Interview: A Place In The Sun
Max Kownatzki joined SunExpress as CEO at the onset of the COVID-19 crisis. After closing the company’s German subsidiary and restructuring costs, the airline recovered to post an operating profit of €59 million ($62 million) in 2021. Momentum has continued into this year, with the Turkish Airlines and Lufthansa joint venture launching 25 new routes during the summer season as it continues to expand its fleet of Boeing 737 MAX jets.
You joined SunExpress at the very start of the pandemic. How challenging were those first few months in charge?
My start date was April 15, 2020, but I had my first meeting with the company’s chairman the previous month. Towards the end of the meeting, he mentioned that Turkey was issuing a travel ban on flights to Europe the following day and I might want to fly back to Germany. My jaw dropped and literally from that moment onwards, I was in firefighting mode for the next few months. We obviously grounded most of our planes and went through the dire experience of having to close our German subsidiary.
We rolled out a big cost-saving program and really had to turn the place upside down. 2019 was one of the most successful years in the history of SunExpress and I literally was faced with the opposite—leading SunExpress out of the worst crisis the airline industry has ever seen. It was a case of reviewing every single cost and every single contract. We went from a cockpit and cabin salary scheme that was 91% fixed and 9% variable to a compensation model that was 50% variable and 50% fixed. This allowed us to breathe up and down based on the capacity changes in the market.
Did you receive any government support during the pandemic?
No, we did not receive any state aid or financial injections, but there was a lot of action from the Turkish government, which rolled out a PCR test requirement very early on. This turned out to be a blessing in disguise as it meant that that all our flights were tested. It also allowed us to apply for an exception for travel between Germany and four destinations in Turkey, enabling travel without the really tight restrictions seen in the rest of Europe. That made up a big part of our business.
The government also reacted very quickly for anyone on vacation in Turkey who tested positive during their stay, accommodating them in hotels free of charge while they isolated. Swift action like that really helped us and put us on a firmer footing going into 2021—a year when we made a €59 million profit.
What were the main drivers for the profitable year in 2021?
We have three different customer segments and two of those held up very well. VFR traffic has been very stable as people wanted to travel and see their friends and relatives, and the domestic market has been robust. We have actually increased our capacity share domestically from about 10-12% to more than 20%. That helped to carry us through the crisis.
The third segment, our tourist segment, has obviously been more susceptible to market volatility. The grounding of the 737 MAX also helped us as we would have had 15 delivered by summer 2021. We currently have nine in the fleet, with 33 more on order.
Has the momentum from 2021 continued into this year? What is the outlook for the summer season?
Absolutely. Our passenger numbers in 2021 were 6 million and capacity was 8 million. We were planning to go to 9.1 million passengers this year, but we are now pitching for 10 million passengers. We’ve had nine new MAXs come in and we are contracting six additional wet leases for summer 2022, as well as two additional ops leases for a six-to-seven-year term. That has enabled us to announce a significant network expansion with 25 new routes and 16,250 additional frequencies in the summer 2022. If I had more aircraft and staff available, I would be using them.
The 25 new routes will see you expand in new and existing markets, mainly in Europe. With more MAXs on the way, are you starting to look further afield for growth?
We’re opening 25 new routes in a number of new markets, but the range and efficiency of the MAX will allow us to explore new destinations. Looking east, the range would allow for Pakistan or India routes, and they are interesting locations, particularly for ethnic travel, the VFR segment. The Turkish Riviera is still our bedrock.
What differentiates you from competitors like Pegasus?
We’re the number one Turkish tourism carrier and we have a significant market share in the Riviera. That’s our home turf. Our cost position also means we can easily compete with Pegasus, but on top of that we have high reliability and an incredible company and staff spirit. If we make a capacity commitment, we stick to it. I’m also proud of our level of service.
Given the seasonality of your market, how will you manage the fleet overcapacity during the European winter?
We have quite a big swing with winter/summer seasonality, almost 40%. We’re therefore looking at leasing out opportunities during the winter, some of which could be in North America. We have received certificates in the US and Canada to operate SunExpress aircraft on behalf of partner airlines and we’re working to get the regulatory approvals we need on the Turkish side. We also have very close ties with tourism organizations and business associations and there’s lots of work to help increase Turkey’s year-round appeal as a leisure destination. This will help to reduce seasonality.
Has SunExpress been affected by the war in Ukraine?
Firstly, I’d just like to express our shock and sadness over the Russian invasion of Ukraine from everyone at SunExpress. From a business perspective, the impact is much lower than some other airlines as we don’t fly to or from the affected areas. We have some routes that are longer but only slightly—nothing compared to the impact some other airlines are experiencing. The cost of fuel is obviously affecting us, but we are 60% hedged during the summer and 40% during the winter.
What’s the biggest lesson you’ve learned during the pandemic?
It’s not something quantitative. This was my first CEO role, and when I had to communicate the closure of SunExpress Germany, it was a very tough time. But what struck me was the collective will to get through this together with transparency in the good and the bad times. We all sacrificed together—and we are also giving back in better times. It was a real team effort. That struck me in a really positive way. I think that spirit and togetherness is what makes SunExpress and has really enabled us to get through the crisis and flourish now.