Introduction
The aviation industry is increasingly becoming competitive and airline companies are struggling to find ways of remaining profitable despite the existing challenges. Turkish Airline is currently one of the global players in the aviation industry.
Once a small regional player, the top management of this firm made ambitious investments to help expand the fleet size and destinations of this airline company. The ambitious strategy helped this firm to not only increase its revenues but also become one of the dominant airline companies in the world. The firm intends to increase its fleet size further and to open new routes across the world. However, such an expansion strategy will bring about several challenges.
As Fleisher and Bensoussan (2015) say, as a firm increases in size, it encounters new challenges that may affect its sustainability. If not managed properly, these challenges may affect a firm’s sustainability in the market. The top management of Turkish Airline must understand how to deal with the new challenges the firm is likely to encounter as it expands its operations. In this paper, the focus is to analyze the current and future environment of Turkish Airline and come up with a 5-year plan that will help it achieve sustainable growth in the global market.
Objectives
As a consultant, it is important to come up with clear objectives that should be achieved in this report. The following are the specific objectives that the researcher seeks to achieve by the end of this report.
- To determine how the Turkish Airline will keep growing without jeopardizing profitability within the next five years.
- To come up with ways in which the airline will manage operational complexities and other external factors.
- To determine how Turkish Airline can recruit and retain top talents in the aviation industry.
- To develop strategies that Turkish Airline can use to differentiate itself in the fiercely competitive industry.
Strategic Analysis
Current Situation of Turkish Airline
Turkish Airline is currently ranked as one of the top ten global airlines in the world in terms of the number of passengers and destinations across the globe. According to Alcacer (2015), following the 2008 global economic recession that massively affected the aviation industry, many airlines considered contracting their operations as a way of lowering the losses. However, in a very unique move, Turkish Airline ordered more planes and increased its destinations at a time when other airlines were reducing the same.
In this section, the analysis will focus on the current situation at Turkish Airline by looking at the external and internal environment of the firm. The aviation industry is very sensitive to the external environmental forces, and events taking place in a section of the world may have serious implications on the industry. Issues such as economic problems, terrorism, insecurity, instability in international oil prices, changing cost of labor, and sanctions are some of the issues that may have serious implications on an airline’s profitability. PESTEL analysis will help in understanding the external environment.
PESTEL Analysis
This external environmental analysis tool helps in understanding the political, economic, social, technological, ecological, and legal environmental factors in the environment that may have a direct impact on the firm’s operational activities. The figure below shows the factors that will be analyzed under this model.
The political environment in the market where Turkish Airline operates varies a lot. Europe and North America are the two major markets where this company operates. In these two regions, there has been a relatively stable political environment. The international business community has been concerned about the strategies that the new American government, under President Donald Trump, may take in dealing with the foreign firms in the country. The United States is one of the most important markets for this firm and as such, the policies that this government may take in managing the business environment may affect Turkish Airline’s operations.
Locally in Turkey, the political environment has remained relatively stable and supportive of this firm’s operations. Under the current leadership in Turkey, Turkish Airline has enjoyed a long period of support from the political leaders, making it possible for the firm to overcome other aviation challenges. Regions such as Syria, Yemen, Iraq, and parts of North Africa are currently experiencing political instability, which negatively affects the operations of this firm.
The economic environment is another significant factor that has a direct impact on the operations of Turkish Airline. As a global airline, this firm is affected by the global economic environment. Following the end of the global economic recession of 2008, various major economies around the world have experienced steady growth. China and India, which are some of the new destinations for this airline, have experienced rapid growth of the economy.
The size of the middle and upper-class members of the society in the two countries has been growing. It means that more people can afford to use the services offered by this company. Europe and North American have also registered impressive economic growth over the past eight years (Alcacer 2015). Emerging markets in Africa are also becoming important as the flights to and from many African cities continue to increase.
The social environment has some significance in terms of how Turkish Airline offers its services to its global customers. As Çaǧaptay (2014) observes, cultural differences may affect how a firm delivers its services to the customers in the market. In the past, Turkish Airline was a regional player. However, currently, it operates in the global market. It means that the firm has to know how to offer unique services to its customers from different parts of the world. The firm is forced to understand the different needs and expectations of clients from different parts of the world to offer them quality services.
Technological factors currently have a significant impact on the operations of airline companies. New technologies are defining how airlines offer their services. Alcacer (2015) says that most airlines are currently coming up with custom-made entertainment services for their passengers. Music, video games, and movies are some of the entertainment services currently offered by airline companies thanks to technological development.
Technology is also one of the tools that airlines are using to differentiate their products in the market. Turkish Airline must master the forces brought about by the emerging technologies and come up with ways of managing these forces to achieve a competitive edge over its market rivals.
Environmental factors are also becoming a major concern in modern society where global warming has become a reality and a major threat to the environment. For a long time, environmentalists have warned of the serious consequences of the emission of greenhouse gases to the atmosphere. Airlines are believed to be some of the leading emitters of greenhouse gases.
The airline industry is under pressure to find ways of reducing their emission of greenhouse gases. Companies such as Turkish Airline are trying to use emerging technologies to improve their fuel consumption and limit the amount of carbon they emit. These companies are also forced to engage in corporate social responsibilities focus on environmental protection.
According to Vasigh, Taleghani, and Jenkins (2012), a company cannot survive in an environment that lacks a clear legal framework. In Turkey, this company has enjoyed a stable legal environment that defines how it relates to its customers, suppliers, the government, competitors, the general public, and other stakeholders. The legal environment protects the interest of various stakeholders from exploitation. In the global market, this company has to follow laws and regulations set by foreign governments to define its operations.
SWOT Analysis
Analyzing the internal environment of Turkish Airline may help define how it can deal with the external environmental forces discussed above. Using SWOT analysis may help in understanding the firm’s internal environment. The figure below shows a summary of internal factors at this firm based on this model.
Table 1: SWOT Table for Turkish Airline
Challenges Ahead
Turkish Airline must be ready to deal with the challenges ahead to remain sustainable. One of the biggest challenges which are ahead of this firm is the growing need to use clean energy and to reduce the emission of carbon into the air. It will force this firm to invest heavily in research and technology to find ways of lowering its rate of carbon emission while at the same time increasing its daily flights to different parts of the world.
Another major challenge is the increasing competition in the market. As Turkish Airline works to expand its operations in the market, its rival firms are doing the same. They all target the same market, which means that this firm will have to find ways of convincing its customers that its products are unique. The threat of terrorism and the instability of the global economy are other challenges that the management must be ready to face and address as the company expands in size.
Turkish Airline Critical Success Factors
In the current competitive business environment, the Turkish Airline’s critical success factors can help it gain a competitive edge over its market rivals. One of the important critical success factors that this firm has over its market rivals is its low-cost flights, especially for the economy class. It means that those who are cost-sensitive often prefer using the services of this company over what other rival firms offer.
Timeliness is another factor that makes this company be a preferred option. Cases of delays and canceled flights are not common at Turkish Airline. The management of this company has also tried to differentiate its products in the market by offering high-quality services for its customers.
Strategic Choices
Turkish Airline has announced its plan to purchase over 200 modern aircraft that will help it meet the increasing customer demand in the market. As the firm increases its size, the management will need to come up with appropriate strategies that will give it an edge over its market rivals. Using Porter’s generic strategies, there are three possible strategies that this firm can use as shown in the figure below. In this paper, only two of the three will be discussed and one will be chosen for this firm.
Cost leadership
Cost leadership is a strategy that seeks to take advantage of the economies of scale. By lowering the price of the products in the market, a firm can attract more customers hence enjoy economies of scale. Turkish Airline is currently using this strategy to attract more customers, especially those using economy class services. The strategy works well when it is possible to lower the cost of operations. In the airline industry, it may involve eliminating some of the additional services that increase the cost of production.
For instance, on short trips, the firm can eliminate catering services in the economy class. The airbuses used in such short trips should not have expensive entertainment services. The approach will help in lowering the cost of operation to enable the airline to lower its ticket prices. The primary aim will be to ensure that customers get to their destination safely and comfortably. Although this strategy has its advantages, it is not the preferred strategy for this firm. It is not a strategy that can be sustainable in the long run because of the danger of price wars.
Differentiation
Differentiation is the recommended strategy that Turkish Airline should focus on as it positions itself as one of the dominant airlines in the global aviation industry. As the management makes strategic choices, it will need a strategy that is sustainable in the long run.
According to Arcuri (2013), differentiation strategy, as the name suggests, focuses on creating uniqueness in the products offered by the firm in a manner that improves the value offered to the customers. The additional value created through differentiation makes it possible for the firm to charge a premium price for its products. This strategy is specifically recommended because it focuses on creativity. It will require the entire team in the marketing department and procurement to think creatively on how to offer unique value to the customers.
One of the main problems that many firms face when they try to use this strategy is the imitation by competitors. Once a firm comes up with unique products, rival companies are often quick to copy such a strategy. It will be upon the firm to find ways of developing values that cannot be easily imitated by rival companies. Through this strategy, it is possible to answer the primary questions posed by the chief executive officer of this firm regarding the firm’s growth.
How would Turkish Airlines keep growing without jeopardizing profitability?
When using a differentiated strategy, this company will be able to attract more customers to its unique products. It will be capable of charging premium prices on its products despite its growth in size. As such, its profitability will not be compromised. It will not only get more profits from its economies of scale but also enjoy loyalty among its customers.
How would it manage the operational complexities and other external factors?
To manage operational complexities and other external factors, the firm will have to outsource some of the services to experts. The firm will only focus on primary functions that cannot be outsourced. Outsourcing will improve the quality of the firm’s products despite the expansion that is expected over the next five years.
How to recruit the best people?
Differentiation strategies will require this firm to hire highly talented individuals. To attract top talents in the industry, Turkish Aviation will need to improve employees’ remuneration and working environment. It should also have a system that allows it to hire top talent continuously.
Continue to differentiate itself in a fiercely competitive industry?
To continue differentiating itself in the industry, this firm will need to embrace emerging technologies to help it add value to its services. Its employees, especially the flight attendant, can also add value to the customer based on how they handle their needs during the journey.
Plan of Action
Turkish Airline has put in place an ambitious plan to purchase over 210 new aircraft from Boeing and Airbus, the two leading global aircraft manufacturers. The massive investment that this firm will be made from 2014 will help it achieve its strategic objectives. However, it involves massive financial and human resource investment. In this action plan, it is important to determine how this firm will be balancing its revenues and expenses. It is within the next five years, from 2014 to 2018 that this firm will be making the heavy investment of purchasing the new aircraft.
As a consultant, it will be important to help the management come up with clear targets and a timeline within which specific objectives should be achieved. As Turkish Airline continues to invest in new airlines, more human resources, and advanced technology, there should be a clear and predictable flow of revenues into the firm. Given that the purchase is spread over a given period, the firm should be able to finance the new investments without heavily relying on loans or other external sources.
Targets and Timelines
After making the major announcements about the intended purchase of over 200 new aircraft, 2014 is going to be an important year for this company as efforts are made to increase revenues and to create new trade routes. The management will need to have targets that must be achieved within the next five years. The following table shows a possible five-year measure of success at this firm that the management should consider.
Focus Areas and Priorities
As this company seeks to achieve the targets set above within the next five years, the primary focus should be on identifying new routes that will be taken by this airline as it continues to acquire new aircraft. The marketing department of Turkish Airline, in close coordination with other departments, should identify new routes that the airline can take.
Other than identifying new global routes, the marketing department should make an effort to increase the number of loyal customers for this firm. Attracting more customers in the current market will enable it to achieve some of the above targets.
Key Performance Indicators
The key performance indicators for this firm can be summarized in the table below.
Conclusions
The aviation industry has become very competitive and the management of Turkish Aviation will need to know how to deal with this competition. Its ambitious plan to expand its global operations may help it manage this competition. However, several factors will need to be put into consideration to achieve the desired success. This report has highlighted several issues that the management will need to put into consideration to achieve this success.
Reference List
Alcacer, J 2015, ‘Turkish airlines: Widen your world’, Harvard Business School, vol. 9, no. 1, pp. 716-804.
Arcuri, A 2013, The rise of a new superpower: Turkey’s key role in the world economy and energy market, Springer, Cham.
Çaǧaptay, S 2014, The rise of Turkey: The twenty-first century’s first Muslim power, Wiley & Sons, Hoboken.
Fleisher, C & Bensoussan, B 2015, Business and competitive analysis: Effective application of new and classic methods, Pearson Education, Upper Saddle River.
Vasigh, B, Taleghani, R & Jenkins, D 2012, Aircraft finance: Strategies for managing capital costs in a turbulent industry, Ross Pub, Lauderdale.
Wiebusch, T 2014, Merger talks between Lufthansa and Turkish Airlines: Analysis of current situation, potential benefits and possible outcome, Verlag GmbH, Munich.