A Study of the Strategic Responses of Turkish Airline Companies to the Deregulation in Turkey: Pegasus Airlines

A Study of the Strategic Responses of Turkish Airline Companies to the Deregulation in Turkey: Pegasus AirlinesAs Pegasus Airlines operated in charter transportation, it was acquired by ESAS Holding in 2005, and then built itself a new mission, ‘being a low cost airline company operating scheduled flights in domestic and international routes’. Thus, it started operating scheduled flights in the domestic airline market the very same year. It realized that the most effective and easy way to move from charter transportation to scheduled transportation was primarily through having a presence in the domestic market. The necessary ground was set as the barriers facing private airlines were eliminated in the domestic market. Airlines were supported by government incentives and the economic conditions at the time were suitable for operation in the Turkish market. Payday Loans Online

Pegasus Airlines entered the domestic market with its cost leadership strategy. Prior to entry the market, some European low cost airlines such as, Ryanair and Easyjet, were analyzed and the operators were re-structured in accordance with a cost leadership strategy in line with conditions in Turkey.
The most important component of Pegasus Airlines’ cost leadership strategy is the low price strategy. As it reduces cost and reflects that onto its prices by operational efficiency and productivity, it offers low prices. The main factors that ensure the airline’s operational efficiency and productivity are the selection of a secondary airport as the hub, the formation of a standardized fleet structure, intensive use of technology, ticket sales over the Internet and delivery of plain and simple services.
As a result of a competitive analysis conducted prior to its entry the market, it was decided that Sabiha Gok9en Airport should be the hub of flight operations as a differentiation in competition instead of being the fourth carrier at Ataturk Airport after Turkish Airlines, Atlasjet and Onur Air. Thus, by preferring Sabiha Gok9en Airport, Pegasus gained a competitive advantage as it avoided direct competition with other airlines present in the market; additionally, it aimed to reveal a passenger demand from the Asian part of Istanbul as well as from certain nearby cities such as Kocaeli and Sakarya that had never been accessed before. More importantly, as Sabiha Gok9en Airport has less flight traffic than Ataturk Airport, Pegasus has been able to reduce the turnaround time for its aircraft and thus increase daily aircraft utilization. This is an effective tool in increasing aircraft productivity and reducing costs. Additionally, the lower fees required by the airport reduce Pegasus Airlines’ airport utilization costs. Thus, Pegasus Airlines has been able to achieve remarkable cost advantages when compared to its competitors.
On the other hand, the assumption is that in the near future, a slot arrangement is to be initiated at Sabiha Gok9en Airport. Besides, as the operation of the terminals of airport as transferred to the private sector within the context of a Build-Operate-Transfer (BOT) Project, there has been an increase in airport fees as well. All of these developments are regarded as signs which show that Pegasus Airlines will encounter challenges in following a cost leadership strategy in the future.
One other important factor that has an impact on the cost advantage of Pegasus Airlines is its standardized fleet structure. Operating only with Boeing type aircraft, Pegasus is able to reduce cost because of the flight network and spare part pool efficiency. Having a single type fleet helps reduce maintenance, training and spare part inventory costs; it also ensures more flexibility in cockpit personnel planning and fleet management and finally, it reduces aircraft purchasing costs.
Pegasus also offers plain and simple services to keep costs to a minimum. There is no business class, and all flights have one single class which is economy class, so the distance between the seats is kept to a minimum and passenger seat capacity is thereby increased. Additionally, it does not have Very Important Person (VIP) or Commercially Important Person (CIP) that would cause additional cost, and food and beverages are sold to passengers on-board. Charging passengers more when they select a seat prior to the flight, offering hotel and car rental services, advertisement spaces on on-board magazines and on the aircraft, as well as the fees charged for any ticket change are all subsidiary income for the airline and they represent an important share of total yield.
Pegasus Airlines has yield management like other airlines in the domestic market. Although it offers very low fares, due to yield management, the fares increase as the flight date draws closer and fares are rather subject to change. As for ticket sales, unlike other airlines, Pegasus has direct sales channels more at the forefront. In particular, in order to increase ticket sales over the Internet, significant technological investment is made so that customers’ access to airline services is facilitated. Development of direct sales channels has strategic importance for Pegasus because ticket sales via direct sales channels bring a cost advantage in accordance with Pegasus’ strategy. It enables Pegasus to have direct access to customers, so that they may have more of an impact on the customers.
A different strategy seen in Pegasus Airlines is its cooperation strategy with izAir in domestic routes. Esas Holding, the owner of Pegasus, acquired izAir, which is regarded as an important brand for the Izmir region. By acquiring this brand, Pegasus aimed to attract the passenger potential in that region as well. Flights the airline has from Istanbul are of course open to competition. However, by having flights from a hub like Izmir enables Pegasus to be present in a domain where there is little competition and a high probability of profit.