Turkish Airline Industry Overview

Today, I would like to provide brief information regarding the marketing and survival strategies of the airline industry, both locally and internationally. I should probably stress that the airline industry is too global to be considered as only domestically so a marketing analysis ignoring the international market situations would be off balance and superficial.

The airline industry in Turkey was first constructed as a monopolistic market. The major and the only company was the government-owned THY. This situation has changed within the EU standardization and privatization process. After the deregulation, many carriers came into the airline industry to compete against the market leader with the goal of taking advantage of the areas where THY was seriously lacking. Government Regulation used to be the main barrier to entry in the airline industry. However, due to the oil shock, the growing public dissatisfaction and the regular shifts in political opinions, the decision to deregulate was taken. The major barrier to entry was broken, leading to a price war with the entry of many low-price and no-frills airlines. Every carrier could enter and prices were not regulated. The cost of customer switching was very low. Thus THY had to develop “frequent flyer programmers” to retain customers by issuing free tickets and upgrades on basis of number of miles flown, raising the level of offered services and lowering the number of ticket prices thus raising the “cost” to switch between airlines.

As far as today is concerned, the airline industry in Turkey consists the government partnered THY and other privately owned Turkish companies. THY can be given as the market leader with 54% percent market share, followed by the most aggressive market  challenger “Pegasus” with a share of 18%. Pegasus inspects THY closely, and bases the marketing strategies on the black areas of THY and looks out for flank attack opportunities to fill out the areas where THY is lacking.

The strategy of Pegasus is called as “no-frills” in that the first thing that matters is the service of air transportation. Other local companies are considered as market followers which do not seek many aggressive attack strategies and choose to operate in routes where THY is not intensely involved or where there is excess demand for cheap flights. The competitive level is increasing to a higher level as new companies are formed within the industry. We can take Turkuaz Airlines and BoraJet as examples. Although Turkuaz failed recently; they were able to lower the price expectations on the people’s minds which pressured the market leader in a negative way. And Bora Jet – a very interesting company- uses the ATR-42 model aircrafts to fly via non-Istanbul routes. These types of attacks enabled THY to establish strong defense strategies which we will be discussing shortly.

Market Segmentation:

Redevelopment opportunities and the aggressive economic growth rates in line with the need for new markets have created increased demand for air transportation services between the EU region, the Americas, Asia and Turkey.

The airline market combines the following elements, which all demand larger shares than yesterday;

1)    Frequent business traveler, seeking punctuality, high-service, reliability and business oriented schedules,

2)    Governmental and international organization travelers,

3)    Leisure and cultural travelers, seeking higher level of service with an economical cost,

4)    Seasonal travelers, seeking convenience at low costs,

5)    Education travelers, seeking the lowest possible costs among the given alternatives,

The airline industry has a wide range of segmentation opportunities and executions. The industry outline enables different companies to create different segments to reach the desired profits. Recent developments of the airline industry have moved the segmentation only from being geographically oriented to a much sophisticated and detailed level. Today we consider the markets behavioral segmentations as ´business´, ´leisure’ and ´visiting friends and relatives (VFR)´, also price segmentation is a major consideration point for airlines. Analysis including the demographics, income levels and disposable incomes of potential airline passengers are taken into consideration before setting the price intervals for every network an airline has to offer.

The major point of airline industry segmentation is the psychographic point of view. Each airline distinguishes its target audience in that it offers goods parallel to the expectations of the customer. Pegasus for instance established a no-frills policy in that they offer low ticket costs without any on board catering or in-flight entertainment.  THY on the other hand is well known for the service quality as well as the world renowned catering and onboard catering options. THY uses the high quality service from A-to-Z to make up for the higher price level than its competitors. This causes the passenger portfolios between these companies to differ greatly as well as the product itself. A customers perception of the brand might be same with Pegasus, Atlas Jet an Onur Air but it is significantly different when thought of THY.

Airline industry is structured differently than, say the FMCG market. Let’s take the price strategies for instance; it is beneficial to first state that the short-term supply in the airline industry is inelastic compared with the short-term demand. The seats offered by an airline cannot be easily increased on the short run. This requires the airline companies to use flexible rates all given individually for each number of seats. It is the Turkish market standard to give 4 intervals of price levels for each air flight. The base ticket is rated on a promotion or discount fares; this is used as a tool to attract passengers to make inquiries about the ticket prices whether online or within the sales offices, enabling the companies to establish a bond with their potential customers; this is called as the “entry price level.” If we take a B777-300ER aircraft with 246 Economy class seats, we could easily say that not more than 25% of the passengers purchased the tickets for the same dollar value. This means, the price is widely differentiated above the entry level. The different price depends on the time of purchase, distribution route, paying method and the availability of seats. No need the say that this strategy is also valid with the comfort, business and first class cabin pricings.

Product is the most vital point in today’s market in that it is offered to fulfill the needs of the customers. As the economic growth pushed the disposable income levels up to a higher niche, customers of airlines started considering the extra services offered by airlines. The main focus, the core product is always the transportation from A to B, however as distances grew further apart, and as people started to lay value on other perspectives than price, It can be said that points of difference among airlines is now the key to difference in revenues and market share.

The airline industry faces severe competition in the phase of the establishment of the augmented product. As we take a short blink on the current situation in the Turkish market, we can see that the products offered via airlines are widely differentiated. Atlas Jet for example positions its brand on the Europe-Antalya and Izmir flights with the main purpose of serving price oriented leisure travelers, Pegasus on the other end focuses the product segmentation mainly depending on the Europe born Turks and center and north European citizens wishing a direct flight to Istanbul. The schedules of Pegasus and Atlas Jet are constructed in such a manner to serve the times which THY does not choose to operate. This can be seen as a flank attack strategy in that it covers products where the market leader is underperforming or does not wish to get involved.

The airline industry is a highly condensed, sophisticated, expertise oriented industry with very high entrance barriers. It takes a company to establish very strong financial structure and rapport with governmental and bureaucratic authorities. We have a recent example at hand which can be taken into consideration. Turkuaz Airlines, the former aircraft leasing company restructured itself to be an Airline by the beginning of 2009. They have executed traditional and new media marketing strategies which involved ad campaigns in local and international news media, web e-mailing and interviews in travel & leisure and aviation related magazines. In addition to that they conducted a very aggressive pricing strategy in that they fixed the price for each and every seat on the aircrafts on the same routes. This strategy however proved to be a high burden as they were unable to meet the break even points in terms of profitability. Turkuaz was also a follower of the no-frills structure in that they charged for the extras on board. They started of good, but due the regular engine and aircraft maintenance expenses and their lack of bureaucratic knowledge they were first unable to pay the salaries excluding their captains and second they lost their local flying license, causing them to suspend all domestic flights. Prior November 2010 they had to lay off a very large percentage of the employees whom were majorly ex-THY personnel.

My suggestions for a new company in airline industry is simple, look out for opportunities where the market leader is lacking. Pegasus is a very good example. They were able to differentiate their distribution channels in that they moved far from the main hub (Ataturk Airport) of THY to Sabiha Gokcen Airport, which gave them the opportunity to create an alternative for air travelers. As we all know, the gates in the main airports throughout the world are all reserved for the more established airlines, leaving the new companies with a struggle to receive an appropriate gate. Suppliers are a major force in determining the operation costs of airlines. A small fleet size as Pegasus cannot effort to have many aircraft producers, Pegasus had made the agreement to only work with Boeing to make sure they receive the lowest interest and aircraft rates possible, this strategy was proved to be worth as they are now able to finance their aircraft without major struggles.

In the sense to continue with the recommendations I must say that an entrant airline company must concentrate in specification. Being struck in the middle is a recipe for strategic mediocrity and below-average performance because pursuing all the strategies simultaneously means that an airline is not able achieve any of them because of their inherent contradictions. The key is to either establish better costs or better and differentiated products. The level of differentiation can be measured as safety, in-flight services and on-time arrival & departure.

Pricing on the other hand is only one single element in the marketing mix. For the pricing strategy to flourish, it must be complemented by and embedded in a coherent overall strategy of also product, promotion, placement and other factors. In order to compete with the market leaders and the low-cost carriers (so called LLC), it is normal for a new entrant to imitate the LLC business models. New entrants all reacted with a mix of lower fares, ease of booking, and travel restrictions by either suspending the on-board meals and beverages service in the economy class or by prompting passengers to pay for these amenities separately. The market leader airlines will and do try to defend this attack by experimenting the airline-in-airline model. THY and Anadolu Jet, British Airways and GO!, Delta Airlines with Song. The new entrant has to be backed up by a very powerful connection network and financial structure in that it is very hard to match the cost level of the leading airlines. They would also have to establish a very hard mix that we can construct as “low fares & high quality.” It would be more than accurate to say that establishing this negatively correlated points-of-difference would be very complicated to establish and would need intense brand management strategies. A proper brand image with some feasible profit is very hard to create in the airline industry, and requires great effort, technical sophistication and innovative marketing proceedings.

As closing the essay, I hope you find my language coherent and clear to give you an Idea regarding the marketing basics of the Turkish airline industry.

6 responses to “Turkish Airline Industry Overview

  1. I’m extremely impressed with your writing skills and also with the layout on your blog. Is this a paid theme or did you modify it yourself? Either way keep up the nice quality writing, it is rare to see a great blog like this one today..

  2. While writing my dissertation, your work helped me to notice a lot of unseen happenings in the sector. Thank you in deed.

  3. Hi. Am writing a marketing analysis myself for my MBA class. It helps to see the marketing language and the critical thinking in your essay. I am analysing the Turkish airlines and a competitor. What other information/sites would you suggest in THY? It wasn’t easy to find it. Thanks. Lilia

  4. Hi Lilia. I’m glad you’ve found the information practical and logical, your comment is much appreciated. However, I might add that there are really not so many sources in English when it comes to Turkish Airlines and the Turkish market. I’ve done many reading and research but many of them were in Turkish.
    What we can do is, I’ll try to help you out as much as I can if you can write me an email regarding your thoughts and questions.
    srdrcaskurlu@yahoo.com
    Best,

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