Tav Airport Holdings

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TAV has a competitive advantage over its rivals thanks to its integrated business model that helps them balance expenses and deal with losses. Their partnership with ADP increases their global footprint and gives them access to other locations worldwide, the incorporation of service firms such as TAV subsidiaries, duty free stores and operation services gives them access to other revenue streams and maximizes their earnings, finally, the expansion into food services allows them to control the quality of products, improving both the top and bottom line. Most competitors do not have this structure and therefore are more vulnerable to external issues from suppliers and buyers.

Industry wide the biggest threats come from the supplier and buyer power. Airports cannot influence passenger traffic, they prefer international travelers over national or layover travelers, but they cannot control who comes and goes. Those who own the airports do, and they usually only care to make large capital investments in the service industry, because all their revenue comes from airport service and maintenance. Those who lease airports pay a lease and often times are also not integrated into the service and food industry, depending on airport service and maintenance as well. Fees are regulated by authorities and the concession has an expiry date neither of which companies can control. On the other hand consumers are generally more price sensitive and have greater bargaining power. Both threats combined could drive a company out of business during economic downturn, and in order to lower the risk it is necessary to integrate across businesses as TAV has done.

The majority of competitors such as Heathrow Airports Holding, AENA, Changi Airports international, Dubai Airports, etc, operated only in the airport service and management arena. Only Fraport, had a diversified revenue stream that included international operations, subsidiaries and retail spaces. Fraport only owned the Frankfurt Airport, however it became a major competitor thanks to its integrated business structure which is very similar to TAV’s. They recognized that this new airport would eventually replace Ataturk Airport and that winning the bid would not just provide them with high revenues but would also take 43% of TAV’s revenues away. Their decision to bid until the end was an attempt to take TAV’s market share away even if it meant over paying for it. Nonetheless, they ended up withdrawing after a certain point; however they ensured that TAV didn’t win the bid either by driving up the price.

It can be expected for competitors to follow TAV and Fraport’s structure as they search for ways to stabilize their costs and maximize revenues. Developing such structure is no easy task, TAV started this strategy over a decade ago in which time they learned about the businesses and gradually integrated. Something not yet seen is the integration of airports holding companies and airlines. Airport holding companies establish their price structure to accommodate different type of carriers and passengers, however so far they haven’t backward integrated to own the fleet or airlines yet. Integration is present on the service side, owning and operating retail space, but only TAV and Fraport have been able to penetrate this market so far, becoming pioneers in the industry.

Internal Analysis

A. Resources and capabilities

Given the competitive nature of the business, intellectual and social assets are all they have and they’re crucial to their success. TAV’s intellectual assets, its know-how and can-do attitude are the factors that have contributed to their success. The company values talent so much that they created TAV academy to provide training to new hires and learning programs for existing employees. Their training applies to all types of jobs from bag handling to retail sales; they also focused their employees to ensure all controls are done in a fast manner to increase the amount of time the average passenger spends at the airport.

While people are their main assets, most employees had no prior experience and were fully trained by TAV; therefore they could be substituted by new employees that go through the training.

The intellectual stays at TAV, just as its employees as it is not usual for other airports to be in close proximity to each other within one same country due to work permits needed in other countries.

In 1997 TAV had two divisions, construction and airport management. Their first project was to build through a joint venture and operate the Atatuk Airport in the same year, they targeted emerging markets from the beginning, finishing the construction 8 months earlier than planned. TAV also found a way to introduce an aggressive non-aeronautical revenue generation model and thanks to its success decided to continue to invest in other airports as they become privatized. In 2003 TAV Group decided to separate the construction from the operations, spinning off TAV Construction to provide each sector with better opportunities. This proved to be the right approached as it allowed each sector to win contracts they wouldn’t have been suited for if they had to build and operate. In 2004 TAV partnered with Havas, a ground handling operator, through a joint venture to operate the Izmir Aiport in Turkey. The year after TAV acquired Havas , making its way into a new business sector. TAV continued to bid and win the rights to operate other airports such as Andas Mendered Izmir airport Gazipasa-Alanya airport, Milas-Bodrum airport, etc. In 2004 they tried to expand globally, taking their strategic expansion one step further, and started negotiations to operate the airport in Tehran. Unfortunately, the deal didn’t come to fruition due to political externalities. At this point they took a different approach and instead decided to become a regional operator, winning contracts within the region. Their mission was to become a global financial player and a regional operator. Five new contracts within the region followed the decision, all in emerging markets. They started partnerships with local companies as part of their risk management initiative which helped them become resilient to the effects of economic and political changes. TAV sold shares to companies and partners around the globe as part of their mission and this added value to the company and helped gain them a very successful initial public offering.

To create even more value, TAV started to operate in other areas outside of airport management, starting by ground handling as they owned Havas and a percentage of Turkish Ground Services. They also started integrating to the service areas by providing operation services (TAV OS),