our outlook into March, we can say the first quarter, the negative impact of the virus outbreak will be manageable. But of course, how this crisis situation is going to develop is yet to be monitored very carefully, which is we are trying to do. On top of this, despite of the drops in yields and load factors in quite a few regions, we saw also a significant drop in the Brent price. Our hedged price breakeven level is around $60, but currently is around -- below $50 levels, so that has been also helping us to circumvent some of our expenses.
Next question is about fleet. How flexible are you with the fleet delivery schedule? Or do you consider to reschedule aircraft deliveries and payments for 2020?
At the beginning of the year, when we were sharing our guidance, we were aiming for about a 10% ASK growth. And the biggest contribution of this growth would be by the deliveries of the widebodies, which we expect to have about 14 widebodies financial leases during 2020, and there were going to be some narrowbodies, again, financial leases. Overall, we would have 23 financial lease aircraft in 2020. On top of this, there will be some retiring aircrafts and we would compensate those losses with additional operating leases, dry leased aircrafts, and we were even looking for some wet leases to cover our summer month need, especially for AnadoluJet's expansion into international routes. But luckily, other than these 23 financial lease aircrafts, we haven't completed the contracts of the operating leases, and we have still options to opt out from these agreements. So we can say we are quite flexible in terms of fleet development that could provide an ASK growth of between 6% to 10%.
Next questions are about MAX. What was Boeing compensation? Should we consider the Boeing compensation a onetime payment? Or should we treat this payment as recurrent until the MAX return to flight?
So unfortunately, I won't be able to disclose the exact amount of compensation, but in 2019, the significant part of the compensation was already reflected in the balance sheet. We had some cash compensation, and we had also some -- agreed upon some in-kind compensation covering some goods and services. The agreement was reached based on the mutual strong relationship between Boeing and Turkish Airlines, as we believe in the MAXs in the coming years, and we haven't canceled any of our order book, and we keep discussing the developments with Boeing, and they are well aware of our commitment. So we mutually agreed upon the amount. And the compensation covered only 2019 losses. For our 2020 losses, we decided to re-discuss again the opportunity cost that Turkish Airline went through throughout 2020.
Next questions are about AnadoluJet. Question from [ Kamal Hadra ], for example. Although you have disclosed that some narrow range destinations will be added to AnadoluJet with the concept of a low-cost carrier, you also mentioned that there is still limited pre-catching. Shouldn't you generate ancillary revenue as a low-cost carrier? Another question from [indiscernible]. Are you still considering to spin-off AnadoluJet as an individual legal entity? If not, in which ways do you plan to compete broadly with the cost base, especially labor but at lower fares at Sabiha Gökçen?
Okay. There's quite a few questions here. So our first goal at the moment is to position AnadoluJet at Sabiha Gökçen as a low-cost brand instead of Turkish Airline to improve our Sabiha Gökçen performance. We have had Turkish Airlines' performing from Sabiha Gökçen for quite some time, yet it was a constrained capacity. We did not put capacity growth in that airport, and that kind of prevented us to have a profitable -- sustainable profit growth. But with this new product, as our first step, we will have AnadoluJet starting international operations. And without increasing the fleet, we expect to increase the capacity by about 20% as AnadoluJet aircraft will be providing more seat capacity per aircraft due to their high-density seats, and we expect to increase ancillary revenues, like paid reservations, additional luggage sales, in-flight catering sales.
So here, [ Kamal ] may ask shouldn't we generate ancillary revenues as a low-cost carrier. We definitely will do. We'll -- that's within our plans and projections. We expect AnadoluJet to be fully operational like any other low-cost carrier in the -- that is operating in the region.
And to go on, currently, there is a capacity constraint at Sabiha Gökçen, as we know, due to the -- just being -- having just one runway available. But once the second runway is completed, we will be expanding the fleet there also and increasing more -- providing more connectivity. In the long run, AnadoluJet will turn into full low-cost brand with larger fleet, more brand-new aircrafts and more cockpit and cabin efficiency and more lean production method. We will utilize -- AnadoluJet using all our possible slots at Sabiha Gökçen.
Next question is about the breakeven load factor level from Erdem Kayli.
Usually, based on our earlier years analysis, the breakeven load factor is usually for about 74%, 75% levels for the full operation.
And the next question from [ Can Alagöz, QNB ]. Can you give some color on the ticket cancellations by big clients? Yes, this is asking the ticket cancellation amount currently.
So after the outbreak took place, we saw, of course, quite a few cancellations, reservation cancellations. From mid-January until now, the cost of the ticket cancellations -- so the amount of ticket cancellations increased by about 50%, and we expect this trend to continue in the following months, especially in the month of April and then we'll look into that again. But currently, I might say, it's about a 50% increase on top of last year's similar -- same month cancellations.
Next question is from Najet, Bank of America. Could you please clarify if Turkish Airlines is investing 25% in IGA Akaryakit company, an IGA fuel company?
This, we have disclosed some information about it, but the process is still undergoing. Yes, we will be investing in IGA Akaryakit, that's a company -- fuel-operating company currently owned by the airport operator. We will be taking 1/4 of the equity stake in their company and probably all approvals from Competition Board and the respective bodies will be obtained in the coming months.
Next question is -- questions are about cost cutting. What savings measures should we expect to adopt your cost structure to the falling aviation demand in the coronavirus epidemic environment?
Well, the good part on this cost-cutting issue is, we have already started to work on having a more lean cost structure and cutting some of our cost at the last quarter of 2019. And as you would remember, the -- in our investor call after third quarter results, we mentioned that we would have about $100 million cost-cutting introduced, which we successfully completed. And -- but some of those initiatives were one-off factors, some of those initiatives would be able to sustain into 2020.
We will be, again, this year, looking very carefully into our personal needs. We will probably freeze any personnel hire increase. And we will be looking into deferring some of our procurement needs that are not urgent. We will be looking into our investment requirements throughout the year, and then we'll, again, delay some of those that are not urgent. And other -- the variable cost side on our handling expenses, catering expenses and our technical maintenance expenses, we will be also looking into further opportunities to decrease the cost in order to contain our cost base.
Following questions are about coronavirus, but we split those questions since the topic is important. A question from [ Estra Eshemet ]. What is your capacity cut up to now? Are you planning more capacity cuts considering the recent developments related to the coronavirus epidemic?
Shall we try to answer this through the presentation? We suspended our operations to China, Iran, Italy, South Korea, Iraq and Saudi Arabia just for the religious Umrah flights. Total ASK share of these destinations is around 10%, and then the revenue share is again very similar, about 10%, and the number of passenger size is about 6% to 7%. Until now, most of the capacity from the suspended destinations, we could manage to assign it to other routes to the extent possible. Going forward, as we see more softening in demand, we might cut some more capacities and adjust it to the destinations where we see there is opportunities of utilizing our aircraft in an efficient way.
Yes. The next question is from [ Kamal Hadra ] asking the virus also affected global logistics. Do you also have any plans, assumptions or revisions considering the cargo business?
It is true the virus effect seems to have affected the global trade, especially in the month of February, but we are seeing, at the moment, that the factory plants are reopening in China and the business is recovering in China. So that's a big development. However, despite of that, when we look at the industry data between mid-January and mid-February, belly cargo capacity declined and freighter capacity declined to main China. Yet, as we have been iteratively saying, Turkish Airline is on the -- Turkish Cargo is flying to 85 destinations, and we are also the cargo provider that is flying to most country and more countries than any other airline, so which helped us to circumvent these negative impacts that came out from China.
We saw declines in total amount of cargo carried from China, yet the unit revenues increased from China and the drops were mainly due to the dropping of the belly cargo as we cut the passenger flights there, but our cargo fleet is operating -- still operating to China.
And in regions other than China, the impact was limited in February, and parallel to the slowdown in global supply chain, we can see more weakness in cargo demand. But so far, our cargo operation hasn't been drastically impacted.
Yes. The next question asked, can you give us color on 1Q '20 financials after current situation?
So as I mentioned also earlier, January traffic -- as the January traffic reflected, we had a very positive January in terms of the yields, in terms of the passengers and in terms of the traffic. And then the impact of the virus on February was limited mostly to Far East region. But towards the very end of February and then the beginning of March, we saw the outbreak -- the virus spreading throughout Europe and some of the countries, just providing bans of certain citizens of certain countries. So we will see. We had a positive January. We will have a negatively impacted yet limited impact on February. And we will see also some negative impact on the traffic developments in March. So to add all this up, overall, we will be beyond our expectations in the first quarter, but -- on the bottom line. But it's not going to be a drastic drop in operational profit.
Yes. The next question is about the new airport. When do we see the contribute -- when do we see the contribution coming with Istanbul Airport will surpass the cost increases?
So as you know, we moved to the new airport in April and we considered 2019 as a transition year because, as I also mentioned in the presentation, we could only put back the capacity, our full capacity, incrementally, so we missed out the month of April. And then we also, on top of that, had some capacity constraints regarding the MAX and neos. We believe 2020 will be the first -- -- we were expecting 2020 to be the first full year where we would see the full benefit of the airport. Yet then this virus outbreak came along, and it will definitely affect the global demand and our big -- one of the big contributions of this new airport would be on the transit passengers as it would be a very strong connecting hub with a 3 parallel runway, 120 million passenger capacity about 120 ATM per hour, so it would seek that call in the most respective way. So -- but overall, because 2020 will have some uncertainties, probably we will be seeing the full benefit of the airport in 2020 if the impact of the virus continues. But if we see the impact vanishes by the summer, we might still have the full benefit of the new airport throughout summer.
Okay. The next question is about that, from Hanzade, JPMorgan. She asked about the leverage. What is the maximum leverage you target in 2020?
The amount of total net debt that we expect to reach in 2020 is about -- well, in our initial -- based on our initial guidance was between $11.7 billion to $12 billion level. But given that some -- we might cancel some of our aircraft deliveries, and if we cut back some of the investments that we were planning to take this year, this might go down. Well, we would -- we were expecting to be between 3.7 to 4x levered. But again, as I said, depending on how the rest of the year will show itself, this might come down.
My next question is about coronavirus scenarios from [ Salim Akyumat ]. You must have run numerous scenario analysis on potential impact of coronavirus outbreak. How much downside do you see to your 2020 guidance, one, if the issue ends by end of first half; two, extends into year-end? It would be very useful if you could reflect on load factor passenger volume, yields and profitability. It's a very difficult question, but what do you think?
Yes, this is -- I mean, at the moment, really, this is a rather difficult. We have been running numerous scenarios, having just limiting the impact to 10% to 50% production drop, but they are just scenarios. At the end of the day, what we know for sure is we saw an outbreak contained in one part of the world then having very quickly spread to the remaining part of the world and to a vast geography. But how fast it will increase, it will spread from this moment on is quite uncertain.
If the issue is contained in the first half, then I think we don't need to do too much extra work because in the first half this year, as I mentioned -- I already gave you some insight about the first quarter. In the second quarter, we have the month of Ramadan in between, so we were already planning that to be a slow month for us for travel, and we were heavily relying on the second half, mainly the summer months until September, where we would have the biggest contribution to our bottom line.
So if the virus -- the impact of the virus is contained in the first half, the impact could be limited. We could still fall slightly behind our guidance figures, but it won't be very significant because we will be, in the meantime, already, we will be taking some cost-cutting measures. But if it continues to the summer months, of course, that's a completely different question. In order to be able to answer that, we need to wait, at least -- we need to at least see until mid-April to be able to see more clarity about the developments throughout summer.
Murat, we're running out of our time. So I'm just addressing the last questions about guidance. A question from Najet, Bank of America. Unit cost flat guidance in fiscal year '20, what is making you confident that this is achievable given the current uncertainties and [indiscernible] in IFRS recent study, it says there is a decline in tax numbers due to coronavirus for 2020. Will you revise your guidance?
So as you would remember, we announced our guidance much before the virus outbreak. And actually, when we were -- when we announced the guidance, we also did not disclose our strategy, the new strategy about AnadoluJet. And we were already planning to revise our guidance, revising it with the new strategy of AnadoluJet, but of course, this outbreak changed that picture.
So the short answer to the question is we will revise the guidance. We are not in a position to do that right away, as we don't have too much of a clarity. Even in the next month, we don't know how drastic the spread will take place, but as soon as we have some clarity looking into the future, we will be sharing with you our revised guidance figures.
Okay. Thank you, Murat. Thanks, everyone, for attending our conference call for the year-end results.
Ladies and gentlemen, this concludes today's webcast call. Thank you for your participation. You may now disconnect.