Welcome to the Turkish Airlines Q1 2022 earnings call and webcast. Thank you so much for waiting. There will be a question- and- answer session following the presentation. If you wish to ask a question, please type your question into the ask a question text area and then click the Submit button. Please note there will not be an audio question and answer session. Only written questions will be answered by the speakers. I will now hand you over to Associate Professor Murat Şeker, Member of the Board and Executive Committee, as well as Chief Financial Officer, and Mr. Mehmet Fatih Korkmaz, Head of Investor Relations. Gentlemen, please, the floor is yours.
Thank you very much, and good afternoon, everybody. Welcome to the presentation of the results for Q1 of 2022. When the year, Omicron variant was on the top of the global agenda. Fortunately, we have seen that the effect of the variant on global mobility gradually faded, given the high transmissibility and lower severity of the cases. However, Q1 was mainly characterized by geopolitical conflicts, which changed the course of trends. Even in such uncertain outlook, we carried out our operations smoothly. As airlines around the globe struggle with operational difficulties due to the staff shortages resulting from layoffs during the pandemic, we kept our workforce and endured all the hardships together. For this reason, right now, we are able to ramp up quickly without any major operational difficulties while keeping customer satisfaction at high levels.
Receiving world-class ratings and five-star global airline award from APEX show that we are on the right track. Through Q1 , we remained agile, used our geographical reach, and captured demand wherever possible, similar to last year. Combining these with our local space allows us to conduct substantially more profitable operation compared to our peers. As a result, we are happy to present you a quite strong Q1 result. Turkish Airlines continues to prove itself, increasing its global market share while remaining profitable. During Q1 , we carried about 13 million passengers, which is 76% of 2019 level. Our Q1 capacity realized as 91% of 2019 level, which resulted in Turkish Airlines to become one of the biggest network carriers in European airspace.
In the upcoming quarters, we are aiming to gradually increase our operations to exceed 2019 levels. For Q2 and Q3 , we expect to increase our capacity between 5% and 15% compared to 2019 if there are no adverse developments. While increasing our capacity, we are carefully considering the effects of soaring fuel prices in order to achieve positive contribution margin. To that end, we are giving utmost attention to network profitability by actively managing capacity. Additionally, our current hedging positions relieve some pressure from impact of higher fuel prices. As of April 2022, our fuel hedge level is 34% for the remainder of the year.
Assuming full capacity recovery and yearly average Brent price of $100, we expect our unit fuel costs to increase by 25%-30%, in contrast to 40% increase in Brent price compared to 2021. Continued increase in both passenger and cargo traffic led to substantial improvement in our financial performance. Total revenue reached to almost $3.1 billion in this quarter, surpassing 2019 level by about 10%. Thanks to continued cost discipline, combined with the increase in revenues, we have recorded around $160 million profit from main operations and $710 million EBITDA with 23% EBITDA margin, which is substantially above pre-pandemic levels. A net income of $160 million was another highlight of the quarter as Q1 is generally the weakest one considering seasonality.
Our liquidity level remains strong with $3.1 billion cash and equivalents and over $3 billion available credit lines. With these financial results, Turkish Airlines stands out among its peers. After exceptionally good Q4 , cargo continued to perform well in Q1 . Even in this seasonally softer period, cargo revenues reached almost $1 billion with a year-over-year increase of 19%. We observed that global air cargo demand remains relatively strong due to inventory rebuilding cycle, ongoing disruption in supply chain congestion at ports and insufficient sea freight capacity. We expect these trends to continue at least until the end of H1 of the year. Turkish Cargo led the sustainable growth and maintained its status as the fastest growing air cargo brand, and it became the fifth biggest air cargo carrier.
In February, we successfully completed the transfer of our remaining cargo operations from Istanbul Airport to our new cargo facility, SMARTIST, in Istanbul Airport. Operating in a single hub will certainly improve efficiency of our operations and support our target to be among the top three air cargo carriers globally. As governments across the world continue to ease COVID-19-related international restrictions, path to a better outlook should accelerate. The trajectory of our revenue recovery continues to be positive despite geopolitical backdrop. We remain optimistic for the upcoming spring and summer travel seasons as our passenger sales have already exceeded 2019 levels starting from mid-February and sustaining a positive trend so far. Also, we recorded passenger yield increases in March and April compared to the same period of 2019. On a regional basis, we are seeing signs of significant pent-up demand for international travel, especially in Americas.
Currently, we are able to respond to increased travel demand with our 373 aircraft and a large network covering 128-
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Hello, everyone. Sorry for the technical difficulties. Now I would like to start with the last quarter's capacity development to give you further detail about the recovery progress. Following Q4 strong performance, we continue to restore our capacity in Q1 . As the negative effects of Omicron variant dissipated through the quarter, geopolitical risks emerged, threatening the pace of the recovery. Even in these adverse circumstances, we were able to increase our capacity by strategically allocating our resources. Driven by strong international demand, revenue passenger kilometers steadily increased throughout the last quarter, reaching to 87% of 2019 levels in March. Despite the weaker nature of winter season, direct passengers to Turkey almost fully recovered, just two percentage points below 2019. Cargo capacity continued to overperform.
For the first time since 2020, cargo capacity exceeded pre-pandemic levels by 8%. Compared to Q4 of 2021, we experienced a slight decrease in cargo carried, mainly due to low season effect, decrease in number of pieces, and harsh winter conditions. However, strong cargo yield alleviated these negative impacts by increasing 31% year-on-year. As the recovery in passenger operations continued, we reached 95% of 2019 international capacity levels in March. As you can see from the lower side of the slide, Turkish Airlines international capacity considerably higher than European average of 64% and the global average of 49%. The bubble chart on the upper part of the slide shows the regional performances in terms of load factors and capacity compared to 2019.
In Q1 of 2022, North America outperformed all the other regions, excluding South America with 42% higher ASK than 2019. Strong ASK demand to and from the regions supported the yields and load factors. Capacity of South America doubled compared to 2019 and realized the highest international load factor. Despite domestic capacity dropped to 77% of 2019 level, with 84% load factor in Q1 , matching the demand. Europe, as the biggest capacity contributor, generated 86% of 2019 capacity while maintaining relatively high load factor. Due to travel restrictions, Asia is the worst performing region in Q1 . Fortunately, we observe easing restrictions in some countries. Further loosening would be a catalyst for our operations, supporting transfer traffic and provide considerable upside.
As you can see from the line chart below, our passenger yields have exceeded 2019 levels starting from mid-February. We perceive this as a clear signal of pent-up demand, which will translate into passenger revenues in the second and Q3 . Shipping conflicts, together with the ongoing disruptions in supply chain, continue to support air cargo in Q1 of this year. As ships prefer to avoid long delays, there was a continuing shift from sea to air freight. Strong e-commerce and inventory rebuilding cycles kept cargo demand elevated. These factors led to a conducive environment for cargo performance. As a result, cargo revenues continued to be strong in this quarter by more than doubling 2019 level and reaching to almost $1 billion. We are closely monitoring the situation in Ukraine, lockdowns in China, and their effects on Asia-Europe trade lane.
Negative impact of Ukraine-Russia conflict on our cargo business was considerably limited, as those countries sharing our cargo operations were less than 1%. On the other hand, capacity loss in the market due to the conflict resulted in restricted unit revenues. In Asia, recent lockdowns in China led to capacity constraints as a result of slowing handling processes, both air and sea freight, which in turn contributed to yields positively. Now let us head to the financial highlights. As you can see, our cash position increased by around $200 million to almost $3.1 billion at the end of the first quarter. Additionally, we have approximately $3 billion available credit lines, which increase our total liquidity around $6 billion.
As visualized in the left bottom chart, operational cash inflows helped reducing net debt to $10.7 billion in Q1 . As you might recall, last year we were able to decrease the net debt to EBITDA ratio to 3.4, thanks to the strong cash generation. Our leverage ratio is expected to increase slightly above our long-term target of 3 this year. Next, allow me to talk about the key financial and operational data. Increasing passenger and cargo yield, along with the high volume, led passenger revenues in the first quarter to reach over 83% of 2019 levels, and cargo revenues to more than double. It is strong revenue generation during this quarter, we exceeded 2019 levels by 10%.
Both profit from main operations and net income realized around $160 million and continued to be above 2019 levels. As a result of the strong operational performance, our EBITDA margin reached 23% in this period, up almost 10 percentage points over 2019. Let me talk about our expense in Q1 . Looking at the cost breakdown compared to 2019, we recorded increase around 7% in Q1 , which is mainly driven by higher fuel expenses and lower c apacity. If we normalize costs with our cargo operations, ex-fuel cost would decrease by 1.6% compared to the same period of 2019.
Since our hedge positions reduced some pressure from impact of rising oil prices, fuel expenses per ASK increased by 23% in contrast to 41% increase in fuel price. Personnel costs is still below 2019 levels, mainly due to the depreciation of Turkish lira against hard currencies. In 2022, we expect personnel cost per ASK to be still lower than 2019. Increase in airports and air navigation use costs stem from higher ground times and lower capacity compared to the pandemic. Sales and marketing costs, on the other hand, decreased by around 20% due to lower incentives and advertising spending. Fuel expenses increased by $100 million in the first quarter compared to 2019. Increase in fuel prices are partly compensated by declining volumes and $37 million hedge gain.
The share of fuel expenses in our total cost base in Q1 reverted back to pre-pandemic levels to around 30% as the operational recovery gained momentum. We paused hedging in February and March due to relatively high Brent price. As of March, our hedge level for the remainder of the year was around 34% with a breakeven price of $72. At AnadoluJet, our aim is to construct a strategy to lower cost base further by implementing new corporate structure, up-gauging with new fleet entry and high utilization to increase point-to-point exposure. As AnadoluJet's capacity almost doubled in Q1 compared to 2021, we are planning to deploy 25% more capacity this year. Our international routes are concentrated mostly on short and medium-haul destinations in Europe and the Middle East.
We are targeting to capture underserved ethnic travel demands from Europe to Turkey, especially through direct international flights to holiday destinations such as Antalya, Dalaman, and Bodrum. Its relatively low ex-fuel costs allows us to target price-conscious customers. Profitability of AnadoluJet is more than enough for us to penetrate the market deeper, as its annual contribution margin is above 15%. With 18 new generation aircraft entries in 2022, we will be able to upgauge, drive down unit costs, and thus increase margins further. Now let us talk about our 2022 expectations and midterm priorities. After seeing March traffic results and current forward bookings, we became more confident for this spring and upcoming summer season in terms of demand.
Even though it is still early to pinpoint exact targets for the full year capacity right now, we expect it to be higher than 2019. In any case, we are able to adjust capacity according to the market conditions, ensuring capacity discipline and higher load factors. On the cost side, our ex-fuel cost target is lower than 2019 levels as we will continue to add more capacity throughout the year. We expect CapEx to be around $4-$4.5 billion, including aircraft, engines, spare parts and other fixed investments. We aim to develop and maintain our sustainability efforts in line with United Nations Sustainable Development Goals, along with the vision, mission, and general strategy of our incorporation.
As sustainable aviation fuel starts to play a key role in reducing carbon emissions, we have begun using it on six of our routes to Europe. Our plan is to expand usage of sustainable aviation fuel in the upcoming period. Besides, we aim to implement voluntary carbon offset project to reduce the impact of our operations. With this project, emissions caused by MCO's duty flights will be neutralized. Our passengers on the other hand, will have the opportunity to offset flight emissions through our website. In order to reach highest sustainability standards, our company participates in one of the world's most respected platform, Carbon Disclosure Project Climate Change program, and received B- ratings. Also, by strengthening the implementation of ISO 14001 Environmental Management System, we obtained the highest level certificate in IATA's IEnvA system and became the first airline to directly obtain the C+ certificate.
All of our efforts in Q1 of this year allowed us to save almost 5,000 tons of fuel and prevented emissions of almost 15,000 tons of carbon to the atmosphere. With sustainability flags, we will conclude our presentation, and now we can continue with Q&A session. Okay.
Sorry. Thank you very much for these presentations, speakers. Yes, indeed, we're now going to move to the question and answer session. Just a reminder, there is no audio question and answer session, only written questions. If you'd like to ask a question, just type it into the Ask a Question text area and then click the Submit button. With that, speakers, over to you for those written questions.
Thank you. Murat Şeker, we got numerous questions from our analysts. They are mainly asking about current trading environment and our expectations for this year. Let's start with the first question. First question, which factors led better-than-expected financial results in Q1 ?
The reasons for our Q1 performance is more or less overlapped with our year-round performance of 2021. I can divide it into a few sections. First section is the yields becoming higher. Passenger yields in this quarter was above 2021, and even 2019 levels of the respective quarter. As a result of which the passenger revenues reached almost 90% of 2019 levels. Number of passenger increased by almost 80% of 2019 levels. On the passenger side, there was a strong demand that we could facilitate. Second reason is the strong continued cargo demand.
We were expecting the cargo yields to decline at a faster pace, but because of the continuation of lockdowns in Far East Asia, in particular and the disruptions in the supply chains, we are still seeing about 30% higher cargo yields compared to two-one of last year. The loosening of the flight restrictions also contributed to us having to increase our global reach and provide more connectivity. The last factor is the continuation on the cost discipline side. Our actual costs in the quarter stayed almost the same as last year.
Next question will be on fuel and hedging, which is the hot topic around right now. What is your anticipated fuel hedging ratio and breakeven pricing this year?
As I briefly touched upon in the presentation, the overall hedge ratio is around like a 35%-40% levels. From the remaining part of the year, it's going to be about 34%, and the breakeven price is $72. Due to higher expected capacity, and as we start hedging in February, the hedge ratio is going to be lower for the remainder of the year compared to first quarter, assuming that the Brent price is going to be staying around in these levels.
Are you planning a different strategy, such as severity in hedging for the remainder of the year? What is your expectation about fuel prices for this year?
It's quite difficult actually to come up with a point estimate for the year-end. It's around $100, but it's really rather difficult to have a really strong estimation on it now. We are not planning to change our hedge strategy, but because of the high levels in the Brent price and also the high levels in the volatility, we stopped hedging in February. As soon as we see more visibility, we are going to continue to hedge again. For us to start to do hedge again, we would expect the prices to go below $100 per barrel levels.
Third question. Should we expect pass-through to passengers in terms of higher yields?
Well, even though the ticket prices are mainly decided by the market, the supply and demand imbalance within each specific market suggests increased ability to pass on fuel prices to tickets. In the past, we were able to reflect the fuel prices to ticket prices between 3-6 months. However, the shortening of the horizon in making travel plans and decreasing the booking period for flights is allowing us to be faster in reflecting the higher Brent prices to ticket prices. Combining the fuel surcharges with our current hedging position, we believe we can alleviate some portion of the negative impact caused by the higher fuel prices. Also, when fuel prices increase, additional capacity deployment to this market by industry players seems like declining, and this could be supportive for higher yields in such markets.
How do you manage your interest rate risk stemming from floating parts of your debt composition as we see rising interest rates around the globe?
Well, currently roughly 50% of our EETC and commercial debt portfolio has a floating rate. We feel comfortable with the current level since increasing interest rates also give us an opportunity to get higher returns from our portfolio investments. We don't feel much pressure from the rising interest rates.
Now we are heading to demand and for two questions. First question is, can you give us some color on your overbooking momentum? How is the current customer booking behavior?
From our experience in 2021, we saw that when the restrictions on mobility eases, passenger demand comes back very rather quickly. We believe that this is going to be the case for 2022. We are actually seeing it as governments across the globe have started to ease their COVID-19 related restrictions, and most of the countries have relatively reasonable numbers of vaccinated population. What we see is especially towards the end of Q1 , in particular March and in April of this quarter, we are seeing the sales numbers are quite strong. Thus we are optimistic for the spring and summer travel season. Passenger sales have already exceeded 2019 levels starting from mid-February and sustained a positive trend so far.
We recorded yield increases in March by about like a 10% in April compared to the same period of 2019. Of course, not all regions are recovering at the same speed. In particular, Americas overall, both North and South America, we see a very strong demand. We see the effect of the pent-up demand from those parties who could not travel last year. The booking behavior seems like it's shifting back towards pre-pandemic levels. We see increased preference for transit flights as price sensitivity and brand perception takes hold. However, forward booking visibility is still not too wide as customers prefer to book their flights in closer dates to travel.
What is your current capacity and yield expectation for 2022 as of 2019?
2022 capacity will be higher than 2019. I remember at the beginning of the year-end results, we said it could be around 4% above 2021 level. Now we might be maybe a few more percentages on top of that, which is like roughly around the 6% higher than 2019. Not only the capacity, I mean ASK, but also the yields are likely to be slightly higher compared to 2019 levels. When I break this down into the quarters, in the first quarter, the capacity plan was about 90% of 2019 level. In Q2, we are expecting to exceed it to 111%, as we showed in the presentation.
In Q3 to 118% of 2021 level. As I said in the earlier question, Americas will be the main driver for 2022 yields and capacity increase. Far East will be the lagging region in recovery because of the slower rollback of restrictions. The current situation in China is going to have a limited effect on our capacity ramp up since we were already anticipating closures until Q4 in this region. On a positive side, we started to get group reservations from some of the Far East countries like Malaysia, Indonesia, Japan in particular. All the demand will drive increased capacity offering by our peers.
We anticipate that their operational deficiencies, like the lack of staff and pilots and their lack of training and the soaring fuel prices, will slow down the capacity recovery among our peers and is going to provide an advantage for Turkish Airlines.
Next question is about domestic markets. What percentage of domestic tickets are sold on price caps? How did the average domestic ticket price change in first quarter compared to 2021 and 2019.
The price cap on ticket sales on domestic routes was around 40% in Q1, whereas it was around 17% in 2019. In March of this year, it was even higher than 40%. There is definitely a strong demand, and the lack of competition capacity is helping us to get the higher yields. Recently, about a week ago, the price cap on domestic ticket prices was increased. It came to TRY 799. We believe that also will contribute to our margin in domestic market and alleviate the negative impact of Turkish lira depreciation.
What are your expectations on Turkish tourism season this year?
We are very positive. I mean, even in last year where a lot of the countries had severe lockdowns and imposed strong flight restrictions, we had about 25 million tourists to Turkey. This year we were planning to exceed 30 million and probably finish about 35 million tourists. The stress in Russia and Ukraine might. I mean, I shouldn't say for sure because we are seeing a very strong demand, incoming demand from Europe and Middle East could prevent us to reach these 35 million tourists. We believe overall this year is going to be a good year for Turkish tourism sector.
Now we are heading for our expectations for 2022. Could you give any color on guidance for this year?
It's still a little bit of a challenge to put a full number for the year end. As I said again at the earlier question, we are definitely expecting to pass the 2019 capacity level, ASK level by about 57%. The revenue also we are expecting to increase 2019 level by 10%-15%. Q1 was a strong reflection of it. EBITDA margin, we expect that to normalize in 2022. We are definitely more optimistic about not just the traffic numbers in terms of passenger numbers and ASK production, but also in terms of yields and profitability. We are optimistic for 2022.
We are heading for the fuel question. How do you expect fuel cost for 2022 on which assumptions?
If the Brent price sticks around $100-$105 levels, then our fuel cost could go up by about 20%-30%, including hedge compared to 2021 levels. Our assumption is $105. We also see some faster growth actually on the jet fuel on much more stronger than the Brent. That might put some further pressure on fuel cost of this year.
In terms of ex-fuel cost, what should we expect for this year? Also, are there any deferred payments from the pandemic period?
At the ex-fuel cost, we believe the ex-fuel cost will be lower than 2019 level due to increasing capacity, a significant boost in capacity, and operational efficiency. We do not have any deferred payments inherited from the pandemic period. The Turkish lira depreciation also contributes to this performance in ex-fuel cost.
What is the estimated personnel cost this year compared to 2019?
The personnel cost is expected to decrease by about 15%-20% compared to 2019. Compared to last year, the decrease is going to be about 10%. This is including the inflation adjustment that we introduced on salaries at the beginning of the year. In midterm after in July, we are also going to make an adjustment in salaries with the inflation.
This question is on everybody's agenda right now. It will be about inflation. What will be the effect of inflation on your operations? What are your plans to manage any impact on that?
Ladies and gentlemen, yes, it's one of those days, lots of difficulties, technical issues, creeping in. Our speakers seem to be having some connection trouble. We will attempt to get them back as soon as possible. Thank you for your participation and your patience.
Hello. Welcome back. Hello, everyone. Welcome back. Today will be the day of technical difficulties. Sorry about it. No worries. Okay, I'm gonna repeat my question. What will be the effect of inflation on your operations? What are your plans to manage any impact on that front? The inflation is definitely going to be a burden on our operations. Yet, the operational performance in terms of the demand is also strong. We feel like we might be able to reflect that cost burden, or we could alleviate the effect of the cost burden with increasing our sales and having more full aircraft. We definitely are closely monitoring those factors, especially in fuel prices, ground handling and catering.
We aim to reduce the possible effects of inflation through hedges and pushing the budget tightly and monitoring it very closely. In our indications for Q2 , it is not going to be too much of a concern. About our fleet plan. Is there any update on new entries of Turkish Airlines and AnadoluJet? Yeah, there are definitely developments. We have been seeing the strong demand. We are trying to add new aircraft to the fleet. At the beginning of the year, our initial plan was to get about 29 deliveries. Currently, we are in a position where we are seeking about 39 deliveries. Some deliveries are going to be utilized for AnadoluJet fleet, about 11 of those, 11 additional, I mean.
We are getting some new wide bodies for Turkish Airlines. The fleet is growing stronger than we planned from the beginning of the year. Can you give an update on the deliveries beyond 2023? That's a little bit more vague, but I can roughly try to put it in some perspective. Between 2023 and 2024, we are expecting about 34 deliveries. Between 2025 to 2028, we are expecting about 50 deliveries. Overall, including 2022, we are going to be getting about 120 aircraft. How do you see the cash burn generation for this year? This year, excluding the financing expenses and the loan repayments, we actually are not foreseeing cash burn. We are expecting cash generation.
Of course, financing, I mean, loan payments as well as the aircraft financing is going to be a significant burden. Yet on the operational front, we are not expecting any cash burn for 2022. What is the CapEx and PDP plan for this year? Has it changed compared to previous call? The addition of new aircraft, as I just mentioned, is going to increase the CapEx needs. We were initially guiding for about $3.5 billion worth of CapEx. Now we anticipate that to be around $4-$4.5 billion. What is your expected net debt for the year, the end of 2022, and level of leverage? The net debt expectation for 2022 increased around $13-$14 billion as a result of new aircraft entries.
The new debt net target for this year is around 3.8-4.2 times levels, which is a guidance that we have taken quite some time now. Hopefully by after 2023 or 2024, we could come back to the 3 times level, which is our midterm target. We are heading to cargo questions. Could you comment on unit revenue and capacity in the last quarter? Cargo unit revenue was about 30% higher compared to the first Q of 2021. This quarter, of course, as I also mentioned in the presentation, we were expecting a faster decline in the yields. Supply chain disruptions have kept appetite for cargo, air cargo, very strong.
The e-commerce, the development in e-commerce also was another factor that led air cargo businesses produce strong yields and revenues.
What about cargo outlook? When do you expect normalization?
Well, seeing the situation developments in China is making it difficult to answer to this question. Supply chain disruptions caused by the Ukraine and Russia crisis and increase in the travel times is also putting some funding pressure on land and sea transportation. We could have a year in terms of yields perspective, maybe not as strong as 2021, but it's not going to come down to the 2019 levels throughout 2022.
Could you provide details on AnadoluJet operations?
AnadoluJet is, as you also saw in the slides, increasing its international capacity, starting from about a 13%-20% levels. It reached about 50, above 50% levels. The amount of ASK that contributes from international routes in AnadoluJet. We expect that to reach to 66 aircraft by the end of this year. We are actually renewing the fleet, retiring the old aircraft and changing to the new generation aircraft. We expect that also AnadoluJet to contribute more to the bottom line with its new and larger fleet.
Any update on the plans of carve-out cargo operation?
That project is still ongoing, but yet it's at a slower pace. As I also said in our year-end results, that's an ambitious project that we are still interested in. Yet the pros and cons of the timing, when that should be done exactly, is where we are putting our emphasis on, currently. We don't have a clear timeline of when that is going to happen and in which method we are going to be doing it. That we are still continuing to work on this carve-out project.
Why did you decide to merge THY Gayrimenkul with the parent company?
If you would recall, we established that subsidiary about like four years ago with the aim to provide a housing opportunity to our staff as the new airport is outside the city. A lot of the staff, pilots and cabin crew and headquarters staff live in the vicinity of the current Atatürk Airport. However, after the pandemic kicked in in very early 2020, we could not, of course, take any steps towards making a construction investment. The land investment that we had there was losing value, so we decided to include that, merge these two companies and the land, which is a great asset, and our engagements with Emlak Konut, which is the biggest construction company in Turkey, is continuing.
Now we will be having more time to make the decisions, and it's going to relieve the burden from our subsidiary because that subsidiary doesn't have any income to pay for this debt incurred with the land. The land is continuing to gain value. We see other housing projects in the vicinity of that land. With the land being in our balance sheet, we can have, with no rush, a more reasonable planning ahead of us.
Can you elaborate on your plans to merge TSI, TCI and Cornea Aero Systems?
These three companies, we have had them for quite some time now, but they stayed in small sizes. With this, merging of each of these, with merging of these companies, we are expecting to create a scale, a bigger scale, combining an IFE team, a galley team, and a seat production team, so that they can have a bigger and stronger marketing power when they address, meet with the airlines and then try to get their business. So the sole purpose is to gain from scale efficiency, to be able to provide the whole package together under one umbrella and to provide the whole internal systems when they visit the airlines. Also to remove some of the inefficiencies like the supporting units like finance, procurement, HR.
It will generate both efficiencies in terms of the operation, and it will. We are also going to be able to see the benefit of providing the whole package for our marketing strategies. I see some of the questions here asking whether we can replicate the 2021 profitability in this year. Well, 2021, that $1.4 billion operational profit was of course one of a kind. It definitely can be replicated, but it's going to require quite a strong demand recovery. Remember that, we increased the salary by about like a 60%-70% and adjusting for Turkish lira inflation and then, giving back some of the salary cuts that we had to go through in 2020. All those cuts had an impact of about $700 million overall for a year.
To bring strong yields and strong demand to compensate those salary increases, personnel expense increases, is going to require a strong effort. We believe maybe not TRY 1.4 billion, but we could maybe achieve something close to that, depending on the, of course, how much pressure we will be getting from the fuel side and how much of the demand we'll be seeing towards Turkey. Another question is. What is our outlook on domestic passenger yields for this year? Is increase of international traffic to Turkey going to support the demand on domestic routes? The first part, the, as I said, also as the cap increase on domestic ticket prices is going to benefit our yields on the domestic side. As I was saying, we could charge about 40% of the ticket on the cap side in 2021.
Now the cap is going up, so it's going to definitely provide support on the domestic market yield. It is also true that increasing international traffic is going to also contribute to domestic yields. There is a lot of ethnic travelers that come to Turkey from Europe in particular and U.S. That is going to play in favor of domestic yields. One last question I see here is. Can lack of guarantees for Russian planes not to be seized when entering Turkey visibly improve your operational financial numbers in the near future?
Well, that issue is really Russian planes being able to fly to Turkey or not is not going to make a major change in our business because where we earn income from Russian market is our in our regular planning. From the charter business which those Russian planes usually come to Turkey is an area where we have very, very little penetration anyway. We don't see much of a threat or much of a impact on the positive or negative side from Russian planes coming to Turkey.
Murat Şeker, I think that's all of the questions. I think with this answer, we would conclude our call. Thank you all for your participation, and hope to see you in our next event.
Thank you.
Thank you very much. Ladies and gentlemen, this concludes today's webcast call. Thank you again for your participation. You may now disconnect.