If there’s a defining moment in the life of any business, Turkish Airlines’ came in early 2001 with the collapse of rival carrier Swissair following its failed takeover of Belgian airline Sabena. Switzerland’s misfortune was to be Turkey’s gain, as it ended plans by the then Turkish government to sell Swissair a controlling stake in the Turkish flag carrier. However, having only twice turned just a marginal profit in the previous decade and having lost close to $500m over the previous two years, Turkish Airlines was in little better shape than its prospective buyer.

But with both the global airline industry and the Turkish economy in the throes of collapse, further sale attempts and shutting down the company were out of the question. Instead, backed by the World Bank, which had stepped in to bail out the collapsing Turkish banking system, the then government set about restructuring the company and slashing costs – a process geared at both reducing losses and preparing the airline for another potential future sale.

Turning a $150m loss in 2001 into a profit of $255m in 2002 was the start of a process few could have predicted, but which by this year has resulted in Turkish Airlines doubling its fleet, tripling its passenger throughput and becoming one of the fastest growing, most profitable airlines in the world. According to CEO Temel Kotil, a professor of aeronautical engineering, who joined Turkish Airlines as deputy head of its technical services subisdiary in 2003 before being promoted to the top job two years later, reducing outgoings was key both to the company’s dramatic turnaround and its long-term health. “Everything that either wasn’t useful or wasted time was cut,” he says explaining how removing tea-making equipment from planes saved more than $1m a year and printing staff schedules on A5 paper instead of A4 saved a million sheets. “Cost cutting became the company culture,” he adds, pointing out that both ideas came from staff themselves rather than management.

“Turkish Airlines also benefited from putting its non-core interests into joint ventures with specialist companies that can run them more efficiently but still offer huge cost savings,” says Ozgur Goker, an airline analyst at the Istanbul office of UniCredit. With outsourcing also proving to be too expensive, the airline re-established its own catering business, this time in partnership with Austrian firm Do & Co, allowing it to boost quality at the same time as slashing costs, says Goker.

By the time Kotil became CEO in 2005, the airline was already halfway through an expansion scheme under which flight frequency had increased and routes had been added, with mixed successs. Passenger numbers had risen to 14 million – 40% up from 2003 – but profits had slumped to only $60m as the company attempted to compete directly with other established European carriers for point-to-point business between European and Turkish cities. “As a strategy it was too aggressive and was not sustainable,” explains Kotil, noting the strength of the existing competition.

Instead he reasoned that, given its geographical position, the company should be using its Istanbul base as a hub for travel between Europe and the Middle East and Asia, a business that in the 1990s had boosted Dubai airport from regional terminal to major international stopover. “Istanbul is the perfect location, with 66% of the Europe to Asia transit business passing over the city,” says Kotil. “So we said: ‘Let’s put a highway between Europe the Middle East and Asia’.”

As all flights are upwards of two hours and on low-cost narrow body jets, operating costs are kept below those of its North European rivals who may have to ship passengers on a one-hour flight from, say Lyon to Frankfurt in order to take a wide-bodied flight to Tel Aviv. “The unit cost of an hour flight across Europe is three and a half times that of a two-hour flight to Istanbul,” says Kotil.

That enormous cost advantage has enabled Turkish Airlines to compete aggressively on price and to boost the number of transit passengers it carries by nearly 350% in six years, with 4.4 million of the 13.4 million international passengers it carried last year being on transit flights through Istanbul, as well as catapulting the company into the position of 10th biggest in the world in terms of global coverage.

“The combination of Istanbul’s location and Turkish Airlines’ big network offers significant advantages over airlines flying from hubs in the Gulf,”says Goker, explaining that flying passengers from north Europe via Dubai requires a wide- bodied aircraft with 300 seats to fill – a tough call on many routes. “Turkish airlines can operate the same transit routes with its narrow-bodied, short-haul craft with only 170 seats, many of which are taken by regular point-to- point passengers, so empty seats are seldom a problem,” he adds.

As a strategy it has been remarkably successful, turning a company that only a decade ago was regarded as a basket case into Turkey’s 10th biggest and its biggest export earner, while at the same time transforming an airline that a 10 years ago generated little business beyond transporting tourists to Turkey’s resorts and members of Europe’s sizeable Turkish community into one that carried more than 25 million domestic and international passengers last year.

Little wonder then that nowadays, far from being a contender for sale to a bigger airline, it is Turkish Airlines that is being frequently mentioned as a possible buyer for other ailing operators. But other than taking a 49% stake in Bosnian carrier B&H Airlines two years ago, Kotil is unconconvinced of the need for acquisions. “We’re always looking for opportunities but our own organic growth is offering a faster increase in market share than we could get by buying other operators, so no need,” he explains.

Cost alone though is not the only strategy. Kotil points out that while European markets want cheap flights, markets to the east of Turkey are increasingly demanding quality service. Kotil says that he wants to emulate his favourite operator, Singapore Airlines, which has a worldwide reputation for five-star in-flight hospitality, to offer something different to the European market. “If we want to compete with the major European airlines for point-to-point business, we have to give passengers something they don’t get elsewhere.” As a result, Turkish Airlines has boosted legroom in business class seats by 25cm and is in the process of offering live television, video on demand and Wi-fi internet access to all passengers.

Marketing is also a crucial component. “In order to sell your product you need three things; quality, competitive costing and branding,” says Kotil. “Our weak point is branding,” he adds, pointing to high-profile sponsorship deals with Barcelona and Manchester United football clubs as key to raising Turkish Airlines’ profile in key markets.

At the same time, with transit key to the company’s growth plans, Kotil has been working on segmenting existing business to make best use of available resources. With growth potential at Istanbul’s main Atatürk airport severely limited he has moved many domestic flights to the city’s second airport as well as creating a low- cost subsidiary, AnadoluJet, to operate out of the capital, Ankara. Kotil anticipates that this will boost passenger numbers by 20% this year. However, vital to further expansion lies with plans by the Turkish government to build a new purpose built terminal at Silivri, 60km east of Istanbul, with a capacity for 60 million passengers a year.

Capable of handling around 1,500 flights a day – double that of the existing Atatürk airport, which cannot be expanded further, the new airport will be as big as London’s Heathrow but is still awaiting a final investment decision. “The land is set aside, and when the decision is made it will take at least five years to build, but our assumption is that we will use it as our main hub,” he says.

Such assumptions may hark back to an era when national airlines were just that – flag carriers owned by the state and controlled by the government, more often than not at a massive loss. However, according to Goker, Turkish government support for the airline has been a key component in its recent success, albeit mostly indirectly. “The airline business is still governed by bilateral agreements, so what the government does is very important,” says Goker. “The government’s policy of abolishing visa restrictions with regional neighbours is helping boost transit travel,” he adds, noting that the cost and hassle of transit visas deters many passengers from transiting via airports in the EU.

But despite the advantages, Kotil is quick to point out that Turkish Airlines’ relationship with the government has been purely platonic since the state-held stake fell below 50% in 2006. “The best thing they did for the company was to open the market to the competition. Nowadays its not the government telling us what to do it’s our customers.”