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

Competition that came along with deregulation, forced Turkish Airlines to make changes in its current strategy. Turkish Airlines used to operate on its own in the market and in those times it not only operated flights, but also established an air transportation system, offered services in other areas such as ground handling, maintenance, and training services as well as providing full services to all its customer groups with its network structure on a global scale; so, Turkish Airlines used to follow a differentiation strategy until the deregulation period. However, it was clearly understood that it was no longer possible to compete in the newly-established deregulated market using existing strategies, so it has undertaken certain strategic changes that would inevitably impact the operator. The most significant change has been the modification of the business model and the execution of the elements in certain strategic areas that are required by this new model. Prior to deregulation, Turkish Airlines used to operate the ‘yield increase’ model whereas in this new context, it migrated to a new strategic target of ‘increase of passenger numbers’. In other words, the operator’s main aim is to benefit from scale economies by increasing the amount of production and decreasing the unit costs in the domestic market. In order to increase the number of passengers, the aim is to reduce costs and reflect the reduction onto prices, to the benefit of passengers.
After deregulation, the domestic market became rather competitive and costs have become extremely important for all airlines. This is because in this competitive environment, a cost advantage is going to bring a competitive advantage so, for this reason, Turkish Airlines developed cost reduction strategies. However, as cost reduction strategies were put into practice, neither the differentiation strategy, which is the basic competitive strategy of the company, nor service quality were compromised. In other words, cost reduction strategies were implemented not by abolishing services passengers can directly see, but by a series of changes in the processes. Processes have been reviewed in search of efficiency and productivity. Small business

As a part of the efficient fleet planning process, aircraft were purchased when the world economy was suffering crisis, and thus purchasing costs were lowered, daily utilization rates were increased and more productive operations were ensured. Additionally, though the fleet grew, resources excluding the cabin and cockpit crew were kept stable so that there was no significant increase in costs. Eventually, through all these measures, production on a passenger-mileage basis increased, costs were unchanged and productivity was improved. An increase in production requires a high volume service purchase from suppliers, so this reinforces Turkish Airlines’ bargaining power to reduce its costs.
Another strategic response Turkish Airlines gave to deregulation was the development of outsourcing strategies. It decided to concentrate on its core competences and gave up producing subsidiary services. Within this context, technical services, catering services, ground handling services and call centers have all been converted into stand-alone administrations. These subsidiary functions that were separated from the operator were given a company identity and started their own commercial activities. In the end, they have become more efficient and productive. Thus, Turkish Airlines started supplying such services from these companies for lower rates and achieved a cost advantage instead of doing it internally within its own organization at higher cost. Additionally, these companies provide services to third party enterprises and generate income as well as reducing their unit costs thanks to their economies of scale. Outsourcing strategies not only bring cost advantages but also enable Turkish Airlines to focus on its flight operations and become a more efficient airline and deliver service of superior quality.
In addition to all the changes mentioned above, the most important reaction of Turkish Airlines to deregulation was the establishment of AnadoluJet as a low cost sub-brand, since the AnadoluJet brand has an impact on both the competitiveness of Turkish Airlines in the domestic market and competition in the market in general. Although it has all these cost reduction strategies, it is not easy for Turkish Airlines to compete in the domestic market and ensure productivity with its differentiation strategy because generally carriers entered the market after deregulation with a strategy to lower costs and offering lower prices. This led to a reduction of average prices in the market and the emergence of price competition. Turkish Airlines’ strategic changes were insufficient in tackling this competition, so the airline was obliged to establish a sub-airline close to the strategy of other private airlines in the market. With its AnadoluJet brand, that was originally established to provide transportation-focused services only, Turkish Airlines is able to reach a wider group of people that are price-sensitive and, since AnadoluJet is centered in Ankara, it has thus increased the number of hubs in the domestic market. With such structuring, Turkish Airlines will gain market power and challenge market competition.