Ladies and gentlemen, welcome to the Turkish Airlines Second Quarter 2022 Conference Call and Webcast. Thank you, very much for standing by. There will be a Q&A session following the presentation by the speakers. If you would like to ask a question, please press star five on your telephone keypad. Then to participate in the written Q&A, just type your question into the ask a question text area, and then click the Submit button. With that, I will now hand you over to our speakers. They are Professor Dr. Ahmet Bolat. He's the Chairman of the Board and the Executive Committee. Associate Professor Murat Şeker, Member of the Board and Executive Committee, as well as the Chief Financial Officer. Mehmet Fatih Korkmaz, Head of Investor Relations. Speakers, the floor is yours.
Excuse me. This is Murat Şeker speaking. I think there was a little bit of a misunderstanding. Our Chairman is with us today. Chairman and Mr. Professor Ahmet Bolat is going to start the presentation.
Hello. Thank you, and good afternoon, everyone. Welcome to the presentation of our results for the second quarter of 2022. It's my pleasure to meet with you, all of you, for the first time as the Chairman of Turkish Airlines. Let me briefly introduce myself. I studied industrial engineering at Istanbul Technical University and obtained a master's degree from Operational Research program at Stanford University, and a PhD degree from University of Michigan in Industrial Engineering. Before joining Turkish Airlines, I had various academic roles at the University of Michigan and King Saud University, Riyadh, for 17 years. I joined Turkish Airlines in 2005, and served as the Senior Vice President of Investment Management, and then as Chief Investment and Technology Officer between 2012 and 2022.
During my years at Turkish Airlines, I managed strategic growth plan of our company and added around 550 aircraft to our fleet. Additionally, I was responsible for international relations and alliances, ensuring enhanced bilateral relations along with partnership and network development. I'm pleased to be online with you today. Now allow me to go through highlights of the second quarter of 2022. When we started the second quarter, geopolitical conflicts and soaring food prices were on the top of the global headlines. Throughout the quarter, as we get closer to the summer, we started to see strengthening passenger demand. However, this positive development was accelerated by increasing operational disruptions, especially in Europe, caused by staff shortages. Operational resiliency, readiness, and our vast network, combined with surging demand and our low-cost base, enabled us to conduct a profitable operation.
As a result, we are happy to present you a strong second quarter results. Turkish Airlines continues to stand out among its peers, increasing its global network, market share, and profitability. Throughout the pandemic, we retained our highly qualified personnel base, gave special importance to the job trainings, and improved our efficiency. This decision proved itself right as we have been able to ramp up quickly and capture that rapidly increasing passenger demand across our network in 129 countries with our 386 aircraft. Similarly, under the Turkish government guidance, Turkey's airport infrastructure remained intact during this time. Synergy created among the sector players allowed Turkish aviation to recover swiftly to 90% of the pre-pandemic passengers in June. Istanbul and Antalya Airport also maintained their place among the top airports in Europe, ranking first and eighth respectively in terms of passenger numbers.
Our second quarter capacity exceeded 2019 levels by 12%, which resulted in Turkish Airlines to produce the only network carrier around the globe that surpassed pre-pandemic capacity levels according to the data provided by OAG. At the same time, we carried more than 18 million passengers, just 1% below 2019 levels. Growing preferences towards Turkey among foreign travelers resulted in direct international passengers to rise by 23% compared to 11% increase in international passengers. Substantial increase in passenger traffic, along with the continuing strength in cargo unit revenues, led to significant improvement in our financial performance compared to last year. Total revenues reached $4.5 billion in this quarter, surpassing 2019 level by almost 43%.
As a result, we recorded around $530 million profit from main operations and $1.1 billion EBITDA with 25% EBITDA margin. Our net income was more than $570 million, similar to the levels generally seen in seasonally strong third quarters. Our liquidity gains strength as $3.4 billion of net operational cash inflow leveled up our cash and equivalents to $3 billion. Turkish Cargo continued to perform well, even in this seasonally short period. Cargo revenues reached almost $1.1 billion, mainly driven by resilience in unit prices. After combining our cargo facilities in a single hub in February, we have been experiencing improved efficiency in our operations and positive contribution to our cost base.
As a result, Turkish Cargo ranked fourth on the WorldACD list in terms of sales tonnage. With this success, we demonstrated our determination to be among the top air cargo carriers globally. For the remainder of the year, we expect to increase our capacity between 10%-20% compared to 2019 if there are no adverse developments. While increasing our capacity, we are carefully observing possible factors that could adversely affect the demand to travel and global trade, such as macroeconomic uncertainties, geopolitical risks, elevated energy prices, and potential recurrence of COVID-19 related restrictions. However, we are ready to adjust our capacity just as we did during the pandemic. As current shortcomings related to airport operations and workforce shortages put significant pressures in the industry, we differentiated ourselves from our peers with our operational reliability and on-time performance.
During May, our cancellation rate was 0.5% over 40,000 departures. This was considerably lower than the European average of 1.7%. Even though delayed inbound flights from Europe affect our on-time performance, we were able to mitigate those negatives on our network as the airports in Istanbul outperform their major European peers. We observe minimal financial impact due to the refunds, reaccommodating passengers or compensations. Moving forward, our aim is to continue running a reliable and high-quality operation while offering the widest range of seat availability to our customers. The trajectory of our passenger revenue continues to be positive despite industry-wide operational struggles and macro uncertainties. We are well into the third quarter, and current booking trends indicate continued strong demand as our passenger sales remain above pre-pandemic levels.
Double-digit increase observed in passenger yields in the second quarter sustained in July as well. We are continuously optimistic for the coming months and closely monitoring our bookings to see any signals of changing passenger sentiment. I would like to thank all of our stakeholders for the trust they placed in Turkish Airlines. We are quite happy to reciprocate their trust with our strong performance and have a tremendous confidence in further achievements with their valuable support. As the Turkish Airlines Chairman, from now on, we will have regular strategy meetings with our stakeholders. We'd like to present what we are thinking for our future, Turkish Airlines fleet growth, passenger growth, and so on. Also the subsidiaries, what we are thinking, what we are going to do, we will share this with you on a more regular basis.
From now on, we will also come to you and have roadshows as we did in the past. Now, after 2019, move to a new airport, we see that the operational efficiency airport is proven itself and will continue to grow in Istanbul new airport double digits as we did in the past. Meanwhile, for AnadoluJet, we'll have more reliable, dependable strategies. We'll continue to change the fleet type to modern, new technology, NEOs and MAXes, and we are going to grow also in Sabiha. With this, I think we know that our share should have similar values like our competitors, and will stress more on that. As I said before, we are quite happy to reciprocate the trust with our strong performance. Thank you very much.
Now, I will let Murat to continue with the presentation and elaborate on some of the key results. Thank you.
Thank you very much, Mr. Chairman. I'll continue with the capacity slide. Following our strong first quarter, we have continued to increase passenger capacity as we were encouraged by the demand environment. Our system capacity surpassed 2019 level by more than 12% in the three months to June. Similar to the previous quarters, pace of our international capacity ramp-up was considerably higher than the European and the global averages as a proportion of pre-pandemic levels. Even though geopolitical conflicts and soaring fuel prices posed risks to recovery, appetite for travel was the deciding factor for demand. As a result, our revenue passenger kilometers steadily increased throughout the last quarter, exceeding 2019 levels by almost 12%. Load factor showed a similar improvement and recorded 3 percentage points above pre-pandemic levels in June.
Contribution of belly cargo capacity reverted back to normal due to the expanding passenger operations. In the second quarter, belly cargo constituted around 50% of our total cargo capacity compared to 30% in the same quarter last year. As governments lifted their COVID-related measures, recovery gained momentum in the second quarter. Ongoing operational disruptions and flight restrictions also drove greater demand towards Turkish Airlines. Additionally, early vacation travelers in June increased the traffic to Turkey. These factors resulted in double-digit yield increase in our international traffic. Americas continued to outperform all the other regions in terms of increase in passenger numbers and capacity. Strong effective demand, along with the higher business class preference, supported the load factors and yields. Recovery in Europe was also pronounced as passenger capacity and load factors surpassed 2019 level owing to surge in local and transit traffic.
After most countries in the Far East loosened COVID-19 restrictions on international travel, the region became major catalyst for our profitability. Since the beginning of the third quarter, our passenger sales remain strong. We also anticipate a higher than usual demand pattern in early autumn compared to pre-pandemic trends. Yet, we are closely monitoring our bookings and other leading macro indicators to see if there could be any signs of weakening passenger sentiments in the coming months. As passenger operations gained strength, percentage contribution of cargo revenues to our total revenue base normalized from the peak level attained during the pandemic. In the second quarter, cargo revenues recorded around $1.1 billion and constituted 23% of our total revenues.
We observed that the global air cargo demand continues to be relatively strong due to delays caused by disruptions in the supply chain, congestion at ports and insufficient sea freight capacity. We expect current trends to continue at least until the end of August. September will be a critical month for further visibility due to inventory order lead time for the winter holiday season. In July, we continued to build on our strong operational performance in the previous months. Total passenger capacity and demand exceeded 2019 levels 18.5 and 22.6% respectively. As a result, our load factor increased by more than 3 percentage points, reaching to 86%. Also, we carried 7.8 million passengers, 10% higher than the same period in 2019.
International demand was particularly strong in July as direct international passengers to Turkey rose by 44% compared to 21% increase in total international passengers, including transit traffic. The trajectory of our August traffic continues to be strong as load factor remains three percentage points above 2019 level. Let me now head to our financial highlights. As you can see, our cash position increased by around $1.6 billion in the first half to almost $4.3 billion. Going forward, we will continue to manage our liquidity carefully, considering the demand environment, pace of deleveraging and our CapEx needs. As visualized in the left bottom chart, strong operational cash inflow helped reducing net debt to $8.8 billion as of June thirtieth. We reduced net debt by $5.3 billion from its peak at the end of 2020.
Currently, our last 12 months Net Debt to EBITDA stands at 2.1x compared to 3.4x at the end of last year. Our leverage ratio is expected to be around 2.5, between 2.5x and 3x at the end of this year. I would like to point out the disparity between our financial performance and credit rating notches. During the last five years, when our operational and financial performance were considerably higher than the industry, the rating agencies downgraded ratings up to three notches. These downgrades coincided with our record-breaking operational profit and cash generation levels. Unfortunately, we are seeing a continuation of that trend as our ratings move in the opposite direction with our strong financial and operational performance.
In the upcoming quarters, we expect our ratings to reflect the true state of our operations and alleviating this contrast. Next, allow me to talk about the key financial and operational data. Increasing passenger and cargo yields, along with the high volume, led passenger revenues in the second quarter to be realized 25% above 2019, and cargo revenues to more than double. With strong revenue generation during this quarter, total revenue exceeded 2019 level by 43%. Both profits from main operations and net income realized around $530 million and $580 million, significantly better than our pre-pandemic profitability. Strong operational performance translated into 25% EBITDA margin, up almost seven percentage points above 2019. Let me talk about our expenses in the second quarter.
Unit costs increased around 13% in the second quarter compared to 2019. This was mainly driven by higher fuel expenses. On the other hand, ex-fuel costs decreased by almost 11%. Personnel costs was significantly below 2019 level owing to the depreciation of Turkish lira against the currencies and increasing productivity. Turkish lira depreciation also played a positive role in reducing catering and handling expenses. Unit costs decreased in the airports and handling items supported by higher stage length. Sales and marketing costs was also down by around 9% as a result of the lower marketing budgets. Fuel expenses increased around $850 million in the second quarter compared to 2019 due to rising fuel prices and higher demand.
We have been experiencing an increased pass-through ability of fuel costs to ticket prices as demand remains robust. In the last quarter, we were able to reflect almost 45% of our fuel expenses as surcharges. $55 million of hedge gains also allowed us to mitigate some portion of the negative impact from soaring fuel prices. Our hedge ratio for the remainder of the year is around 30% with a break-even price of $72. As you recall, we paused hedging in February due to relatively high Brent prices. Going forward, we are considering adding new positions depending on the oil and volatility levels. At AnadoluJet, our aim is to construct a strategy to lower cost base, to grow fleet, and to attain high utilization with increased network. To that end, AnadoluJet more than doubled its international capacity in the second quarter compared to 2021.
Number of passengers carried increased by 52% to 3.7 million by the second quarter of 2022. With 70 new generation aircraft entries in this year, we are targeting to pass 2019 capacity levels by almost 90%. AnadoluJet network will grow further in international destinations in Europe and the Middle East. Additionally, we are targeting to capture existing travel demand from Europe to Turkey, especially through direct international flights to holiday destinations. Thanks to our large network and crew size, we are able to adjust capacity efficiently according to the market conditions. Seeing July traffic results and current forward bookings, we are confident about the strength of summer season demand. As a result, capacity in the third quarter is expected to be 10%-20% higher than 2019.
For the full year, we plan our capacity to be above 2019. On the cost side, our ex-fuel cost target is lower than 2019. We expect CapEx to be around $4-$4.5 billion, including aircraft, engines, spare parts, and other fixed investments. We see sustainability as one of our focus points in our growth strategy. Our modern fleet and carefully designed sustainability initiatives are the keys in lessening our environmental impact. Working with zero waste policy in sustainability, we have committed to a number of projects such as biofuel usage and carbon offset program in order to combat climate change by decreasing our emissions. All of our efforts in the second quarter allowed us to save almost 18,000 tons of fuel and prevented emissions of 56,000 tons of carbon to the atmosphere.
Our colleagues from different countries and cultures are the basis of our success. We implement policies to give them equal opportunity across organization. One recent example towards that is our participation into IATA's 25by2025 program. With this initiative, we aim to increase the representation of women in executive roles and technical fields by 25% until 2025. As a result of our efforts, we have been recognized as the most sustainable flag carrier airline by World Finance, one of the foremost organizations in international finance world. We will continue our endeavors with a perspective that protects both the present and our future. This concludes our presentation, and we can now continue with the Q&A session.
Right. Thank you, speakers. Thank you very much for that, wonderful presentation. Ladies and gentlemen, I just wanna remind you that if you would like to ask an audio question, just press star five on your telephone keypad, and then later we'll do the written Q&A, and there you just type your question into the Ask a Question text area and then click the Submit button. All right, there we go. Star five on your telephone keypad. We will take your questions now if you have any. Otherwise, we'll move on to the written questions. Few moments for those audio questions.
Hello, everyone. This is Fatih speaking. Now we are going to ask your questions. Now we can begin with the first question. Murat, can you give us an update about our fleet expansion plans for 2023 and beyond?
Even though there are some uncertainties regarding the fleet development, as you know, delays by both OEMs, roughly speaking, over the next two years, 2023 and 2024, we are expecting about 30 deliveries. Ten of these are narrow body and 20 wide body. Between 2025 and 2028, we are expecting around 40-45 deliveries. Roughly speaking, about 35-40 narrow body and 4-6 wide body. The numbers are weak, but roughly speaking, that's our expectation over the coming five years.
Now, one of the questions that our analysts are curious about is that AnadoluJet. What is the current situation in AnadoluJet? Can you provide us the details regarding their operations?
Well, as I tried to answer through our presentation, we definitely are very committed to grow AnadoluJet business in the international market. Their fleet is growing. They have about 60 aircraft, and we are planning to grow their fleet in the coming year with some operating lease aircraft and new generation, actually, aircraft. This is going to translate into, roughly speaking, 20%-25% growth in the fleet growth that we have seen so far translates into 20%-25% growth in AnadoluJet. In the coming year, we expect to grow this fleet.
Our focus will be on the high-growth leisure markets, allowing us to penetrate these markets deeper, especially in Europe and Middle East. We will also be increasing the weight of AnadoluJet in our total operation, so its unit costs are going to decrease, and it's going to be able to run a more efficient operation.
We started with AnadoluJet and fleet, but actually, our analysts are curious about our drivers behind our successful second quarter results.
There are a few reasons behind this. One of them is the current demand environment. Demand is much stronger than the available capacity that is being provided in our region. This translates into higher yields.
Passenger yields have passed 2019 and 2021 levels in the second quarter by about 12 and roughly 14% respectively. The revenues overall, as a result of the higher load factor and higher yields, total passenger revenue passed 2019 level by 25%. Better yields is one factor. The contribution of cargo fees continue to be very strong. 24% higher cargo yields were attained, achieved in the second quarter compared to the second quarter of 2021. Overall revenues increased by 13%. On the cost side, excluding fuel, ex-fuel CASK was down by about 11% compared to 2019. We have advantages both on the cost side, but more strongly on the yield side.
Can you give us details about current trends, and any clarity on forward bookings?
From May on, despite the double-digit higher ASK, load factors were about two percentage points higher than 2019 for international travelers. This trend is expected to continue in the coming months, at least until the end of September. Forward booking performed slightly better for near destinations, Europe and Middle East mainly. We are also seeing that after the restrictions were decreased in Far East, the demand substantially increased, and this also helped the yields from Far East region. Overall, for June and July, in almost all the regions, we see double-digit yield increases compared to the same period in 2019. Among these globally, when we look at the whole picture, best performing regions in these two months were Europe and Far East.
We anticipate this strong demand to last until the beginning of fall, but the summer season for this particular year could last little longer until October.
Murat, our analysts are wondering about how the problems in Europe, European airports, are affecting us, and what are the extent of these negativities on our operation, and what is the monetary impact of these disruptions?
Definitely our operation is being affected by these disruptions in Europe. We are getting delays, and our on-time performance are dropping. Every day, we start our on-time performance with about like 90%, but by noon it decreases because, as we are a network carrier, delays that are met in Europe are affecting to the rest of the operation, especially on the narrow body fleet. Even though our on-time performance in European airports decreased by 25% compared to the same term in 2019, the network integrity remained intact due to our operational efficiency in Istanbul Airport.
Istanbul, the on-time departure is much better performing than on-time arrival, and that shows that in our hub we are doing the best we can to close the gap in delays we are facing, led by our operations in other airports. When we look at the financial impact, we are seeing minimal financial impact. In the second quarter, operational disruption costs actually decreased by around 15% compared to 2019. Our completion factor, I mean, running our operations smoothly, is intact, doing well. Costs related to refunds or re-accommodating passengers and compensation are minimal. Airport expenses, such as bridge and parking, are charged on per landing basis in Europe, thus they don't create additional cost items. Also, as the delays are caused by the airports but not by the airline, our customer complaint compensation costs have also not increased materially.
Murat, we are seeing some capacity caps in European airports, and do they affect Turkish Airlines capacity ramp up?
They do. In certain major European hubs, we are being restricted by daily passenger numbers. In order to minimize the revenue loss and passenger discomfort, we are canceling some flights two weeks in advance if there is any necessity. This two weeks period gives us enough time to accommodate those passengers and to minimize the passenger discomfort.
Regarding our pilot base, we are hearing some problems in United States. Does Turkish Airlines have any difficulty in pilot base?
As of the end of the first half, we had around 100 pilots on duty and roughly 500 cadets in our training pipeline to be ready by the beginning of next year. Preserving our pilot base during the pandemic was a very smart decision, and it allows us to carry out uninterrupted flight operations as we are scaling up to the levels of 2019. Currently, we don't have an additional salary increase plan for our pilots. After signing the new collective bargaining agreement at the end of last year, we gave a generous salary adjustment to all of our staff. As the inflation was high in the first half, we also made an inflation plus 5% adjustment to the whole salary.
Our pilots and cabin and the ground staff, in terms of their income, are in a good shape currently.
Can you comment on the recovery of business segments?
To our surprise, actually, business segment recovery is faster than we anticipated. Number of business class passengers passed 2019 level by about 25% in the second quarter, and the load factor in business class was 7.5 percentage points higher than 2019 level. The unit revenues in business class was about seven to ten percent higher in second quarter compared to last year. In July, as we were in the peak season, it was 20% higher than 2019 level.
About domestic markets, what percentage of the domestic tickets are sold on price caps?
In the second quarter, it was around 50%-60%. In the month of June, it was higher because the schools get in recess by mid-June, and in the second half of June, the percentage of domestic tickets that were sold on the app was about above 70%.
Now we are heading to the outlook. What is your current capacity and yield expectations for 2022 as of 2019 levels?
2022 capacity in terms of ASK, we expect that to be maybe high single digits, higher than 2019 level. It's yet to be seen how much capacity we will need to cut because of the flight restrictions. We can expect it to be high single digits above 2019 in terms of ASK. About the yields, overall, we are expecting that to be about double-digit higher than 2019 level. For the third and fourth quarter of this year, we are expecting to put roughly 15% more ASK compared to 2019 level.
Regarding COVID, do you have any concerns about reimposing restrictions in case of any resurgence?
Well, this definitely is something beyond our means. In terms of what we are anticipating, given the high vaccination rates all around the world and relatively lower death rates, even though the number of cases are increasing in Europe, in Turkey as well, it has been out of our main planning horizon for a while. We are not too concerned about, or we don't expect, that very severe restrictions will be implemented by the winter. Having said this, if we face such restrictions, we have been operating under those environments over the last two years, especially 2021. I mean, 2022 we were.
2020, we were mainly shut down, but in 2021 we were operating under very heterogeneous set of countries where certain countries were heavily restricted and certain were much more lenient in this regard. We will be able to adjust our capacity quickly, swiftly to respond to any new recent developments. That's not our base case scenario.
Murat, in light of those, could you give us any color on guidance for the rest of the year?
I think in the earlier question I said about the ASK, we said high single digits% above 2019. The second half of the year, about 15% more ASK compared to 2019. In terms of revenues, given the first half performance and the good summer performance, we are expecting to be above 2019 level in revenues. EBITDA margin last year was very high because of the lower revenue level and high profitability we could attain. EBITDA margin will normalize to pre-pandemic levels. That is some of the guidelines I can share.
What is your ex-fuel CASK for expectations for 2022?
A few major factors that affect ex-fuel cost is the global inflation we are facing. That's putting some pressure on our costs and higher personnel expenses, higher handling and catering expenses. As we are generating more revenues and ticket sales are increasing, more marketing and sales expenses are also increasing. On the other hand, there is Turkish lira depreciation that we are also seeing. In the second quarter, we saw ex-fuel costs decrease 11%. We can see about like half of this decrease was led by the capacity increase. In terms of cost, it decreased. By the end of this year, we expect ex-fuel costs to be lower than 2019 level by roughly single-digit levels.
We talked about pilot pay, but in terms of whole personnel base, what is the estimated personnel unit cost for 2022? Are you planning any additional bonus or increase in personnel wages?
Personnel cost is expected to decrease by about 15% compared to 2019. It's also gonna depend, of course, on the second half inflation in Turkey. The salaries are set by the union agreements. We had inflation plus 5 percentage points in July. At the beginning of the year, it's going to be adjusted by inflation level. We don't expect higher than that adjustment. About the bonus, well, bonuses are determined, not preset. They are determined by the performance at the end of the year. If we have a strong performance, our board might evaluate such a bonus to the staff. We don't have anything set yet.
Regarding your fuel expenses, how do you see fuel unit costs for the remainder of the year, and what is your assumptions?
Well, this year we are expecting 40%-50% fuel cost increase. This includes the hedge amount compared to 2021. We assume it could overall year around be $100 levels.
Now we are heading to hedging questions. What is your fuel hedging ratio and break-even price for the remainder of the year?
Well, we've completed the second quarter with about 35% hedge ratio. The ratio for the remainder of the year will be around 30%. Our break-even Brent level is around $72. We are expecting for the whole year to have a hedge gain of around $200 million. Depending on the price of fuel, we will reconsider to add further hedge positions for the remainder of the year.
Are you comfortable with current hedging levels for fuel? How much of the fuel cost increase did you pass on to tickets in the second quarter?
Well, even though the ticket prices are determined by the demand and by the market, we have been experiencing increased ability to pass on the fuel prices to tickets. One reason for this is the planning horizon for the potential travelers shortened since the pandemic, and this allows us to adjust the ticket prices more quickly. Furthermore, when we combine the fuel surcharges with our hedge position, we believe we are able to alleviate some portion of the negative impact caused by the higher fuel prices.
When was the last time a new fuel hedging contract was executed, and are you considering to continue hedging?
The last time we add any position to our total hedge amount was by the end of January. We did not hedge fuel in February and March due to the escalated Brent prices. Well, we are seeing a little bit more easing on the volatility and the level. If we see this trend continuing a little further, we might add new positions.
About currencies, how appreciation of U.S. dollars affected Turkish Airlines financials, especially against euro and Japanese yen?
Depreciation of euro hurts our income statement on the operational front, because we have about 30%-40% of our revenues being in euro-denominated. Similarly, depreciation of Japanese yen also hurts on the operational front. Depreciation of Turkish lira benefits on the operational front because on the expense side we are, overall, we have a short position in Turkish lira. The movement of all these main currencies against dollar in the second quarter had overall a limited, roughly speaking, $10 million-$15 million negative impact on our income statement. On the other hand, impact on our bottom line, including the financial financing part, the total impact is around $70 million-$100 million.
Considering recent volatility in currencies, do you have any currency hedging plans?
We have a strategy on FX hedge, and we have been implementing that policy since 2013 for managing our positions in major currencies, euro, dollar and Turkish lira. We are anticipating considerable cash flow mismatch in either of these currencies. Currently, we are not doing any currency hedges, and the positions that we carried are almost gone. However, depending on our cash flow projections, if we see any long or short position, we can do hedges. Recently, we added some hedge positions in Japanese yen terms, as overall, we have a short position in yen. We have a yen-denominated aircraft financing. We try to benefit from the low yen levels going forward to fix some of our financing payments.
We are now heading to highlight of this quarter. Which factors led to significant increase in cash flow in the second quarter? Do you see this as a continuing trend?
Excluding the bank loans, the monthly cash accumulation from our operations was around $500 million in the second quarter. We expect to have a cash level of around $3 billion-$3.5 billion by the end of this year.
Regarding CapEx, what is your plan for 2022? Do you have any pre-delivery payment plans?
The CapEx for this year remains same compared to earlier calls, and we expected to have about $4-$4.5 billion level. We anticipate about $150 million PDP outflow, which is included in our CapEx level. Of this CapEx, about $2.5 billion is for new aircraft. $1.8 billion, between $1.8-$2 billion is for aircraft heavy maintenance, spare engines, and our other infrastructure needs.
You significantly decreased your net debt levels in the second quarter. What is your expected net debt level by the year-end and your leverage target?
The net debt expectation for this year decreased compared to our last call to $10-$11 billion as a result of our strong cash generation capacity in the second quarter. As a result, net debt to EBITDA target for this year-end current is we revised that to 2.5-3 times level.
Regarding new fleet entries, what is the current plan?
I tried to answer this question earlier. There are some delays that we are facing by the OEMs, and there is a supply chain issues with the producers too. The fleet development is still a little uncertain. Overall for this year, we are expecting 34 entries and 19 exits this year. Overall, the fleet is going to grow by about 15 aircraft.
Murat, regarding cargo segment of our business, could you please comment on cargo unit revenue and capacity in the last quarter? What is your expectations going forward?
The revenue per ton cargo yield is about 24% higher than the second quarter of 2021. The capacity. If overall total capacity is more or less the same as the second quarter of 2021. The change. We see a change in the composition. Now, belly cargo capacity is much higher than compared to 2021 level. Overall, we are seeing a strong air cargo demand, and it's still lasting, which we were initially anticipating it to decrease. But due to sea- and overall supply chain limitations, air cargo demand is still very strong. We're expecting this current trend to continue at least until September. This September and October are going to be critical for signaling the 2023 outlook for air cargo demand.
Murat, we got additional questions during our webcast. For example, we have a question from JP Morgan, and Daniar is asking about, is there any update on separation of cargo business from THY?
That project is still in the pipeline, but there is no rapid or significant steps we are taking forward. It is under evaluation. We are trying to get the best out of our cargo operation. The current structure, the coordination and cooperation with our passenger side is very profitable. They are utilizing both the belly cargo and the passenger capacity very smartly and profitably. We don't want to take any step that would disrupt this collaboration. This doesn't mean that we have completely thrown off the cargo separation project. It is a very elaborate analysis, separating an airline with a new separate AOC takes a lot of effort, and applying for the AOC and slot rights is a very involved task.
That project is ongoing, but I am not able to provide a very clear timeline when it is going to happen. On one hand, we don't feel the rush as cargo is really providing a huge contribution to our bottom line and to our profit margins, as we presented in the slides.
Also, one of our analysts analysts ask about our CapEx for the next year. Even though it's quite hard to exactly say the exact amount, can you give us any range for the next year?
It's going to be similar to this year. As I just answered, this year, we expect that to be around $4-$4.5 billion. Next year it's going to be more or less on the same range, about $4-$4.5 billion. Just like this year, about $2.5-$3 billion will be on aircraft, and the remaining $1.5 billion will be on the again, aircraft related maintenance, spare parts, and continuation to some of our new infrastructure developments in Istanbul Airport. Like, for example, we are aiming to build a new hangar for our MRO business in Istanbul Airport.
Murat, I'm going to combine some of the questions. First, Munee from Citigroup, what is driving the yields and capacity increase this year? What was the main factors?
Well, we answered to a kind of a similar question. The yields is we were more in the air than most of our peers, so we had the first-mover advantage. Our operation is available to a very vast network, so we had a more collective capacity to connect more connectivity than most of our peers. The demand to Turkey, the local demand was also very strong. This year, we are expecting to surpass probably 2019 tourist level in Turkey. In 2019, I roughly believe there are 5 million tourists. We expect to have much more incoming tourists to Turkey, and they come, of course, with Turkish Airlines. The local demand is very strong.
Our network is huge, and possibility to connect is too high, and these are all providing contribution to our yields. I also, as I answered earlier question, the business segment, business load factor and yields are also higher than before the pandemic levels. Overall, they contribute significantly to our double-digit growth in yields.
Murat, regarding current geopolitical events, what is the effect of the current tension between Russia and Ukraine to Turkish Airlines operations?
Well, it's a mixed bag actually. Both of these markets before the war. Even last year in 2021, where the impact of the pandemic was still out there, we had about overall 5 million tourists from both of these countries. Now, one of the countries is completely shut down, Ukraine, and one of the country has a limited appetite to travel. In number of total passengers, leisure travelers coming to Turkey, we see a decrease. On the other hand, overall, as there is less capacity available, the yields are higher, so it is partially compensating the losses. Overall, it's difficult to say if we were better or worse than before the war.
I mean, there are both of the factors out there for the incoming tourists from Russia.
Murat, regarding AnadoluJet, do you find Sabiha Gökçen capacity as adequate for the next years?
It is not. We are doing our best to find new aircraft for AnadoluJet. This year, we added about 17 new generation low-cost aircraft to AnadoluJet fleet, and we are planning to finish the year with about 60 aircraft. There will be some more operating leases that we'll be getting next year for AnadoluJet into Sabiha Gökçen hub, and it's a place that we definitely want to grow further. We have a limitation about the slots, and we also have a limitation about the aircraft. I mean, we need new aircraft to grow. Our fleet team is working hard to add additional capacity to Sabiha Gökçen next year.
Murat, I think we had a problem during our fuel cost question. Could you please repeat the expected effect of fuel on our unit costs?
This year, we're expecting the fuel cost to increase by about 40%-50%, including hedge, compared to 2021 level. Our expectation is about 100 around, fuel price of $105 on Brent.
You also mentioned our plans for 2023 regarding CapEx. Can you have something to add to those expectations?
In terms of CapEx, that's it. In terms of the ASK, I mean, it's difficult to judge depending on the, how many of the aircraft we will be able to get. For example, we have 10 787 deliveries scheduled for next year, but we haven't. We were supposed to get five of these this year and, as Boeing still could not have the complete resolution, we still could not get those aircraft. Ten wide-body is a huge capacity. Putting that uncertainty aside, we can have a high single digit ASK growth. I'm just thinking out loud here. We can have a high single digit ASK growth for 2023. In terms of financial performance or, debt, nature, we have been deleveraging since 2021.
We were, as you would remember, around like a 4, 3.8, 3.9 times levels, and we decreased that to about 3.5 times level. We will continue to deleverage going forward into 2023 if we can keep this performance.
I think there is one last question regarding the impact of transfer of cargo operations from Atatürk Airport to Istanbul Airport. What was the unit cost impact as a result of increasing efficiency?
To the benefit, I think this question is asking. The benefit of moving to a new terminal is roughly 2% decline in ex-fuel CASK.
We answered all of our questions, and now we can conclude our call. I would like to thank all of you for your participation and hope to see you in our next call.
Thank you. Thank you, ladies and gentlemen. Thank you, speakers. Thank you for the presentation. Ladies and gentlemen, this now concludes today's webcast call. We thank you for your participation. You may now disconnect.