Ladies and gentlemen, welcome to Turkish Airlines' third quarter 2025 earnings call. We will have a Q&A session following the presentation. If you would like to submit your question, you can send anytime by clicking the Q&A button at the bottom of your Zoom screen. Now, I will leave the floor to our host. Sir, the floor is yours.
Thank you very much. Good afternoon, everyone, and thank you for joining us. During the third quarter, the airline industry's operating environment was shaped by a number of external and internal factors. Traveler confidence in North America weakened amid unpredictable immigration policies, while competition across Europe intensified as carriers increased capacity to capture peak season demand. Persistent supply chain constraints in aircraft and engine manufacturing, combined with cross-border tensions, continued to affect market conditions. In this context, Turkish Airlines remained agile and disciplined. Our third quarter results reflect our ability to adapt dynamically to rapidly evolving market conditions while maintaining a firm focus on our long-term strategy. In the third quarter, we also underlined our commitment to sustainable shareholder returns with the second installment of our dividend payment, amounting to $110 million.
Before moving to the financial results, I would like to highlight the major developments and achievements of the quarter. Most importantly, we took an important step towards preserving our growth trajectory by placing orders for 50 firm and 25 options for Boeing 787 aircraft. Deliveries are scheduled between 2029 and 2034. Once completed, they will significantly elevate our operational efficiency, flexibility, and passenger comfort across our network. Similarly, we completed negotiations with Boeing regarding the purchase of a total of 150 737 MAX aircraft, consisting of 100 firm and 50 option orders. Currently, we are working on the details of the deal with the engine manufacturer, CFM International. These steps reflect our goal of operating in an entirely new generation fleet by 2035, in addition to our annual capacity growth target of 6% for the coming decade.
During the last quarter, we launched flights to Seville in Spain and Port Sudan, while resuming operations to Aleppo in Syria and Misrata in Libya, rebuilding our presence in these important regional markets. Turkish Airlines continues to be recognized internationally for its achievements in both service and quality and aircraft financing capabilities. We received the World Class award from APEX for the fifth consecutive year, along with Best in Class distinctions in both Sustainability and Food & Beverage categories, reflecting our strong commitment to delivering an exceptional passenger experience. Moreover, at the Airline Economics Aviation Awards in London, we were recognized with three major titles: European Overall Deal of the Year for an Islamic finance lease in Swiss francs, European Supported Finance Deal of the Year for a Balthazar-g uaranteed JOLCO financing, and Sustainability Aviation Overall Deal of the Year for our Sustainability-l inked JOLCO financing.
These achievements underscore the depth of our financial expertise and our ability to secure competitive, diversified funding from global markets. Following these updates, I would like to briefly touch on the rationale behind our investment in Air Europa. Based in Madrid, Air Europa operates a fleet of 57 aircraft across 55 destinations, carrying more than 12 million passengers annually. As a leading carrier between Europe and Latin America, its strong regional presence and complementary network will further strengthen our role as a bridge connecting continents. This investment also aligns closely with our long-term strategy, enhancing our access to the fast-growing Latin American market and creating new opportunities for both passenger and cargo traffic between Spain and Türkiye. By linking these two major global tourism destinations, we will improve connectivity across Europe, Latin America, the Middle East, and Asia, offering passengers greater options, new travel itineraries, and smoother connections.
The collaboration will also foster tourism flows between T ü rkiye and Spain, supporting both economies and deepening cultural exchange. Importantly, this partnership is structured as a minority investment, ensuring Air Europa maintains its independent identity while benefiting from Turkish Airlines' operational expertise and global network. Now, let's take a closer look at our results. In the third quarter, Turkish Airlines' total passenger capacity rose by around 8% annually. We carried more than 27 million passengers to their destinations, reaching a record number in a single quarter and recorded a load factor of 85.6%. Growth was largely driven by robust demand in Asia and Africa. On the other hand, softer demand in North America, intensifying competition in Europe, and the geopolitical situation in the Middle East presented the headwinds. During the July-September period, total revenues increased by 5% year-on-year, reaching nearly $7 billion.
Passenger revenues rose by 6%, benefiting from strong volume growth. Meanwhile, cargo revenues declined by 7% to around $850 million, mainly reflecting ongoing trade tensions and increased competition from sea freight. Despite the revenue growth, profitability was lower compared to last year, mainly due to sequentially higher jet crack spread, the second-half wage adjustment, and partly softer yields. As a result, EBITDA stood at almost $2.1 billion, with a margin of 29.6%, while net income realized was close to $1.4 billion. With the slowdown in cost inflation, our structural improvements will become more visible as we progress in our initiatives to improve flight crew productivity, accelerate organizational streamlining, and advance more centralized back-office functions.
On the revenue side, we are taking steps to strengthen our passenger mix with increased premium offerings while supporting ancillary revenue generation through our Miles&Smiles loyalty program, TK Holidays, along with our express cargo subsidiary, Widect. Looking ahead, our forward bookings indicate optimism, supported by buoyant demand across Asia and Africa, in addition to swift recovery in the Middle East after the peace deal. As evidenced by our October traffic results, improvement was across the board. Compared to the same month last year, our number of passengers was up materially by 19%. Load factor by 2 percentage points, yields by 1%, and RASK by more than 3% despite substantial capacity increase. Cargo volume rose by 16%, 10 percentage points higher on a monthly basis, demonstrating a good start to high season.
Together with easing cost pressures and supportive fuel prices, we anticipate an EBITDAR growth in the last three months of the year. In closing, against the headwinds, our positive traffic trajectory is encouraging us as we approach 2026. Supported by continuous investment in our business and capitalizing on new opportunities, we remain strongly confident in the potential of our long-term strategy and return targets. I will now pass the call over to Fatih Bey to elaborate on our results and provide additional insights.
Thank you, Murat Bey, and good afternoon, everyone. In the third quarter of the year, we expanded our passenger capacity selectively, considering aircraft delivery delays, GTF groundings, and regional conflicts. Sequentially, capacity growth increased by 1 percentage point from the previous quarter, standing 43% above pre-pandemic levels, while European peers recovered only 9% during the same period. Despite the busy summer air traffic, our on-time departure performance increased by almost 10 percentage points compared to the third quarter of last year. In the July-September period, international transfer traffic expanded faster than direct traffic. On short-haul routes, particularly within Europe, direct growth remained relatively subdued due to intensified competition. However, a closer look at the figures shows a significant increase in direct traffic from Latin America and Asia to Türkiye, demonstrating the continued appeal of our network's global reach.
Similar to the second quarter, over 80% of total sales were made through direct channels, reflecting the success of our new distribution platform, TK CONNECT. This shift not only supports profitability by reducing costs but also enhances our ability to offer personalized products and promote ancillary services more effectively. Accordingly, this results in cost savings of $48 million in the first nine months of the year. Details of our traffic results show that the Far East remained one of the strongest regions. Compared to the same period last year, almost 9% capacity increase, combined with a more than 11% higher demand, led to almost 2 percentage points in rising load factor, well above our budget and encouraging for the upcoming months. Demand in Japan stayed robust, supported by sustained travel appetite and the ongoing Osaka Expo.
Starting from the fourth quarter, we plan to expand capacity to Tokyo Narita by 40%. China also stands out as another key growth market, where we will gradually raise weekly frequencies from 21 to 32. Given the strength of demand, we do not expect any weakness in load factors in the near term. Further capacity growth is also planned in Indonesia, Thailand, and Vietnam, in addition to the launch of scheduled flights to Phnom Penh in December. On the other hand, rising competition in Malaysia and Singapore may put some pressure on unit revenues. Africa delivered another quarter of strong performance. Following a substantial capacity expansion, demand remained highly resilient, with particularly remarkable results from our newly launched Libya routes. Benghazi and Misrata performed above expectations and contributed to overall regional momentum.
The recent capacity increase in China is also expected to support growing flows towards West Africa, enhancing our network connectivity across the continent. In North America, the impact of U.S. policy changes continued to weigh on the ethnic travel demand. As peak travel season came to an end, we are now transferring part of the capacity toward Asia to better align with market dynamics. On the other hand, Latin America demand continues to perform well, particularly on routes to Panama and Argentina. In Europe, competition remained intense throughout the quarter as local carriers significantly expanded capacity and pursued aggressive pricing strategies. Capacity additions from low-cost carriers have also negatively impacted AJet's unit revenues. Demand from key markets such as Germany, the U.K., and Scandinavia was slightly weaker, while increasing transit traffic partially offset the slowdown in local demand.
Consequently, we observe a slight slowdown in direct travel from Northern Europe to T ü rkiye. Demand to and from the Middle East began to recover as tensions that had escalated in June started to ease. Following the peace agreement, bookings have accelerated noticeably, pointing to a swift normalization in the region. In the domestic market, yields declined by 7% due to base effect and change in passenger mix. Last year's low economy class availability prompted more passengers to trade up to business class. With this year's higher capacity, economy availability increased, which in turn reduced the business class share. During the July-September period, passenger revenues rose by 6%. Strong performance in ancillary and technical services also contributed positively to our growth. External technical revenues grew by more than 28%, reflecting continued demand for maintenance services as production bottlenecks persist and the utilization of older aircraft remains elevated.
We expect this momentum to continue in the coming quarters, given the limited availability of new aircraft deliveries. Conversely, cargo revenues followed a different pattern. Trade restrictions and tariff measures weighed on overall cargo flows, which led to a 7% lower revenue in the third quarter. Apart from trade tensions, additional capacity from new vessel deliveries, as the order-book-to-fleet ratio is at its highest point in more than 15 years, and expectations of a reopening of the Red Sea continue to pressure yields. In the third quarter, AJet carried more than 7 million passengers. Despite groundings related to GTF engine issues, capacity increased by around 23%. During the period, AJet continued expanding its international network from Ankara, adding capacity markers such as Egypt, Sweden, Uzbekistan, and Kyrgyzstan.
New direct services to European cities, including Madrid and Barcelona, strengthened Ankara's role as a regional hub, connecting Europe, the Middle East, and Central Asia. This expansion remains central to AJet's strategy of positioning itself as a competitive low-cost carrier with a strong presence beyond T ü rkiye's borders. By the end of September, active fleet recorded as 80 aircraft. With additional deliveries planned for the remainder of the year, annual capacity is expected to rise by around 15%, accompanied by higher load factors. As in previous periods, revenue growth during the third quarter was mainly supported by passenger operations, benefiting from capacity increase. Conversely, lower cargo revenues and softer yields in certain regions limited overall profitability. On the cost side, although brand fuel prices remained favorable, higher crack spread, wages, and weaker U.S. dollar negatively affected performance.
Consequently, profit from main operations declined by around 21% to around $1.1 billion, while EBITDAR decreased by 12% year- over- year to almost $2.1 billion. In the third quarter, total cost per ASK increased by 2.8% year- over- year, mainly driven by higher personnel expenses following the mid-year inflation adjustments. On the fuel side, even though average jet fuel prices were lower than last year, widening crack spread limited the overall benefit compared to the previous quarters. Meanwhile, strict control over advertisement spending and a higher share of direct sales and fewer rent-leased aircraft partially offset the cost pressures. Negatively, airport and air traffic-related unit costs increased by almost 12%, mainly due to revised fleet schedules at major European hubs and stronger euro. Aircraft maintenance costs also remained elevated, reflecting the ongoing GTF engine issues. Free cash flow generation remained healthy during the third quarter, amounting to around $350 million.
Accordingly, 12-month cumulative free cash flow reached $1.6 billion. After debt service, liquidity rose by $200 million, sequentially to almost $7.9 billion. On the other hand, net debt increased by $700 million compared to the previous quarter, mainly due to new aircraft deliveries and the weaker U.S. dollar. Correspondingly, leverage recorded as 1.4 x, well below the target range of 2x-2.5 x. As mentioned by Murat Bey earlier, while travel demand remains positive in the fourth quarter, the softness observed in North America during the summer led us to slightly revise down our revenue growth guidance by 1 percentage point to 5%-6%. Since the beginning of this year, ex-fuel unit cost development followed our expectations. In the final quarter, we anticipated a notable improvement in cost performance driven by base effect.
With that, we are on track to reach our unit cost guidance of a mid-single-digit annual increase. Taking these factors into account, we are maintaining our 22%-24% EBITDA margin expectation for 2025. With this, we conclude our prepared remarks section of our earnings call. Now, back to Merve for the investor questions.
We would like to thank our speakers. Now, we will start our Q&A session. If you wish to ask a question, please click the Q&A button at the bottom of your Zoom screen and submit your question.
Welcome back. Before we start the Q&A question, I would like to just briefly mention a couple of actions that we took during the summer. Summer was a busy period not only for our operations but also for our investor relations team. As part of our improving IR activities, we conducted a perception study to gather valuable feedback from you, our analysts and investors. In the coming period, we will gradually implement the suggestions offered to strengthen our engagement with you. With this occasion, I would like to thank all of the participants for taking time to share their views. Now, let's continue with the Q&A section of our call. Murat Bey, we got quite a few questions from our analysts and investors. Starting with, could you walk us through the main factors that shaped the third-quarter performance?
Sure. Thank you, Fatih. On the positive side, the first thing that comes to mind is the strong demand we have been seeing in the Far East and Africa, and then third-wise the domestic market. In the Far East, for example, RPK was up by a double-digit 11%. In Africa, it was up by almost 20%. The third-party revenue share of Turkish Technic, which currently is the third biggest MRO provider in Europe, the revenue from third-party went up by 28% in this quarter. These were the positive developments. Plus, brand continued to be lower than projected. The structural tailwinds that Fatih also touched upon a little bit, the improvements on our distribution and sales costs as we started to use more of our direct channels, they were also helpful to the bottom line.
On the negative side, the volatile geopolitical situation and unpredictable immigration policies and cargo yields being down by almost 16% year- over- year, the jet crack spread being up by 8%-10% level, and the inflation adjustment on salaries, personal expenses, were the three big items that provided a negative development for this quarter's performance.
Murat Bey, can you provide an update on the current status of the GTF groundings and how they are impacting your operations? We got this question from both Vladimir and Kurt Hofmann.
I mean, we know we have been in very, very close coordination with Pratt & Whitney, who is trying to solve the problem in the speediest way. Still, we have quite a sizable number of aircraft that are grounded. Of the 100 GTF-powered NEO aircraft we have in the fleet, today, 40 of them are parked. This seems to be continuing; around 40, it will go up to 50, come down a little bit, all throughout 2026 as well. There has been a major improvement. This, of course, is a little related to the fact that we keep getting more GTF-powered NEOs to the fleet. We keep using them so that our staff, the captain utilization, and aircraft utilization continues.
Murat Bey, could you also provide insights into current passenger booking trends? October results were quite strong. Maybe region-wise, you may elaborate on the details.
Sure. As I just said, Far East, Africa, and domestic have done well so far. Looking into the future, in the Far East, for example, we expect to have 13% and then another 13%-15% capacity growth in the next two quarters, including the fourth quarter of this year and the first quarter of next year. Overall, before getting into the region-specific details, we are planning to put 10%-11% ASK growth with a flattish yield in the last quarter of this year in overall our growth. Into the regions, I just mentioned Far East. After Far East, we'll see a very significant growth in the Middle East. There is, of course, a lot of the base effect here. Africa is going to have about 12%-13% capacity growth in the next two quarters.
The forward reservations from November for the next six months look quite positive. We are expecting a busy winter travel season ahead of us, especially from December to April of next year. We see double-digit capacity growth month over month. We also see mid-single-digit yield growth going forward.
Unit revenues in some regions have been weaker in recent months, particularly North America. Have you made any adjustment in pricing or market share strategy? Do you consider to defer some aircraft deliveries to reduce capacity growth?
As we keep saying in almost every investor call, the diverse network we have is allowing us to channel the capacity between regions easily, depending on the demand environment. While relative softness in North Africa, North America, sorry, we have started to transfer that capacity to Asia at the beginning of the quarter, where the demand has been much stronger. Additionally, we expanded the product segmentation in pricing to all international regions after implementing it in Americas and Europe. Also, in Asia, we have done some tactical adjustments, like increasing the capacity to Bali and exotic destinations and getting a larger share of the seaman traffic out of the Philippines, for example.
This is a quite popular question. We have been getting a lot of these from our investors. Some suggest that T ü rkiye is becoming a more expensive travel destination compared to its peers. Considering the third-quarter performance, what is your view? How does the demand look like in the upcoming period?
According to the tourism figures of the first nine months, which was announced last week, the number of visitors to Türkiye went up by 2% to 50 million, which actually aligns closely with the updated annual growth target of 4 million for 2025, from about 62.5 million to 65 million, which was the number announced at the beginning of this year. Moreover, over the last five years, tourists to Türkiye increased tremendously. When you compare the amount of tourists we had in 2024 compared with the number in 2021, it has more than doubled. Just from it has even went up higher than its 2019 level by 20%. When you look at this macro scale, the number of tourists coming to Türkiye has been increasing dramatically. However, in particular, in 2024 to 2025, we have been seeing some slowdown in the pace, which we think is natural.
It cannot keep continuing 10%-15% year- over- year. When you look at the third quarter in particular, still the number of tourists coming to Türkiye was up by almost 2%. As I said, it resonates well with our year-end target numbers. For Turkish Airlines, in the third quarter, we carried almost the same number of passengers to Türkiye compared to last year. We do not see much of a deterioration or shrinkage in this segment. Although there might be some negative effects due to the relative strength of Turkish Lira, tourism numbers suggest the resiliency of this industry. Also, we have been seeing some change in the composition where the tourist is coming from. Latin America and Far East have been growing rapidly, which yields higher ticket prices and tourism income for the country.
For example, we recorded a 7% increase in the number of passengers traveling from Far East to Türkiye in the first nine months of this year, especially after we opened our route to Australia. In addition to that, Japan, South Korea, and Thailand were sending a significant number of tourists to Türkiye.
Thank you, Murat Bey. Can you also share how premium cabin performance compared with the economy during the quarter? Because most of the peers also mentioned about the strength of the premium class.
Network-wide, we actually have been observing stronger premium segment performance than the economy cabin. Passenger profile for the premium segment is much less sensitive, both to economic volatility and the low-cost competition. In the third quarter, premium segment revenue yield change was almost 11 percentage points higher than the main cabin. In the second quarter of this year, the difference between premium and economy class was 5%. In the summer months, the difference in the passenger yield went up by more than twice. As a result, premium resilience to competition has been showing itself. 2025 is the record year for our premium class load factors. In terms of aircraft, wide-body performance has been much, much stronger. Demand is being driven by the flows, mainly from the Asian countries like Japan, China, Vietnam, and Hong Kong.
How would you assess cargo performance last quarter? What is the outlook for the remainder of the year?
By its nature, the third quarter is typically a soft season for air cargo. Nevertheless, Turkish Cargo demonstrated a strong tonnage performance, achieving an increase of more than 10% compared to the previous year. On the other hand, unit revenue performance was significantly negatively affected by tariff-related concerns and the effect of these tariffs on trade flows, especially on the Asia-North America axis, and to some extent, spillover effects of the conflict in the Middle East region. However, the recent trade deal between the U.S. and China, along with the peace talks in the Middle East, could potentially improve the outlook as we enter the high season for cargo. Internally, though, our new cargo revenue management system, which went online recently, is expected to bring an additional 2%-3% revenue in 2025.
We continue to expect close to flat cargo revenues with a high single-digit increase in volumes, which we hope to compensate most of this drop in the yields with higher load factors.
Continuing with the cost questions, what are your expectations for fuel unit costs on what assumptions? Can you also share your staging ratios and do you anticipate any changes in these ratios in the near term?
Although the oil prices trend downward with slight volatility, jet fuel costs tend to stay high, which reduces the benefit attained from the low Brent price. We expect around 10% lower fuel costs year- over- year in 2025, with the assumption that year-over-average is going to be around $68-$69 levels. Our current hedging ratios for 2025 is around 50%, and for 2026, it is around 23%, respectively, with a break-even price of approximately $64.5. We expect a minimal fuel hedge loss this year, less than $20 million. We maintain a structured and scenario-based approach designed to remain effective under various market conditions.
Murat Bey, could you also share your ex-fuel unit cost expectations for 2025? Are there any efficiency measures to be implemented?
The ex-fuel costs, as you saw in the presentation on the third quarter, it was quite high. We expect that to come down to mid-single digits, lower than 5%, lower than, hopefully, 4% levels year- over- year in 2025. The reason for this improvement on the top of nine-month results is, first, we see moderation in inflation, which is decreasing the pressure on the inflation-adjusted costs. We have paused hiring, except for capacity growth. This will enhance our operational leverage and generate greater efficiency. We have been increasing the crew and aircraft utilization through both schedule optimization and improving our on-time performance. Capitalizing corporate-wide functions and scaling down the international organizing structure is another component of it. We have put significant KPI monitoring schemes to all of our subsidiaries.
The expansion of our direct sales channel, TK CONNECT, has been improving our distribution and sales costs. Further, we are implementing quite a few AI projects on customer support and for back-office automation, which is also bringing us some internal efficiencies. We expect these items on the personal efficiency, on strongly monitored KPIs, and on more utilization of the AI tools to bring ongoing efficiency gains for Turkish Airlines.
Murat Bey, just a couple of things. Hanzade from JP Morgan also asked about why staff costs are increasing ahead of our initial expectations, while union agreements are fixed and seem to be favorable to support cost inflation this year?
Hanzade , to be honest, the Turkish lira depreciation was lower than our expectation. At the same time, Turkish lira inflation was higher than expectation. There is a mix between two. We saw around 2 percentage points of actual costs headwind from that impact.
Continuing with the guidance question, are there any changes to your guidance, Murat Bey, for the fourth quarter concerning the third quarter revenue and forward bookings?
For the whole year, we are keeping our profitability target the same, while lowering the revenue growth guidance by 1 percentage point to a 5%-6% increase. As you might recall, in the earlier calls, we were targeting 6%-8% revenue growth. This mainly is due to the softer revenue performance of the third quarter. The fourth quarter EBITDAR will be closer to last year with a 20%-22% margin. For the whole year, thus, our EBITDAR margin expectation is going to be again between 22%-24% levels. Nominally, we should be slightly lower than last year's amount of $5.7 billion EBITDAR.
As we approach the year-end, we are getting a frequent question about our 2026 guidance, maybe just in terms of capacity and margins. What are the moving parts?
We're still working on the budget. There is a lot of mileage we need to take before we share our 2026 expectations. Roughly speaking, on the capacity-wide, I can say that we'll keep the growth continuing. This year, in 2025, ASK growth expectation was around 8%. Next year, we expect that to be around 9% levels. For TK, it will be around like 7%. AJet is getting a lot of new aircraft. The growth, ASK growth, capacity growth for AJet is going to be larger. Thus, we are expecting overall 9% capacity growth. One, of course, big uncertainty here is the fleet. Although we believe all the deferrals that were supposed to be deferred in this year are planned and scheduled from Boeing and Airbus' side, we don't expect any surprise.
If anything, that might be one critical issue that would change our projections. For the profit evolution, we are going to be guiding somewhere between 22%-24% EBITDAR margin. As in 2025, ex-fuel cost pressure should have less negative impact on our bottom line due to the better domestic and global inflation outlook. Still, though, as I mentioned, because we have not agreed with the union yet, there is a collective bargaining agreement to be discussed, which is going to be initiated within the next few months. That could bring some uncertainty. Overall, helped with the lowering of the inflationary pressure, we believe 22%-24% EBITDAR margin will be attainable.
Murat Bey, what is the latest projection for the fleet size by the end of 2025? Any guidance for 2026?
For 2025, assuming getting our aircraft deliveries on time for the remaining two months, we expect around 35 net entries this year. Overall, we will be getting about 70 aircraft. This is together with TK, AJet, and Cargo. There will be 34 aircraft exiting the fleet. With the updated aircraft delivery table, we increase our 2025 year-end fleet expectation to somewhere between 525-530 aircraft. In 2026, we are expecting roughly 50 net aircraft additions to the fleet. For TK, sorry, for TK, it will be about 26 new additions, 20 narrow-body, 6 wide-body. For AJet, about 50, but a big portion of it will be replacing the old aircraft and then short-term lease aircraft. Then we'll get a cargo aircraft as well. Overall, there will be roughly 80 entries and 30 exits.
In various mediums and public disclosures, you announced a number of significant non-aircraft investments in line with your growth strategy. Is it possible to elaborate on those?
There are significant investment projects we are undertaking, which were postponed during the pandemic. Starting from 2023, mainly, we started to revisit those projects. We needed a new aircraft maintenance hangar, which we initiated in 2023. We need an additional second phase of our cargo terminal. We need a new catering building in Istanbul Airport. These will be the biggest, these three will be the biggest investment, non-aircraft-related investments ahead of us: a new cargo terminal, a new catering building, a new maintenance hangar. In addition to these three, after our agreement with Rolls-Royce to maintain A350 engines, we are going to be starting very soon to build an engine overhaul facility in Sabiha Gökçen Airport. Sorry, in Istanbul Airport. These four will be the major investments. However, they are not the whole list.
As we are expanding our flight academy, we are expanding our simulator center with adding new simulators. We are building data centers for Turkish Airlines' own needs.
Third quarter leverage exceeded the guidance. What were the main reasons, and will we be able to reach year-end targets? How should we think about the expected leverage and net debt level?
We were guiding a leverage of somewhere between 1.1x-1.3x . In the third quarter, we realized 1.4 x leverage, which is not a significant deviation, but it still is higher than our expectation. The reasons for this change is we had to lease additional aircraft to compensate the GTF-related groundings, which was about nine aircraft of a value of about $1 billion. As a second factor, as the US dollar was devalued against euro, the US dollar equivalent total debt of Turkish Airlines increased because we have a significant amount of euro-denominated aircraft financing. It also led to an increase in the leverage. Third, slightly lower EBITDA due to the relatively softness in the demand that we saw in the third quarter was the factors for this slightly higher leverage.
For the new guidance to the end of 2025, factoring the above items plus the cash outflow regarding to Air Europa's share buy, we will see that the net debt to EBITDA multiple could be somewhere between 1.6x-1.8 x for 2025.
Can you also comment on AJet's performance? When will AJet announce the results separately from Turkish Airlines? What is the capacity increase in AJet at year-end? One last question about its IPO plans.
AJet carried 7 million passengers in the first three quarters in the third quarter and more than 17 million passengers in the first nine months of this year. Despite the aircraft groundings due to GTF engine issues, passenger capacity increased by 24% in the third quarter. The demand has been really strong on AJet's side. They also have been investing heavily to improve their on-time performance, which was about 5 percentage points higher than 2024, and it reached 76% level. The annual capacity growth expectation is around 15% and 3.5 percentage points higher load factors. These all show that I think the work for AJet is going well. However, their cost base, their fleet still needs to settle and then needs to improve. We believe we still have some more time to be able to separately report AJet's financials.
We are planning to report their traffic early next year separate than Turkish Airlines. This strong revenue evolution and improvements in the fleet are going to improve its bottom line. For this year, for 2025, we are anticipating their revenue to be above $1.5 billion. About the IPO, at the moment, we do not have such a plan. We think AJet is on a good and strong track. Next year, more than 70% of their fleet is going to be new generation aircraft. They are increasing their net operation in Europe, CIS region, and North Africa. The network is developing. Their sales channels and ancillary revenue capacity is increasing. We are not in a rush to IPO AJet. Once it is on a seamless, strong path of sustainable growth, we might consider such an option.
It is not in our agenda at the moment.
Are you interested in any other deal like Air Europa in the foreseeable future?
We did a little bit of an introduction about why we chose Air Europa and why we went through such an investment. On the big picture, of course, being such a big network carrier, we are always open in similar collaborations throughout the world, being in Europe, in Americas, in Asia, Africa, or Middle East, as long as we see a valuable value addition proposition. It does not need to be only through an equity acquisition. It can be through several other channels too, like the airline JV we had with Thai Airways. As long as the partnership complements and supports our operation and it creates synergies, we remain open to these kinds of opportunities.
Murat Bey, we also got another question related to Air Europa. Are there any—I am going to answer that just to save the time. Are there any potential risks related to regulatory or required authority approvals at this stage? Could you also share any insights on these expenses or pure EBITDA performance and net debt level?
To be honest, at this moment, due to the regulatory application process, we are not able to answer any of those questions.
Continuing with the fleet size, you expect a significant expansion. How will you manage the capacity increase? Do you believe the market will grow enough to accommodate your future capacity? Should we consider an erosion in margins due to massive capacity expansion?
Currently, our flight network is spanning about 355 destinations across 130 countries. We believe there is still potential of growth in the market. To put it into some perspective, our network currently is reaching over 90% of the world's population GDP and trade volume. We see Istanbul as a very strategic location, which is sitting across major global passenger and trade corridors connecting Asia to Europe, Middle East to Africa, Asia to Americas. Each new route that we open and each new frequency we add exponentially increases our unmatched connectivity. The aviation is currently expected to grow around 4% annually over the next decade. Our guidance of around 6% annual growth is seeming to be reasonable. We are not going to keep adding new destinations.
A very significant portion of this growth is going to come through increasing frequency in the existing markets and getting deeper in our existing network. By our 2033 strategy, we have already factored in a low single-digit decline in unit yields by taking the competitive pressure and market dynamics into account. Thus, a growth of 6% ASK growth and EBITDA margin between 20%-25% is, we think, reasonable.
You also got a number of questions regarding our Boeing orders. Could you update us on the recent Boeing order and deal? What is the expected delivery schedule? Also, we got additional online questions. For example, Hanzade is asking about, do you see any risks on Boeing orders given continued engine negotiations? In case of a decision not to proceed, would you be able to meet your capacity targets?
The Boeing order, I think the question is referring to the narrow body side because the wide body is already placed. The deliveries, as I said, are going to be between 2029-2034, 2035. On the narrow body side, actually, next week or within two weeks, there will be another face-to-face meeting. No matter how the meeting goes, we do not see this as a big threat on Turkish Airlines' growth projections because we have proven that when we do not get a direct order from both OEMs, that missing capacity has been successfully fulfilled through operating leases. The last five years, in particular, we had a lot of deferrals in our orders from Boeing and Airbus. Yet we could grow the fleet size by more than 150 aircraft between 2020 and 2025. We do not think it is going to be a big threat.
In any case, even if we place the order today with Boeing, the first delivery of this narrow body is going to start in 2029 or 2030. Still, we are talking about too far into the future. There are a lot of options being from Airbus, being from the leasing companies in the market that can be considered. Keeping these options there, to Hanzade 's question, we do not see a threat on our growth projections. This does not mean that we are not going to be continuing the discussions with Boeing. It has been quite a long time. Together with the wide body order book, we have started negotiations together on the wide and narrow body front. It is a 150-narrow body aircraft.
Once we settle the few remaining issues with CFM, we believe we might also be in a position to announce this deal not too far in the future once the negotiations finalize and meet our demands.
Considering recent results and the operating environment, will there be any update on the 2033 strategy? Do your expectations align with the recent results?
When you look at it more broadly, we introduced our strategy by 2023. We are in three years now into the strategy. When you look at the bottom line, we are fully in alignment with our strategic profit targets. When you break it down, you'll see that because of the delayed deliveries, we are a little below from our strategic targets on the revenue front. Because of the higher inflation than anticipated, there has been pressures on the cost side. The demand, again, which was not factored in to be this strong, the stronger than anticipated demand in 2023 and 2024, alleviated these negative factors and allowed us to be able to achieve the profit targets. We are not revising our 2033 targets, but we will make an adjustment.
Hopefully, by the first quarter of 2026, we will make some adjustments on the strategy, mainly because now it seems impossible that we will be able to achieve the fleet as we were targeting in 2026 and 2027. Those numbers need to be adjusted. The bottom line, we do not think a big change on the profit and profit margins.
Could you also provide information about the contribution of technical segment to operational profitability?
Usually, our main purpose of Turkish Technic is to serve Turkish Airlines' maintenance needs. As in the world, aircraft are getting older. Their maintenance requirements are increasing. To keep the fleet in operation in the busy summer months becomes more and more important. Due to Turkish Technic's strong capabilities in maintaining a very wide range of aircraft, its geographic location, its capacity to maintain aircraft currently in four different airports is giving it a lot of opportunities for third parties. As a result of this, in the first nine months of this year, their total revenue went up by 75% to almost $2 billion. By 2033, we keep investing in our MRO capacity. It will go up from the existing level of around 65 aircraft that we can maintain simultaneously.
This number is going to go up to about, it's going to double, like 120 aircraft by 2033.
Murat Bey, we have two more questions, and I can quickly address them if you allow me. First, is there any major operational impact on your North America operations currently due to the airport slowdowns caused by government shutdown?
Before joining the earnings call, I spoke with our Flight Operation Control Center, and they said that it is related to the U.S. domestic market. So no, we are not seeing any impact.
Also, we got questions about October traffic results. Could it be related to something about extending season?
To be honest, we do not believe so. By transferring capacity from the United States towards Asia, that allowed us to feed our afternoon flights in Istanbul. That also increased our connectivity. As a result, we expect fourth-quarter passenger results to be strong because of that connectivity improvements. With this question, we conclude our earnings call.
Thank you all for your participation, and we look forward to being with you next quarter.
We would like to once again thank you for the presentations. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation.