The Recent Financial Crisis on Turkish Airlines - Case Study Example

Table of Contents Problem ment 2 Research Question 2 Aims and Objectives 2 Literature Review 4 Research Design and Methodology 7 Allocated Time9 Resources and Facilities 9 Bibliography 10 THE IMPACT OF RECENT FINANCIAL CRISIS ON TURKISH AIRLINES CORPORATION AND PERCEIVED PASSENGER SERVICE QUALITY Problem Statement The global financial crisis has hit most of the sectors of world economies. The Turkish Airline industry has been also affected by the financial crisis and the performance and revenues of the industry mirror the overall macroeconomic crisis. Turkish Airlines Corporation’s revenues have also declined because of the contraction in air travel demand however; the company claims that it has shown significant performance relative to other airlines. Therefore, there is a need to evaluate the real impact of recent financial crisis on Turkish Airlines and the perceived passenger service quality. Moreover, it is also important to investigate the strategies of the company during the financial crisis, based on which company claims to show better performance as compared to other airlines. Research Question The research question that will be investigated in the proposed research study is as follows: To evaluate the impact of recent financial crisis on Turkish Airlines and to investigate how this crisis has affected the perceived service quality of airline passengers? Aims and Objectives The primary aim of conducting this research is to determine the areas of Turkish Airlines which have been affected by the financial crisis. Some other aims and objectives which will be also achieved through this research study are as follows: Another aim of this report is to determine the extent to which financial crisis has affected the operations, strategies and management of Turkish Airlines Corporation. The research study will also determine the impact of this crisis on perceived passenger service quality both on ground and on plane. The objective of this research study is to learn how financial crisis affects the service company and determine the strategies that have been adopted by Turkish Airlines during the financial crisis. Literature Review The global financial crisis that hit the economies in the late 2008 also affected Turkey because Turkey has become much reliant on capital accumulation movements during the decade of 1990s (Meltem, 2010). The financial crisis has hit most of the sectors and industries and a significant has been seen on airlines industry. Report of China Daily (2008) highlighted that according to statistics released by International Air Transport Association, the airline travelers traffic has decline by 1.3 percent in October 2008 as compared to 2007 and in September 2.9 percent decline was observed. The impact of financial crisis is very significant in air travel therefore; a number of airlines are reducing their number of flights to scale back the capacity they offer (Kotil, 2009). The stakeholders in the Turkey Airline Industry are very keen to analyze the impact of the financial crisis on air travel in Turkey. Turkish Airlines Company is one of the major air carriers in Turkey therefore, it is expected that the company might be the major suffer hit by the financial crisis. The air travel demand significantly decreased during the global downturn. On the other hand, Turkish Airlines has been claiming about its effective performance during the crisis. The aviation industry is still under the impact of global financial crisis however, even in this difficult environment, the operational and financial performance of Turkish Airlines is an indicator of the effective strategic decisions and their implementation (Turkish Airlines Inc, 2009). Haq (2010) highlighted that the consolidated financial results of Turkish Airlines reported a net profit of US$372 million in 2008 and a decrease of 51 percent was seen as compared to the figures of 2008. On the other hand, a spokesperson from Turkish Airlines argued that the sector reported a decline in capacity however; Turkish Airlines enjoyed the operational and financial growth (Haq, 2010). Actually during the financial crisis when most of the airlines were seeking to ensure their survival in highly uncertain environment, Turkish Airlines was expanding its capacity by targeting new destinations. In 2009, company launched its flights to ten new destinations and the decline in operation profit in 2009 is because of this reason (Turkish Airlines, 2010). In addition to the reduction of air travel demand during the financial crisis another area that might have negative impacts on profitability of Turkish Airlines is the higher energy costs and oil prices. The International Air Transportation Association estimated that airline companies in the world would struggle to achieve breakeven with oil prices at $35 a barrel (Consumer Affairs, 2005). It was also claimed that airlines are threatened by the high oil prices in the coming years. In the beginning of 2008, the price of oil per barrel was $100 however, in the middle of year price of oil was $140 per barrel (D-8 Secretariat, 2009). Did the skyrocketed oil prices affect operational costs of Turkish Airlines? Turkish Airlines stated that the high oil prices during the financial crisis increased its average fuel cost by 44 percent in 2008 and company incurred an additional cost of $441 million however, operating profits of company increased by 25 percent and operating profit margin increased by 10.3 percent (D-8 Secretariat, 2009). Therefore, the company did incur huge costs as a result of high oil prices however; it is very significant to determine how much profitability of company declined as a result of high operational costs. Today, most of the sectors of world economies are claiming to recover from the crisis. However, Turkish Airlines has reported a decline of 34 percent in its operating profits in 1h2010 because of rising fuel prices and 74 percent fuel expenses. At the same time Turkish Airlines claimed an increase of 19.3 percent in its passenger traffic (Centre for Asia Pacific Aviation, 2010). The increase in passenger traffic and operation costs might have balanced the operating profit of Turkish Airlines; therefore, company enjoyed significant profit when other airlines were suffering from high operational expenses. After analyzing the impact of financial crisis on profitability and operations of Turkish Airlines, another interesting area of investigation was the impact on perceived passenger service quality. Is the increase in operational expenses of Turkish Airlines as a result of increasing fuel costs and the expected decline in air travel passengers affected the service quality of airline both on board and on ground? The President Director Kotil argued that the major factor which is contributing to the success of Turkish Airlines is the valuable passenger service because in addition to the reasonable fairs, the company offers a distinct traveling experience to its customers from ticket purchase to bagging claims (Developing-8 Secretariat, 2008). Turkish Airlines is a national flag carrier and state-owned enterprise and Jesus Bonilla and Luis Bonilla (2008) found that state-owned airlines are offering less satisfaction levels to the passengers as compared to the mixed ownership carriers and private airlines. On the other hand, the increasing passenger traffic reported by Turkish Airlines is an evidence of high perceived quality of services of the company. The research on expectations and perceptions of Turkish airline passengers showed that there are some important dimensions which impact the perceived service quality of airlines. ‘Responsiveness’ appeared as the most important dimension whereas ‘availability’ appeared as least important dimension (Pakdil & Aydin, 2007). In order to determine whether perceived passenger service quality has been affected by the financial crisis or not and to what extent Turkish Airlines considered various dimensions of service quality during the crisis period, there is a need to conduct a research study. Based on the above arguments, can it be claimed that Turkish Airlines have enjoyed significant operational and financial growth during the difficult environment and financial crisis when the capacity of aviation sector was declining? Have the perceptions of the passengers on the service quality of Turkish Airlines changed or not during the global economic downturn? In order to investigate the extent to which the financial crisis has affected Turkish Airlines and which areas have been affected by the crisis, there is a need to conduct a research study. The proposed research study will not highlight the affects of financial crisis on Turkish Airlines but it will also help the decision makers and researchers to learn the strategies which have proven very effective for Turkish Airways during the crisis. Research Design and Methodology In order to investigate the impact of recent financial crisis on Turkish Airlines Corporation, an exploratory research study has been proposed. The reason of selecting exploratory research design is the nature of the research study itself. The findings of the research study are not required to generalize to the population at large and its implications are limited to the Turkish Airlines Company only. Secondly, the aim of the research study is to determine the impact of financial crisis on the company and perceived quality of passengers therefore, problem is not clearly apparent and exploratory study is the best research design to draw definitive conclusions. Both the qualitative and quantitative data will be used to investigate the research question. The numerical data for this exploratory study will be collected through secondary resources. This research study will primarily rely on secondary resources such as company financial reports, industry data, news and early research work to investigate the research questions. Since an extensive narrative data will be collected to study the impact of financial crisis on Turkish Airlines, therefore, qualitative analytical tools will be used to analyze the information. The primary data and information will be collected by conducting interviews of employees and management of Turkish Airlines. A standard questionnaire will be designed to avoid any interruption during the interview. The interview questions will be categorized into three groups based on time periods. Actually global financial crisis emerged in 2007 and it hit most of the world economies in the same year. Therefore, to study the impact of crisis it is important to compare the performance of Turkish Airlines before and during and after the crisis. In consideration to time period, information will be collected and grouped into three categories including pre-crisis period before 2007, crisis period 2007-2009 and after crisis 2010. The interview questions will be designed in such a way that information for these periods might be taken in an organized manner. The data collected through interviews will be supported and analyzed by the facts collected through financial reports and other secondary resources. In order to investigate the second part of the research question, which is to study the impact of financial crisis on perceived passenger service quality, the same methodology will be used. In addition to the questions asked from the management on perceived passengers’ service quality, few interviews will be also conducted with the passengers of Turkish Airlines. The passengers will be select randomly to avoid any kind of biased behavior. Total 5 Turkish Airlines customers will be randomly selected however; it will be ensure that most of the travelers might be the regular travelers of Turkish Airlines. The willingness of the participants will be taken before conducting their interviews. All data collected through interviews will be analyzed by using the qualitative analysis tools supported by the evidences from secondary resources and theoretical models. Allocated Time Following table shows the time allocated to each activity which will be done while conducting the research study. Weeks                   Week 10                   * Week 9                 *   Week 8                 *   Week 7                 *   Week 6                 *   Week 5             *   *     Week 4          *         Week 3         *           Week 2     *   *             Week 1   *                   Topic Selection Literature work Proposal Submission Approval Interviews Secondary sources Data analysis Report writing Report submission   Activities Resources and Facilities The resources and facilities that will be required to conduct the research study include Computer/Laptop, Internet, Printing, online access to Library and Journals and Microsoft Office tools. Bibliography Lopez-Bonilla, M. L., & Lopez-Bonilla M. J., 2008. Influence of the state-owned airlines on passenger satisfaction. Journal of Air Transport Management, 14 (3), pp.143-145. Centre for Asia Pacific Aviation, 2010. Turkish Airlines operating profit hit by fuel price; Aegean starts codeshare with Continental. [Online] (Published 2010) Available at: http://www.centreforaviation.com/news/share-market/2010/08/24/turkish-airlines-operating-profit-hit-by-fuel-prices-aegean-starts-codeshare-with-continental/page1 [Accessed 8 October 2010]. China Daily, 2008. Travel Pinched by Global Financial Crisis. [Online] (Published 2008) Available at: http://www.chinadaily.com.cn/life/2008-12/12/content_7300203.htm [Accessed 7 October 2010]. Consumer Affairs, 2005. High Oil Prices Threatens Airlines. [Online] (Published 2005) Available at: http://www.consumeraffairs.com/news04/2005/oil_airlines.html [Accessed 8 October 2010]. D-8 Secretariat, 2009. D-8 Impressed by the Turkish Airline Performance amidst Crisis. [Online] (Published 2009) Available at: http://www.developing8.org/2009/04/10/d-8-impressed-by-the-turkish-airline-performance-amidst-crisis/ [Accessed 8 October 2010]. Developing-8 Secretariat, 2008. D-8 and Turkish Airlines to Work on “Down-to-Earth” Programs. [Online] (Published 2008) Available at: http://www.developing8.org/2008/12/ [Accessed 8 October 2010]. Haq, R., 2010. Turkish Airlines Announces 2009 Financial Results. [Online] (Published 2010) Available at: http://www.arabiansupplychain.com/article-3966-turkish-airlines-announces-2009-financial-results/ [Accessed 7 October 2010]. Meltem, I., 2010. Global Financial Crisis and Turkey: Effects and Suggestions. Economic Studies, [Online]. (1/2010), Available at: CEEOL http://www.ceeol.com/aspx/issuedetails.aspx?issueid=79d70775-a26b-4e48-9694-bd79798c2d45&articleid=ad248950-989e-45d4-9587-380b4a9bf686#aad248950-989e-45d4-9587-380b4a9bf686 [Accessed 7 October 2010]. Kotil, T., 2009. Skylife April 2009. [Online] (Published 2009) Available at: http://www.turkishairlines.com/en-INT/skylife/2009/april/articles/welcome-aboard.aspx [Accessed 7 October 2010]. Pakdil, F., & Aydin, O., 2007. Expectations and perceptions in airline services: An analysis using weighted SERVQUAL scores. Journal of Air Transport Management, 13 (4), pp.229-237. Turkish Airlines Inc, 2009. Press Release: Turkish Airlines Nine Month Net Profit 304 Million USD. [Online] (Published November 2009) Available at: http://www.turkishairlines.com/en-INT/press-releases/4258/turkish-airlines-nine-month-net-profit-304-million-usd.aspx [Accessed 7 October 2010]. Turkish Airlines, 2010. Global Challenges and Turkish. [Online] (Published November 2009) Available at: http://wwwdownload.thy.com/download/basin_odasi/basari_en.pdf [Accessed 8 October 2010]. Read More