Turk Hava Yollari AO
IST:THYAO.E
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Mastercard Inc
NYSE:MA
|
Technology
|
| US |
|
Abbvie Inc
NYSE:ABBV
|
Biotechnology
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Realty Income Corp
NYSE:O
|
Real Estate
|
| US |
|
Verizon Communications Inc
NYSE:VZ
|
Telecommunication
|
| US |
|
Walt Disney Co
NYSE:DIS
|
Media
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
This note will be permanently deleted.
Turk Hava Yollari AO
Earnings Call Analysis
Q3-2023 Analysis
Turk Hava Yollari AO
Turkish Airlines has cemented its industry leadership with a consistent profitability track. The airline managed to exceed its 2019 capacity by 17% in the first nine months of the year, showing a remarkable adaptation to the 'new normal' and recovery from the pandemic.
Reaffirmed by accolades such as Turkiye's most valuable brand and Europe's best airline, Turkish Airlines is investing in its products and services with the ambition to become one of the most prestigious airlines globally by 2033. The third quarter saw Turkish Airlines and Istanbul Airport preserve their distinguished status as Europe's busiest network carrier and airport, signaling a robust contribution to Istanbul's standing as a worldwide aviation hub.
The third quarter reflected a strong resurgence in travel demand, notably from Asia and across the Atlantic, allowing Turkish Airlines to maintain profitable operations. The airline transported 25 million passengers during this period, up approximately 10% from the previous year and supported by a 9% capacity increase. This performance was complemented by a load factor of 85.6%, which is 2 points higher than in 2019.
Revenue trends continued positively with total Q3 revenues hitting a record $6.3 billion, an uptick of 9% in passenger revenue compared to the same quarter in 2022. Turkish Airlines also announced strategic partnerships with other airlines such as Thai Airways, China Eastern, and Indigo, aiming to leverage Istanbul's position as a central connection hub. Notably, cargo revenues saw a 30% decline due to a drop in unit revenues and volumes, though this was a smaller decrease compared to the previous quarter.
The airline is taking steps to maximize its cargo operations by establishing a new e-commerce focused brand, Widect, set to launch at the beginning of the next year. This initiative will offer comprehensive air cargo solutions to corporate customers, utilizing its extensive network and expertise.
Turkish Airlines reported $1.7 billion in profit from main operations and a significant $2.5 billion EBITDAR, reflecting a 40% margin. The net income stood at $1.9 billion, marking the ninth consecutive profitable quarter. Additionally, $2 billion in free cash flow brought the airline's liquidity to about $6.8 billion. Low debt levels and strategic repayment of higher-cost borrowings are being practiced to further solidify the financial structure.
Despite geopolitical challenges, Turkish Airlines is experiencing strong forward bookings for Q4 and is aiming for high double-digit capacity increases. The carrier anticipates a growth in passenger capacity of 17% to 19% for the full year, with a projected 13% to 14% return on invested capital. However, issues with aircraft and engine availability present operational hurdles, influencing the planning for 2024, which tentatively includes a high single-digit increase in passenger capacity.
Regionally, the Far East and Americas have been standout performers, thanks to robust demand and the introduction of better-timed connections. New routes and increases in capacity, particularly to the Far East, have enhanced traffic and load factors. While operational issues in Europe have lessened, competitive pressures persist, and the Middle East faces demand challenges due to geopolitical factors.
You don't have any saved screeners yet
Good day, ladies and gentlemen. Welcome to the Turkish Airlines Third Quarter 2023 Conference Call and Webcast. There will be a question-and-answer session after the presentation, and these will consist of written questions only, no audio questions. If you wish to ask a question, you can send your questions from the webcast page.And with that, I will now hand you over to our speakers for today, Associate Professor, Murat Seker, member of the Board and the Executive Committee as well as the Chief Financial Officer of Turkish Airlines; and Mr. Mehmet Fatih Korkmaz, Head of Investor Relations at Turkish Airlines. Gentlemen, the floor is yours.
Thank you very much. Good afternoon, everyone, and thank you for joining us today. A warm welcome to you all from Istanbul. The results we announced yesterday underpinned our industrial leading position with sustained profitability. Turkish Airlines is among the few global carriers to successfully adapt itself to the new normal and exceed 2019 capacity by 17% in the first 9 months of the yearBefore going into details of our third quarter performance, I would like to reflect on some recent highlights. Last September, we organized a non-deal road show in New York, meetings with investors on our year-to-date performance and 2033 targets were quite valuable to us. We look forward to similar engagements in the future, where we will address our strategic targets and growth areas.To provide you with more insights, our roadshow presentation is currently available on our Investor Relations website. For those seeking more details, we will also publish a comprehensive presentation shortly. Ongoing efforts to elevate our brands continue to be appreciated all around the world. This year, we have been honored as Turkiye's most valuable brand by Brand Finance for the sixth time and as Europe's best airline by Skytrax for the eighth time. More recently, we were once again recognized as the world-class airline by APEX, one of the world's largest international airline associations. We will continue to invest in our product and offerings to become most prestigious airlines in the world by 2033.In the third quarter, Turkish Airlines and Istanbul Airport maintained their position as the busiest network carrier and airport in Europe. Looking forward, we will strongly contribute to Istanbul's position as a global aviation hub as we expand our global footprint.Now I would like to turn your attention to our third quarter results. In the quarter, the quarter saw a marked increase in travel demand, primarily driven by the belated opening of Asia and ongoing travel appetite across Atlantic. Our operational efficiency, vast network and the robust international demand allowed us to run a profitable operation throughout the quarter. Our July to September performance stand as one of our strongest underlining Turkish Airlines leading position in the industry, especially in meeting the pent-up demand for a travel.During the third quarter, we carried 25 million passengers, reflecting around a 10% increase year-over-year on the back of 9% higher capacity. With strong international demand, our load factor was recorded at 85.6%, 2 percentage points above 2019. Building on this momentum, we expanded our global reach and connection power with our new strategic partnerships. Recently announced collaboration with Thai Airways, China Eastern and Indigo tap into the potential of Istanbul as a major connection hub, also enhancing tourism prospects between the respective countries. These alliances demonstrate Turkish Airlines commitment to the region in the coming decade.In the third quarter, we sustained our revenue growth trend on a year-over-year basis. Total revenues for the quarter reached $6.3 billion and was recorded as the highest quarterly revenue to date. Passenger revenues increased by 9% compared to the third quarter of 2022 and surpassed $5.5 billion. I believe this is a particular noteworthy considering the high base we set last year.Our cargo revenues, on the other hand, decreased by 30% to almost $620 million. The annual decline in cargo unit revenues and volumes were better than the previous quarter by around 12 percentage points as the impact of the earthquake relief efforts phase out. With this in August, Turkish cargo ranked third in the world in terms of freight tonne kilometers according to IATA. In order to crystallize the value in our cargo operations, we were also advancing in the e-commerce sector with Turkish Cargo's new brand Widect. Set to launch at the beginning of next year, Widect will offer integrated air cargo solutions for corporate customers. Its end-to-end services will encompass the whole value chain and leverage our extensive flight network and Turkish Cargo's logistics expertise.In the third quarter, we generated a profit of $1.7 billion from main operations. Also, we achieved an EBITDAR of $2.5 billion with an exception of a high margin of 40%. Net income realized as $1.9 billion, marking our ninth consecutive profitable quarter. With this, our net income reached $2.8 billion for the first 9 months. $2 billion of free cash flow increased our liquidity level to about $6.8 billion. Our high liquidity and low indebtedness significantly benefit us in the current interest rate environment. We are also strategically paying down some of our highest cost borrowings before their maturities to further improve our debt structure. At this point, I would like to reiterate that we believe current ratings assigned to Turkish Airlines by the 3 rating agencies do not reflect our financial strength, especially considering our sustainable profitability, strong liquidity, high debt service coverage ratios.Amidst recent geopolitical tensions in the region, our forward bookings for the fourth quarter exhibit strength, signaling optimism for the years remainder. However, challenges like inadequate aircraft availability and engine durability issues, particularly Pratt & Whitney GTF engine problems continue to constrain passenger capacity. Taking this into account, we are targeting high double-digit capacity increase in the fourth quarter. For the entire year, we expect our passenger capacity to grow by 17% to 19% with a low single-digit increase in passenger yields relative to last year. With continued revenue growth and resilient margins, we expect to generate 13% to 14% return on invested capital for the full year.We are still working on the details of our 24 budgets as the visibility of the aircraft availability remains low due to the problems mentioned earlier. At the same time, the vague macroeconomic outlook and current geopolitical situation in the Middle East present challenges for projecting the demand environment. For now, we aim to increase our passenger capacity by high single digits in 2024. However, we will continue to monitor our booking curve, global travel appetite, macroeconomic environment and fine-tune our projections. We expect to finalize the budgeting process through the end of this year and will disclose the details accordingly.Now let me turn over to [ Fatih ] to elaborate on our key financial results and provide additional insights.
Thank you, Murat, and good afternoon, everyone. After a strong first half performance, we continue to increase passenger capacity in parallel with the resilient demand environment. In the third quarter, our capacity surpassed the same period of 2022 by 8%, slowing down from 22% increase in the first 6 months of the year 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 Istanbul Airport continued to be robust. In the 3 months to September, the number of international transfer passengers rose by 16% and reached 18% above pre-COVID levels. Similarly, our direct international passengers surpassed the 2019 figure by almost 26%. In this segment, we experienced a mid-single-digit annual decline due to the normalization of the passenger mix towards transfer traffic.From a regional perspective, our operational performance was materially above the pre-pandemic levels, though annual performances vary depending on the region-wise basis set last year. Far East and Americas remain the top-performing regions during the quarter. The delayed reopening of the Far East provides significant momentum for our revenues. Accordingly, we increased our capacity to the region by around 30%, and the load factor rose by 2.3 percentage points year-over-year. Second bank structure that was introduced at the end of last year yielded satisfying results so far as it offers better connection times, resulting in enhanced connectivity and aircraft utilization. We will support our network growth in the region by relaunching our direct flights to Osaka in December, followed by the opening of our first route in Australia next year.Strong ethnic demand extended summer season and higher business class preferences resulted in 8% higher revenue yield in the Americas. As we channel passenger capacity to capture fast-growing demand in the Far East, our capacity in the Americas increased by only 2% compared to the same period last year. Consequently, the region's load factor climbed by 1.5 percentage points. We anticipate that the current developments in the Middle East will have an impact on the transfer traffic to the region.Our sales team aims to recoup losses by targeting additional traffic from India and Eastern Europe. On November 15, we will commence our [ Flystart ] 25th destination in the region with the opening of Detroit, which is expected to stimulate additional demand from our network.Compared to the previous quarters, we experienced fewer operational problems at European airports. However, airspace congestion was increasingly felt and negatively affected our on-time performance. Our passenger traffic in the region remained broadly stable throughout the quarter. The demand from the Far East counterbalanced by intensifying competition within the region, coupled with aggressive pricing from the low-cost carriers.In the Middle East, competition and the protest in Israel continue to drag on demand housing load factor to deteriorate by 7 percentage points. The current geopolitical situation in the region makes us vigilant. We suspended our Tel Aviv route after the conflict emerged and it will remain closed for the time being. Although Israel's capacity share is considerably accounting for around 1% of our total ASK. Further escalation remains a risk factor. We are dynamically reallocating capacity to other countries to mitigate some portion of this impact.The tragic earthquake in Morocco, increasing competition for Umrah travel and FX shortages were the main headwinds for our route to Africa. Introduction of the e-Visa for Turkish students by Egypt fell short of compensating the demand. As a result, we reduced our passenger capacity region by around 4% year-over-year. This adjustment stabilized load factor at 81%, about 1 percentage point higher than the pre-pandemic level.In the third quarter, our passenger revenues increased by approximately 9%, mainly driven by higher volumes. On the cargo front, the annual decrease in our cargo revenues decelerated from 44% in the second quarter to 30% in the third. This improvement can be attributed to a relative supportive operating environment and phased out earthquake impacts. In the 3 months to September, our cargo yields were more than 30% above 2019 levels and 10% in premium compared to the industry. More notably, after 20 months of continuous declines, our carried cargo volume marked its first annual increase in September.On a global basis, signals related to cargo demand became more entangled. While tighter financial conditions and slowing international trade apply downward pressure on global cargo prices. The recent stabilization of volumes will offer a more positive outlook, yet neither current PMI nor inventory levels in the U.S. and Europe indicate a material resurgence in demand. At the same time, the increased availability of vessels compound supply and demand imbalance. Consequently, we remain on the cautious side and anticipate a modest peak season in 4Q.As you can see, our on-hand liquidity increased by over $2 billion in the first 9 months to over $6.8 billion. Strong operational cash inflow reduced net debt by $7.8 billion to $6.2 billion as of September 30, down from a peak level of $14 million at the end of 2020. As a result, our LTM leverage decreased to its global level of 1.1x by the end of the quarter. Our robust operational performance on the back of a newly lower fuel prices translated into almost $4.9 billion of EBITDA for the first 9 months of the year.With the strong contribution from our investment portfolio, our net income recorded higher than our net operating profit with a 17.6% margin. As you recall, in the first half, we had several one-off cost items amounting to $370 million due to the earthquakes in Turkey and personnel compensation against inflation. As we concluded the third quarter without any significant one-off expense, our cost base started to normalize.Even though we've seen a sharp increase in fuel prices recently, our current pass-through capability, combined with the 30% hedging level offers up to 90% protection from surging prices for the last quarter of the year. Our risk management and commercial teams are in close collaboration to manage our fuel exposure for the upcoming periods.Looking at unit expense breakdown, we recorded a 5% decrease in total cost per ASK and a 12% increase in ex-fuel cost during the quarter compared to the same period of last year. Lower fuel prices and crack spreads were the main drivers of the decrease in unit expenses. On the other hand, the increase in ex-fuel unit costs primarily resulted from inflation and personnel compensation against the inflation. Additional contributors to the increase were airport fee escalations and higher sales commissions.In the third quarter, capacity and passenger numbers of AJet rose by around 30% compared to last year. With 23 net additions in the first 9 months, this number of aircraft reached to 87. So we are aiming to expect this fleet to 93 aircraft by the year-end. Right now, AJet team is working towards obtaining the operating permits, and we expect the company to commence these flights within the next year under the new structure. In the coming months, we will also unveil its 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 between 17% to 19% higher than the last year, excluding any unexpected aircraft-related problems. Although global travel appetite remains constructive, geopolitical issues pose the downside risk to the demand environment. On the cost side, as one-off impacts from the earthquake relief efforts and inflation payments abate, our ex-fuel unit cost will continue to normalize. Accordingly, we anticipate that the extra cost will be up by high single percentage points compared to the last year, same as our previous guidance. On the other hand, annual gross CapEx is expected to be around $5 billion to $5.5 billion with the 8 net aircraft additions, including other fixed investments.With this, we conclude our presentation and can now continue with the Q&A session.
[Operator Instructions] And speakers, over to you for those written questions.
We have a number of questions from our analysts. We would like to thank you -- thank them for their contribution. And unfortunately, we had an operational interruption last night. So Murat, our experienced network-related interruptions last night, what will be the impact? And what is the main reason behind it.
So the last night, as we were having a planned and scheduled IT maintenance task, there was a problem. And then that problem during the maintaining operations led to collapse of the related services, and that led to a blockage of our operation for about 3 hours. We regained all the IT systems by about close to 10:30 last night, and everything is in full operation as of today. Overall, we had to cancel about 200 flights, whereas usually in a day, we have about 1400 flights. So the overall impact was limited. And also, the financial impact of this operation was quite limited.
Continuing with the recent GTF problems. We got questions from HSBC and JPMorgan. How many aircraft did you grant due to the GTF engine problem? Will these challenges impact your capacity targets for the rest of this year and 2024?
So in the last quarter's call, we said we were expecting to ground around 10 to 12 aircraft by the end of this year. Our current expectation is around 14 to 15 aircraft as the new deliveries comes from Pratt & Whitney, we revised our projections, but we are not too far away from our earlier guidance. And so this has an effect on the fourth quarter capacity, but we are still in quite aligned with our annual capacity growth projections of 15% to 20% ASK growth for the remaining part of 2023. And for the next year, as we also said in the second quarter's call, we might end up grounding up to 40 aircraft, news next year. However, we have been trying to fill that gap up with operating leases and quite a large number of with these aircraft. So the net impact of this grounding will be quite limited in terms of new capacity put in the markets. And we are also continuing to compensation discussions with Pratt & Whitney. As you know, we have a partnership, a joint venture in Istanbul and engine overhaul facility. So it's quite continuing to negotiation in a positive tone.
Murat, could you elaborate on the effects of the current situation in Israel and the main Middle East.
So of course, the turmoil is not affecting Israel operations, but Lebanon and Oman are also affected. But overall, the ASK, the capacity provided to Israel mix around 1% of our overall ASK and the share of the revenue, tax revenue is more or less the same, around 1%. And overall, Middle East makes around 10% of the revenues. We have suspended the operation to Tel Aviv until the mid of November. And afterwards, our current schedule is 2 frequencies per day. It is going to be about 7% to 80% reduction in our actual original capacity.As I said, demand of to Lebanon and Jordan are also affected. However, we were already seeing some drop in the demand to and from Middle East as early as second quarter of this year, there was some idle capacity, and we were transferring the capacity to Europe already. So this was the new unexpected situation that arise from the region was already within our projections. And that's why the additional negative impact is limited.
Continuing with the questions related to our financial results. What factors contribute to better-than-anticipated financial performance in the third quarter?
So especially the passenger demand is the strength of the passenger demand from Far East and Americas region kept us having strong yields and elevated yields along with the lower fuel prices and normalizing the one-off impacts were the core reasons. Number of passengers rose by around 10% year-over-year in this quarter. The yields were 23% higher than 2019 level and still were slightly higher than 2022 level and due to the decrease in the jet fuel price, the unit cost, including the hedge decreased around 26% compared to the same quarter of last year.
Were there any one-off items reflected in the third quarter results. Do we expect any one-off expense in the fourth quarter?
In the third quarter, there were some compensation due to the late aircraft deliveries, especially the 787s that were delivered late. And for the last quarter, this was around -- and for the last quarter, we will still get some compensation, although much limited because of the late deliveries, aircraft deliveries. There will be an amount of around $100 million spent on earthquake-related housing project, as we announced in our annual meeting and as we have disclosed earlier with the public. And we expect, due to the strong financial results, we expect to pay some amount -- some further amount on personal bonuses. So overall, we are expecting around $100 million, $120 million net expenditure due to this kind of one-off effects.
Lastly, our traffic data indicates a sequential decline in direct passengers over the past 4 months. How do you interpret this trend back from -- a pair of letter also ask this question.
Well, we observed the share of international direct passenger actually coming back to their historical averages. Like in 2018 and '19, the share of direct international passenger was around 45% levels. It went up as high as 51% last year because of the excess demand. But this year, in the first 9 months, it's back to 44% levels. And so this is actually a normalization is what we see. And the share of transit as more countries opened up, especially the Far East region, the amount -- the share of transit passengers increased from the low level of 49% last year to 56% this year. So what we are seeing is a normalization in terms of distribution. However, of course, the amounts, the number of passengers are increasing.This year, for example, in the first 8 months, total number of tourists that came to Turkey was up by 14% over last year, and it reached EUR 33 million tourists. And overall, for this year, we expect a 17% increase on top of last year and reaching a number of tourists number of tiers reaching to EUR 60 million this year.
Could you comment on the increase in your deferred income?
Well, as we are still seeing the sales numbers are strong, and it's higher than its usual historical average, and forward bookings continue to support this strong sales force. We might -- we are seeing it's around like 13% to 14% and the amount of deferred income to overall revenues, which is higher than its historical average of around 12%. It might come down a little bit in the last quarter. However, we are still going to see this continuing through the next quarter in the first quarter of 2024.
Regarding our outlook, we got a number of questions from our analysts. What are the current trends in forward bookings? And can you provide some additional details from a geographical perspective? Also, do you have any additional insights on regional capacity composition?
Well, overall, we are seeing a positive outlook, especially for the Christmas term. The demand is likely to continue to be strong in Europe and Americas despite the double-digit capacity increase. However, Middle East, as I have expressed in the earlier question, the conflict we see in Middle East pose some risk regarding the forward bookings from this region. In Europe, the long-haul capacity additions of the peers and aggressive pricing of the LCCs did put some pressure, yet still our schedule consistency and the route and availability, along with increasing transfer traffic from our Far East routes allow us to withstand the competitive pressure. In Far East, capacity increase in new entrants in the market intensified the competition and the relative demand weakness throughout the region compared to previous quarters, increased this situation. But overall, year around, we expect a 10% increase capacity in Europe, about 30% increase in Far East, about 11% increase in America, and the domestic demand ASK -- sorry, these are ASK numbers to increase by 28%, Africa by 7% and Middle East by 26%, which around will be, as I said earlier, between 15% to 20% ASK growth on the top of last year. And this ASK distribution increase will make around 1/4 of the capacity will be from and to U.S., Americas, about 1/4 from Europe, less than 10% from Africa and about 10% domestic and another 10% from Middle East and the remaining will be Far East region.
Are there any updates on revenue and margin forecast for this year?
While considering our strong third quarter results, we are increasing our EBITDAR margin guidance from the earlier announced of 25% to 27% to 26% to 29% levels. And in the nominal EBITDAR amount, we expect that to be around $5.5 billion to $6 billion level.
In terms of ex-fuel costs, what is the projected change?
In ex-fuel cost is expected to be around high single digits year-over-year, mainly due to the one-off items in the first half like the earthquake and the related expenses, the personnel salary increases due to inflation and overall impact of inflation on handling expenses and the catering expenses are the core reasons of the increase in ex-fuel cost. But overall, we expect this to lead to a high single-digit increase in ex-fuel costs.
What and how do you view the demand outlook for the coming years?
Well, for the next year, we are still working on the budget and the current visibility for the passenger demand environment is low due to the uncertain macro outlook, I mean, the interest rates globally, we observe are high, and they are -- they might have an impact on the potential appetite to travel and the excess savings that was -- that were reserved for travel purposes might have decreased. So this is on the negative side. However, excluding the geopolitical events, international travel, especially the long haul out of Far East seems to be still strong. Thus, we don't have any significant negative outlook. We expect to release our year '24 guidance by the end of this year. Our initial thinking is still we'll be able to maintain a high single-digit passenger capacity increase with a very mild erosion in the yields for 2024.
Can you also shape the cost outlook a little bit?
Cost, one of the biggest cost items will be the collective bargaining agreement with the labor union. And considering the still ongoing high inflation environment in Turkey, that's going to be an important item to monitor. And similarly, as we keep observing the high inflation in all around the world are other operational expenses, the big items on catering, on handling, on lounges, other operational expenses might be -- might push the costs higher next year.
Moving to fuel and hedging questions. What is the anticipated fuel cost for 2023 and your underlying assumptions?
So this year, we expect around 16% fuel cost decrease compared to last year. And as of now, our hedging ratio for the whole year is around 20%, and the breakeven price of Brent is $79. And the last quarter of this year, we expect the hedge ratio to go up to 30%. And yes, so it won't be a huge pressure making item for us for this year.
What about the fuel strategy for 2024?
So going forward, the -- it's a 2-way stream. It seems like we see some downside risks for the global activity due to higher for longer interest rates and which might result in lower overall demand. On the other side, there are some upside risks for Brent due to geopolitical risk arising out of the Middle East region and in addition to the Saudi Arabia's and Russia's production cuts that it was announced through the December. So it's hard to say, which way it will go. We'll continue to implement our current hedging strategy with a target to reach up to 50% of our overall consumption. And our hedging strategy aims to take the positions for shorter tenors with a lower ratio in the current price environment. And currently, we hedged already up to 10% of our 24 fuel consumption, and we'll keep adding -- increasing this ratio reaching probably up to 40% by the end of 2024.
Moving to fleet questions. What is the projected year-end fleet size? And could you provide further details?
We expect to finish the year with about 440 aircraft. And this will be overall 61 entries and about 15 exits from the fleet for 2023.
How do you envision the fleet composition changing? And also, we have a question from Kurt that he's asking about how many aircraft are late in delivery this year? And what do you expect next year?
So there are some late deliveries. Of course, the 787s and NEOs were all delayed, some even from 2021 by the end of 2021, we saw deliveries. For the '24 fleet, we are shaping our planning for about a high single-digit ASK growth. And as I said, we want to finish this year, '23 by about 440 aircraft. And next year, we are planning to reach a size of a net of about 40 aircraft next year, which is going to end up -- help us finish the '24 by about 480 aircraft. 15 of these will be firm orders from the OEMs and about '25 aircraft will be operating leases.
Regarding your recent 28 additional operational leases to your fleet, should we subtract them from your intended system aircraft order?
So that large order book has been delayed for numerous reasons, and we expressed our thoughts and considerations in the last quarter's call. Unfortunately, those challenges are continuing. We have though made a significant amount of progress with both producers shaping up the order book on the wide-body and narrow-body front. We have not finalized and -- but as -- obviously, none of the OEMs are in a position to help us fill in the aircraft needs for the short terms, we decided to move more aggressively with the leasing companies. And as I said in the earlier question, we will be adding about 40 net delivery next year to the fleet, 15 of the mark from the OEMs and the rest are from operating leases. In 2025, we expect to add an additional 40 to 50 aircraft. And again, like about probably 20 will be firm orders from OEMs and about 25 will be from operating leases. And in 2026, about like a 25 aircraft deliveries. So we have -- this negotiation, of course, some of these are still continuing, but we have made progress to fill in our short-term needs with the operating leases. Some of them are with operating leases. And with this big aircraft deal, some of it is going to be compensated with these operating leases and some of it maybe will be covering much further away needs of Turkish Airlines after 2033 maybe.
What is the estimated CapEx for this year and the next?
So this year, CapEx hasn't changed since our last call. We expect to finish the year with about $5 billion to $5.5 billion gross CapEx. And next year, as we'll be getting more aircrafts, it will go up by about $500 million further to around $6.5 billion.
According to what is the forecasted net debt position at year-end and when do you expect leverage to start increasing to previously guided levels?
So well, in the third quarter, of course, and together with the financial performance and operational strength, our year-end net leverage guidance is going to be decreasing. Net debt was net debt to EBITDA, so net debt was going to be declining from the top levels of 2020 by $8.5 billion to $9 billion, and the leverage ratio is going to be declining to 1x to 1.5x from 1.5x to 2x level. So net debt will be declining to $7 billion to $7.5 billion and leverage to 1x to 1.5x levels.
Are there any consideration for an IPO for any of our subsidiary?
So this question always comes up as we really do have quite strong subsidiaries in MRO capacity, Turkish technique in our cargo operations, Turkish Cargo, our ground handling operation, Turkish TGS and the newly incorporated -- to be incorporated low-cost subsidiary, AnadoluJet. As of today, at the moment, we don't have any IPO consideration, but that our partner having strategic partners are always within considerations to help us grow our market size.
We have additional questions from our participants Serhat from Yatirim Finansman is asking about, is there any -- is there a possibility to reaching PSS software strategy after yesterday's software issues?
Well, first of all, the problem wasn't PSS specific issue. It was a very unrelated maintaining problem that got affected some of our major mainframe software. So that's why we don't have any -- I mean, PSS issues for various other reasons that we are -- IT teams are working on, whether to change or improve, but the issue that came up last year had nothing to do with the PSS software we use.
Cut from a transport world, we already some part of this question, but Murat not do we see more alliances from Turkish Airlines like with China Eastern [indiscernible]?
Definitely, especially in the long-haul areas, Far East and Americas, in particular, we have a strong appetite to grow our engagements with our -- with other airlines. As we expressed in the presentation, China Eastern, the more extensive one with the Indigo such collaborative efforts are very valuable. We have been communicating with quite a bit such network carriers in Far East in Americas. We'll be announcing them as more progress is made, but that's one of our core strategic purposes to increase our operation -- to increase our network in the long-haul destination.
Sultan from AB is asking about. Can you remind us what is the reason behind the slow recovery in European capacity and when do you expect it to recover?
So this is the slow recovery in European capacity. I mean for us, we have been actually been performing much better than European airlines in capacity, we put roughly 25% capacity in Europe compared to our 2019 level at 25%, whereas our major European peers had a drop of around 5%, 6% overall. Lufthansa had a drop of 21%. Air France 8% drop in passenger capacity as compared to 2019 levels. So we don't have a problem of putting capacity in Europe. On the contrary, we have increased the capacity in Europe in this year.
We haven't answered one part of the question of Anton from Citi. Where do you plan to invest your capacity in the long run, in the U.S. or Asia?
It's not one or the other actually. It's both -- I mean, we keep adding new destinations. In about a month, we will open another destination in Americas. Detroit will start to fly. Overall, we want to add like 9, 10 new destinations in Americas, another 10 to 15 destinations in the Far East. So it's not going to be one or the other. It's going to be both sides of the world in long-haul destinations that we are expecting to grow and looking into new destinations or partnerships as I answered in the earlier question.
Murat, I think our time is up. Sultan is asking additional questions, but I will follow up with him later. So I would like to thank all of our analysts for their participation. And if you have any further questions, you can get in touch with us any time. Thank you.
Thank you, speakers. Thank you, gentlemen, for the presentation. And ladies and gentlemen, that concludes today's webcast call. Thank you for your participation. You may now disconnect.