-National- Usually these airlines seat 100-150 people and have revenues between $100 million and $1 billion.
-Cargo- These are airlines generally transport goods.
Airport capacity, route structures, technology and costs to lease or buy the physical aircraft are significant in the airline industry. Other large issues are:
1-Weather- Weather is variable and unpredictable. Extreme heat, cold, fog and snow can shut down airports and cancel flights, which costs airline money.
2-Fuel Cost- According to the Air Transportation Association (ATA), fuel is an airline's second largest expense. Fuel makes up a significant portion of an airline's total costs, although efficiency among different carriers can vary widely. Short haul airlines typically get lower fuel efficiency because take-offs and landings consume high amounts of jet fuel.
3-Labor- According to the ATA, labor is the an airline's No.1 cost; airlines must pay pilots, flight attendants, baggage handlers, dispatchers, customer service and others.
KEY RATIOS/TERMS
= (total # of seats available for transporting passengers) X (# of miles flown during period)
= (# of revenue-paying passengers) X (# of mile flown during the period)
= (Revenue)
(# of seats available)
Air Traffic Liability (ATL): An estimate of the amount of money already received for passenger ticket sales and cargo transportation that is yet to be provided. It is important to find out this figure so you can remove it from quoted revenue figures (unless they specifically state that ATL was excluded).
Load Factor: This indicator, compiled monthly by the Air Transport Association (ATA), measures the percentage of available seating capacity that is filled with passengers. Analysts state that once the airline load factor exceeds its break-even point, then more and more revenue will trickle down to the . Keep in mind that during holidays and summer vacations load factor can be significantly higher, therefore, it is important to compare the figures against the same period from the previous year.
It is also important to look at the geographic areas that an airline targets. Obviously, more is better for a particular market, but it is also important to stay . Try to find out the destination to which the majority of an airline's flights are traveling. For example, an airline that sends a high number of flights to the Caribbean might see a dramatic drop in profits if the outlook for leisure travelers looks poor.
A final key area to keep a close eye on is costs. The airline industry is extremely sensitive to costs such as fuel, labor and borrowing costs. If you notice a trend of rising fuel costs, you should factor that into your analysis of a company. Fuel prices tend to fluctuate on a monthly basis, so paying close attention to these costs is crucial.
CHARACTERISTICS OF PRODUCTS
Air transportation sector contains coordination and inspection of airport business management, aerial navigation, aerial traffik control services, airport offering services, maintenance and aviation facilities.
Civil Aviation facilities contains:
Aeroplanes, air taxis, helicopters, air taxis, balloons are working for air transportation in Turkey. Mostly, huge part of air transportation sector is by aeroplanes.
There are 14 airlines for internal and external tourism, lots of cargo agencies and 67 airports in Turkey. For internal and external tourism, passengers can prefer aeroplanes or air taxis. Some of the Turkish airlines companies have international flights. Also, foreign countries have flights to Turkey, mostly Istanbul, Ankara, Izmir, Antalya. Especially Holland, Ukraine, Germany and Russia has lots of airlines companies that have flights to Turkey.
One of the important company in air transportation sector is THY(Turkish Airlines). Thy is established in 1933 and expanded every year. First private airlines companies were Free Bird and Pegausus Airlineses.
Aircraft numbers are also increased every year. Accroding to the chart, in 2002 aircraft number was 150 and last year the number increased 120 more.
Helicopters have been started to use in Turkey. Private companies have been opened. There are some new regulation for special airports for helicopter(heliports).
Balloons are part of tourism and because of good panorama view, firms generally located in Nevsehir.
Airlines are regulated for regulations and laws by Civil Aviation General Management part of Transportation Ministry. Airlines price regulations are made according to their membership to IATA. Airports are generally directed by General Directorate of State Airports Authority.
Aircraft production sector is working mostly for military purposes. There are very few companies are working in this secto. Firms are established after 2000. Some of aicraft parts are started to produce in Turkey since few year. The establishements that are working for aircraft production: miltary establishments, national capitalized firms(TUSAŞ, ASELSAN, HAVELSAN, ROKETSAN, ASPİLSAN) and foreign capitalized firms (TAI, TEI, MİKES, THOMSON-TEKFEN, MARCONI, AYESAŞ) .For research and development, Air jet technology is one the important subjects for TUBİTAK. In 2001, at air carrier production sector employees part is 0,25%, production part 0,23%, value added part is 0,41%. Employees are qualified in this sector. Generally engineers are working. Productions generally are directed when orders are occured. This sector is at last stage in production area.
There are adequate hotels in airports in Istanbul, Ankara and very nearly located in Antalya that passenger can find room in every hour of days.
Airports that are open to Civil Aviation:
There are 67 airports in tukey that are opened to Civil Aviation. Airports that are opened to domestic and international lines can be civil or civil-military. Some of civil military airports can be used freely, and permissions must be taken from some of them. There are 15 certificated airports in Turkey. Certifications show service, area quality of airports.
Some of the airports are managed by General Directorate of State Airports Authority and some of them are managed by Turkish General Army Staff, Anadolu University, General Command of Gendarmerie, Uludag University, Special Provincial Administration, Fight schools or Aviaton companies. The chart below shows airport locations in Turkey.
Air Taxi Enterprises:
Air taxis can be hired by passengers(for few amount of passengers) or for cargo. There are 64 air taxi enterprises in Turkey. Some of them can have international flights. First air taxi enterprise was established in 1987. Companies for air taxis can be seen in chart below.
Air transportation by balloons:
Balloons have been used especially for tourism. Mostly enterprises are located in Nevsehir. First company was established in 1997 and new firms have been opened later. For panorama views, tourists prefer this air transportation vehicle.
Cargo Agencies:
There are lots of air cargo agenices who are working in Turkey. First enterprises were established in 2001. Cargo planes are located in Atatürk, Esenboga, adnan Menderes, Antalya, Adana, Sabiha Gökçen airports.
Characteristics of air transportation products for rivalry:
Company reputation is important for recognition of airlines companies in all over the world. For example THY is a well known airlines company in Turkey with firm’s services, low amount of accidents.Marketing is related with airlines’s finance level and advertisements for new firms. If capitals are enough, advertisements, organizations opportunities can effect sales. Technology is related with capital again and effect more passenger interest. THY has own maintenance service and give these services to other airlines companies in Turkey. So, this property of THy is an important gaining point. Aeroplane number, good planning for operations can cause more availability for flights. Aeroplane age is also important and mustn’t exceed 10 years. Inital sale price is related with firm’s capitals for new airlines companies. Quality can be gained by time. With good offerings, safe aeroplanes and flights, temporization of flights can cause people to prefer that airlines more.
INTERNATIONAL LINES TO ATATÜRK, ESENBOGA, ADNAN MENDERES, ANTALYA AIRPORTS:
There are lots of flights from all over the world every day especially to Istanbul, Ankara, Izmir and Antalya. Tourism is very effective for this huge interest. Especially in summer times, flight numbers are increased. Mostly foreign tourists are coming from Holland, Ukraine, Germany and Russia. There are direct flights from these countries to Antalya and Izmir especially.
Airport Land Services and Offering Services Establishments:
Land services:
1- HAVAS: established in 1987 and has representation, passenger traffic, passenger control, loas control, communication, ramp, flight maintenance and operation, transportation services at Ankara, Izmir, Antalya, Dalaman, Adana, Trabzon, Milas-Bodrum airports.
2- Celebi: established in 1958 and has same services as HAVAS at Istanbul, Izmir, Ankara, Antalya, Adana, Dalaman, Milas-Bodrum airports.
Offering services:
1-USAS: has offering services at Istanbul, Ankara, Antalya, Izmir, Adana,
Dalaman airports
2- Sancak: has been working cooperatively with Lufthansa and has offering services at Istanbul, Izmir, Ankara, Antalya, Adana, Dalaman, Milas-Bodrum.
CHARACTERISTICS of CONSUMERS:
Airlines companies are arranging their flight prices according to IATA rules. There are generally 3 part in aeroplanes: Economy, Business and First Class. Business and First Class passengers have special lounges in airports called VIP(very important person). Also, there are some lounges like Is Bankasi lounge in Atatürk Airport in Istanbul for all passengers who have Is Bankasi credit card.
Special groups as Star Alliance offer opportunities to consumers. For example THY can corporate with other members of Star Alliance and offer accomodation in luxury hotels in foreign countries. If you stay in that hotels, you can win more free Miles by your Miles&More or Miles&Smiles card for extra free fights. Another example can be Star Alliance flight opportunties. There are 16500 flights every day to 912 cities of world by Star Alliance members. And when passenger give luggage from Ankara, he/she can take again at last station(e.g Thailand) by these relationships although passenger have more than 2 flights. Also, there are some lower priced flights for short time in Turkish Airlines. For example for first week of June, flghts from Istanbul to New York, for second week of June, flight from Istanbul to Lagos have discounted prices. At May 19, flights for teenages who are under 25 have discounted prices. Fourth example can be if you prefer first class, second ticket has 50% discounted price. A new enterprise of THY is Anadolujet. And by Anadolu Jet, if ticket is purchased in adequate time, very cheap tickets can be gained. Anadolujet has usually flights from Ankara to east, north and south part of Turkey. Tickets are discounted and offerings are low at aeroplane. This airlines cmpany is good for people who have middle level income. Passenger number has been increased 65% at 2008 in domestic lines of Anadolujet. Corendon airlines has special offers for golf, football players especially from foreign countries to Turkey.
When passenger number is compared between 2002 and 2008 years, for international lines the number was incrased and was ~40 million in 2008. Passengers who used domestic lines were increased more than people used international lines and was ~34 million in 2008.
So, plane traffic is also effected from passenger usage increase. In 2008, ~350.000 flights were happened for international flights. And passenger increase for domestic lines effected again plane traffic, in 2008 ~380.000 flights happened. 91 % of passengers who prefer air transport are mostly use Atatürk, Antalya, esenboga, Adnan Menderes, Dalaman, Bodum/Milas, Adana, Trabzon and Sabiha Gökcen airports.
Cargo flights usage are effected from opening of new cargo companies and transportation contracts with foreign countries. International cargo flights are more than domestic cargo flights. Last year international cargo flights were ~1.100.000. Cargo flights are mostly between Turkey and Europe, Middle East and Fareast of Asia, Nort and South of America.
Air transportation targets for 2013 İs expected 110 million passenger traffic in airports. And load carryings is expected to be 659 million for domestic lines and 4777 million ton/km for international lines for 2013.
ENTRY-EXIT BARRIERS:
The second airlines company was established in 1989 in Turkey. According to the chart of airlines company establishments chronology, mostly airlines sector was expaned at 2005. Huge capital needed for this country. But, entrance to this sector isn’t so hard. Especially companies who are related with tourism are interested in airlines sector. Also, Turkish employee number has been increased in last years. This can effect new airlines company establishments. Taxes and payments for airport services costs much. The charts for taxes and payments for airports can be seen in Tariff part of this report. Landing, parking, services as lighting or safety cause different amount of payments for international lines or domestic lines. There are 14 airlines company in Turkey. And all of them are in competition.
According to 2007 Economic program:
-Sabiha Gokcen Airport(Istanbul) is privatized for 20 years in 2008.
-Antalya Airport is privatized for 17,5 years that costed 3.197.000.000 dollar in 2007
So entry barriers aren’t strong today. Until 1990s only THY was working for air transportation and airports weren’t privatized. But in 1998 construct-manage-pass model has been applied to Antalya Airport. Same model applied to Atatürk airport, Milas-Bodrum airport, Adnan Menderes airport in 2000.
The chart belongs to Airlines companies who are closed are below. Because of economy or low technoloy airlines companies may closed. Airlines need huge capital and licences, taxes cost very much. Gaining relaibility needs time. Offering good service and adequate prices are very difficult. So, firms do huge investment when they prefer air transportation sector. Success of investment needs time. Crisis effects airlines sector, too. For example according to British airways’ last report, passenger want to wait more and pay few. After 2001, some of the airlines companies are closed in Turkey according to chart. Aeroplanes accidents can effect firm’s reliability and finance also.
RESOURCES
14 airlines company in Turkey has flights to all over the world. Especially THY’s flight range is more than other firms. Different flights of THY as to south of Asia, America can effect rivalry with other airlines companies. Aeroplane number of THY is also effective for this. As private airlines companies, Atlasjet and pegasus can be said good for international flights. ACT Cargo company has flights only to UAE and offers 60% of all UAE’s cargo service. The flight regions of Turkish airlines companies are shown below:
Properties that can effect market:
Productivity can effect company’s rivalry and market share. For example offering new opportunities or more free Miles with safe flight can effect quality of brands. Reliability is related with temporization of flights, services in planes and accident amount of firms. Availability is related with airlines company’s aeroplane number when more flights are needed. Capital and current income can effect affordability of airlines companies. Profit effectiveness needs good finance analysis, offering adequate opportunities on time. Operating cost can be effected by aeroplanes’ age, service needs and taxes.
Pilots has been mostly educated in Turkish General Army Staff. Also, Anadolu University, THK or other local or foreign establishments has training programs for candidate pilots.
Flight personnel’s educations(according to 2001 results):
Flight personnels age average is mostly between 56-58(according to 2001 results)
CAPABILITIES:
Air transport has relationship with tourism and trade. And also effects economic growth, provides jobs, improves living standards. Air transportation network causes delivery of emergency and humanitarian aids anywhere on world.
Air transport improves sharing of cultures for different nations. This also cause wide range of holiday destinations around the world visits distant friends or relatives.
Turkish air transportation sector has 600% growth between 1986-2001.
One of the most important things for air transportation is time advantage when compared with other transportation ways. By air transportation, more contracts between firms, or employments can be made. Chart below shows tourism employment in 2007.
Also, although there are few firms for aircraft production sector in Turkey, these firm’s have export capabilities.
Turkish Airlines has been awarded as the best airlines company of South Europe in 2009. South Europe conatins Portugal, Spain, Albania, Italy, Bosna, Bulgaria, Croatia, Greece, Macedonia, Serbia, Romanian, Slovenia and Turkey.
According to 2008-2010 middle dated program:
- Crowded airports capacities are expanded and service standards are increased.
- Continuous services will be provided to noncrowded airports
- Adequate places and physibilty conditions are searched for 3rd airport for
Istanbul
MARKET SHARES-CONCENTRATION RATIOS
There are a number of firms exist in the Turkish air transportation sector. Türk Hava Yolları, Pegasus Airlines, Atlasjet, Onur Air, Sun Express, Anadolu Jet and etc. are the companies which lead and dominate the industry. Their market shares in terms of domestic and international flights are illustrated below separately (figures belong the year 2008) .
Since only one firm “THY” has a market share over 60% domestically, the industry can be called as a highly concentrated market .
TYPE of THE INDUSTRY
Turkish airline industry shows the characteristics of an oligopoly market. An oligopoly is a market dominated by a few large suppliers. The degree of market concentration is very high (i.e. a large % of the market is taken up by the leading firms). Firms within an oligopoly produce branded products (advertising and marketing is an important feature of competition within such markets) and there are also barriers to entry.
Another important characteristic of an oligopoly is interdependence between firms. This means that each firm must take into account the likely reactions of other firms in the market when making pricing and investment decisions. This creates uncertainty in such markets - which economists seek to model through the use of game theory.
Economics is much like a game in which the players anticipate one another's moves. Game theory may be applied in situations in which decision makers must take into account the reasoning of other decision makers. It has been used, for example, to determine the formation of political coalitions or business conglomerates, the optimum price at which to sell products or services, the best site for a manufacturing plant, and even the behaviour of certain species in the struggle for survival.
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Threat of New Entrants: At first glance, you might think that the airline industry is pretty tough to break into, but don't be fooled. You'll need to look at whether there are substantial costs to access bank loans and credit. If borrowing is cheap, then the likelihood of more airliners entering the industry is higher. The more new airlines that enter the market, the more saturated it becomes for everyone. Brand name recognition and frequent fliers point also play a role in the airline industry. An airline with a strong brand name and incentives can often lure a customer even if its prices are higher.
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Power of Suppliers: The airline supply business is mainly dominated by Boeing and Airbus. For this reason, there isn't a lot of cutthroat competition among suppliers. Also, the likelihood of a supplier integrating vertically is not very likely. In other words, you probably will not see suppliers starting to offer flight service on top of building airlines.
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Power of Buyers: The bargaining power of buyers in the airline industry is quite low. Obviously, there are high costs involved with switching airplanes, but also take a look at the ability to compete on service. Is the seat in one airline more comfortable than another? Probably not unless you are analyzing a luxury liner like the Concord Jet.
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Availability of Substitutes: What is the likelihood that someone will drive or take a train to his or her destination? For regional airlines, the threat might be a little higher than international carriers. When determining this you should consider time, money, personal preference and convenience in the air travel industry.
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Competitive Rivalry: Highly competitive industries generally earn low returns because the cost of competition is high. This can spell disaster when times get tough in the economy.
GOVERNMENT LAWS for AIR TRANSPORTATION
Regulations for ‘Management and Services for Civil Airports’ number is 2677 and was accepted in June 10, 1982. Turkish Civil Aeronautics law’s number is 2920, and accepted in October 14, 1983. Air transportation sector has been improved by this law’s effect in 1980’s.
Regulations for ‘Airport construction, management and certification’ was accepted in May 14, 2002 and published in official gazette. Mission of Civil Aeronautics General Management’s law number is 5431, and is updated in November 10, 2005. Regulations for ‘Opening and working at shops in Airports’ was prepared in September 10, 2008 and published in official gazette. Regulation for ‘Heliport Construction and Management’ was prepared in January 23, 2009 and published in official gazette.
- Civil Aeronautics General Management has memberships to:
-International Civil Aviation Organization-ICAO(has been established for Civil Aviation sector’s improvement and prepared Noise Certification Standards report)
-European Civil Aviation Conference-ECAC
-European Organization for the Safety of Air Navigation -EUROCONTROL
-Joint AviationAuthorities for Europe-JAA(has standards including for example aeroplane noise)
Also, according to law 3348, all aeroplanes’ external noise levels for airport employees ear health has been controlled by Transportation Ministry.
TARIFFS:
The air transportation industries pay taxes to local, provincial and national authorities around the world via aircraft or passenger duties.
Tariffs are regulated by Trasnportation Ministry and results for international-domestic lines tariffs for landing-parking and services for aeroplanes are below.
- International lines tariffs for Landing and Parking of Aeroplanes:
For Atatürk, Adnan Menderes, Antalya, Eseboğa, Dalaman, Milas-Bodrum airports:
Second day lodging after 24 h costs 100% extra, third or more day lodgings cost 200% extra of normal price.
For services:
- Domestic lines tariffs for Landing and Parking of Aeroplanes:
For all airports in Turkey:
More day lodgings after 24 h costs 100% extra
- Safety service from Fire Brigades:
PRICE REGULATIONS
Price regulations for Turkish air transportation are related with International Air Transport Association(IATA). IATA has role about formation of ‘Carrying Conditions’ between establishments, customers and airlines companies. IATA has 2 aims: prevention of wild rivalry for pricings and holding prices cheap for customers. Also, with IATA regulations, people can purchase their tickets in their countries at their money type for their trips to all over the world.
Near IATA, some airlines companies prepare opportunities for customers. For example THY has discounted tickets(by reducing service cost) for 1 year. One line tickets have been discounted 2-25 euro. Also, lowest price for Anadolu jet tickets is 29 TL and if tickets are pıurchased through internet, service cost has 5 TL price.
BUSINESS STRATEGIES OF PEGASUS AIRLINES
Before liberalization of civil aviation, THY had been a monopoly in this sector and it charged very much so it was very hard to fly for Turkish citizens. After the liberalization, there are some domestic aviation firms; such as Sun Express, Onur Air, Atlas Jet and Pegasus. They all started some politics in order to increase profit. Pegasus Airlines says that they strived to give their customers the highest quality service at the best possible prices. In order to achieve this strategy they launched new pricing program called “Peganomi”. Peganomi is not a sales promotion that is available for only a limited time period, but a long term marketing strategy that Pegasus airlines will be following. Under this program, low fare alternatives were offered to the consumers, provided that they buy the ticket 60 days before the flight. An approximate 10 percent of the seats were sold from the lowest fare and as time drew nearer to the flight, the prices for remaining seats were increased gradually.
However there were also some doubts about low cost carrier service, especially about safety so Pegasus Airlines said that “It is not rational to think that a low priced seat is less safe than a high priced seat on the same aircraft.” Pegasus applies the cost-based or price based strategy in order to develop the market and increase profit. If we look at the data, we can see that in 2004, private liners carried 1.5 million passengers, by the end of 2006, it reached 18 million. These data indicate cost-based strategy is successful.
Targeting the low-cost segment, primary incentive of Pegasus Airlines was to cut costs wherever possible. To this aim, flying cafe program was introduced to flights at the end of 2006. With this program, food and beverages consumed onboard was now subject to payment within a price range of 3 to 20 YTL. Flying café program has led a negative reaction from consumers. However according to Ali Sabancı, such programs are very common among low-cost airlines. Suppose that you have a flight from Izmir to Erzurum. It takes 1,5 hours. This flight is shorter than the flights that go to the foreign countries. Pegasus cut the meals and they decreased the prices. In our opinion, it is a very good application in modern aviation industry.
If we look at second strategy, profit share scheme, we can see that it is very important strategy for Pegasus. Because it increases the motivation of the employees. Flight staffs’ motivation is very important because they always deal with peoples. Dealing with people is a challenging work. In addition, donation is very important, because it shows the company’s social responsibility.
References:
-www.ulasimonline.net
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-www.dpt.gov.tr
-www.sedefed.org
-www.atag.org
-8th 5 year improvement plan(2001)
-2007 economic program
-2008-2010 middle dated program
-2009-211 middle dated program
-9th improvement plan’s 2009 program
-www.dhmi.gov.tr
-www.shgm.gov.tr
-tr.wikipedia.org
