With the impact of increasing competition after deregulation, airlines have started to develop new competitive strategies. Deregulated markets force airline operators to develop new strategies in order to protect themselves from competition and they also open up the path for the implementation of these new strategies. In other words, airlines that were unable to take managerial decisions or to implement them freely prior to deregulation have now become able to shape their strategies by way of using certain competitive tools thanks to the flexibility they have earned through deregulation. Numerous studies conducted on strategies that were developed as a reaction of airline operators to deregulation in these markets show that these new strategies may be defined in relation to Porter’s generic competitive strategy classification. The observation is that airlines within the deregulated markets have started to position themselves in a clearer way in relation to Porter’s differentiation, cost leadership and focus strategies as well as implementing these strategies in a clearer fashion.
One of the most significant outcomes of deregulation is that new entrant airlines developed a ‘low cost carrier’ model based on cost leadership strategy. Freedom of pricing resulting from deregulation is the most significant and fundamental factor playing a role in the emergence of this strategy. The fact that airlines are able to keep their costs to a minimum and determine low fares as they wish, enables them to implement this strategy. Emergence of low cost carriers in the US by the end of the 1970’s, in Europe by the end of the 1980’s and in Turkey in 2005 after having deregulated its domestic market in 2003 is an indicator of the fact that deregulation is an effective factor. Consumers’ motivation
Incumbents, having been challenged by the new airline operators that entered the market using a cost leadership strategy and intensifying competition, were also obliged to develop an appropriate competitive strategy themselves. Prior to deregulation, traditional airline operators used to work with a model close to the differentiation strategy and, after having entered into competition with low cost airline operators, they have started implementing the differentiation strategy even more clearly. Competition is a leading factor that has had an impact on the development of this strategy, but the fact that deregulation lifted the barriers that prevented the implementation of a differentiation strategy, also played a role. Differentiated airlines developed a new network system called Hub and Spoke (H&S) and started seeing computerized reservation systems (CRS), frequent flyer programs (FFP), technology and innovation as strategic tools. Now it is on their agenda to use these components as strategic parts of their differentiated products.
Airlines, in order to compete in deregulated markets, have developed new competitive tools that were previously either not in existence or even if they existed, were not seen as strategic tools. They try to gain a competitive advantage by planning prices, frequency, departure times, on-board services, network structure, innovative activities, mergers and acquisitions, alliances, human resources and use of technology in line with the requests and needs of passengers. These tools at the same time are components that airlines use to create customer value and they have become competitive tools that they may be used in a more flexible way after deregulation. Airlines know that in deregulated markets, as a result of competition, it is imperative to provide differentiated services and that these components are to be blended in accordance with the expectations of different customers in different markets or of different customers in the same market. These components provide a certain cost advantage as well as efficiency and productivity to the airlines, so that they may be more at the forefront in competition.