A Study of the Strategic Responses of Turkish Airline Companies to the Deregulation in Turkey: Competitive Structure

Price determination in the Turkish domestic airline market was deregulated in 2001 by way of an amendment made in Law (numbered 2920) on Turkish Civil Aviation. However, it is not possible to claim that this amendment alone brought about deregulation. The actual deregulation came into force in 2003, when the barriers to market entry were removed; this provided the primary condition for competition. After 2003, the domestic market broke away from the monopolistic structure and was converted into a market where multiple numbers of airlines operate. In Table-1, airlines that entered the domestic market up until December 2011 following deregulation are shown, where prior to 2003, it was only Turkish Airlines operating; dates they entered the market and their current status can also be seen in the Table. Findings show that competition among airlines in the domestic market is shaped according to the network structures formed by the carriers. Although all scheduled airlines in the market compete with one another in the general sense, airlines that select Ataturk International Airport in Istanbul as their hub for flight operations and airlines that select Sabiha Gok9en International Airport in Istanbul as their hub, actually enter into direct competition among themselves. As a result, Turkish Airlines, Atlasjet and Onur Air in one group, and Pegasus Airlines, AnadoluJet and SunExpress in another group are firms that directly regard one another as competitors. Food supply Chain

When we consider that each airport pair should be regarded as a separate airline market, this finding is quite logical. The product offered in airline transportation is a transportation service between two points. If any one of these points change, a totally different product would emerge. Additionally, when we consider the fact that nearly a quarter of the population in Turkey is located in Istanbul and its environs, and that there is a long distance between Ataturk International and Sabiha Gok9en International Airports, even if the starting point is Istanbul, it is natural that these two airports create different markets.
Tools that airlines use in order to compete with competitors and points of superiority may vary. However, findings show that competitive tools that emerge in the domestic market are service quality, extensive network structure and price.
New markets opened up in the domestic market as private airlines entered the market after deregulation. However, vitality has been encountered mainly between Istanbul and major cities of Turkey such as Antalya, Adana, Trabzon and Izmir which are densely populated, developed cities with their economic, commercial and tourism activities. In these above mentioned markets, there is more than one airline undertaking operations. This is why there is more competition in these markets where the operations of airline operators coincide.
When we consider the balance between airlines in the market from the size and power perspective, we see that Turkish Airlines has a different position. Due to the fact that Turkish Airlines has been in the airline transportation business for a longer period of time compared to other airlines, it has immense experience and know-how and the advantage of being a national airlines company. All of these factors give bring Turkish Airlines a competitive advantage. For this reason, it is advisable to position Turkish Airlines separately from other private airlines in the competition structure of this market.
Although legally all barriers to market entry have been removed along with deregulation, we still see some barriers to entry in practical terms. The most significant barrier to market entry is a lack of sufficient capacity at Ataturk Airport. In addition to the vitality brought by deregulation, Turkish Airlines grew quite fast and eventually Ataturk Airport reached a point where it may no longer respond to this fast growth. This lack of capacity is reflected to airlines in the form of slot problems. More importantly, due to the lack of sufficient capacity in recent years, the civil aviation authority no longer permits new carriers from entering the market with Ataturk Airport as their hub. In addition to this, during the initial years of deregulation in the domestic market, airlines used to exhibit infrastructure deficiencies at airports, with some airlines switching from charter flights to scheduled flights lacking experience, so there was a requirement for them to make new investment. The field of human resources also encountered issues due to the fact that they could not catch up with this fast growth in such a short period of time and all of these factors are regarded as barriers to market entry during the post-deregulation period.
As there is more than one airline in domestic routes operating, it suggests that there are now more options for passengers in many city pair markets. For passengers, it is now possible to prefer one firm ahead of another based on the quality of service offered or the ticket price. Thus, passengers have a stronger position against airline companies when compared with the pre-deregulation period. Prior to deregulation, it used to be only passengers with high income levels that could afford to use air transportation mode in domestic market, whereas now middle income level groups can afford to do so. It may be talk about a new group of customers that are price-sensitive has occurred in the domestic airline market in recent years. Customers that create a value for the airlines are assessed, market segmentation is made and tailor-made marketing strategies are developed for these value creating customers.
When the developments in transportation modes and options in Turkey are considered, land transportation is still the most preferred transportation mode of passengers, so it may be said that land transportation has probably the highest potential to compete with airline transportation; but it cannot be claimed that as speed and journey duration factors are taken into consideration, land transportation can compete with airline transportation. High-speed train transportation is not yet widespread, so it is unlikely to create competition as a substitute product. However, the Ankara – Eski┬žehir high – speed train reaching all the way to Istanbul is seen as a threat by airlines.

Table 1. The Date Airlines Started Domestic Flightsl

Airline The date it started domestic flights Notes
Fly Air October 20., 2003 Transportation license annulled
Onur Air December 9., 2003 Continues to this date
Atlasjet July 1., 2004 Continues to this date
Pegasus Airlines November 1., 2005 Continues to this date
SunExpress March 26., 2006 Continues to this date
AnadoluJet2 April 23., 2008 Continues to this date
Borajet May 7., 2010 Continues to this date
Turkuvaz Airlines September 22., 2010 Transportation license annulled
Sky Airlines January 15., 2011 Resigned from domestic market