Harvard Case - TAV Airports: Acquiring Almaty International
"TAV Airports: Acquiring Almaty International" Harvard business case study is written by Juan Alcacer, Esel Cekin. It deals with the challenges in the field of Strategy. The case study is 27 page(s) long and it was first published on : Sep 30, 2021
At Fern Fort University, we recommend that TAV Airports proceed with the acquisition of Almaty International Airport, subject to a comprehensive due diligence process and a robust integration plan. This acquisition aligns with TAV's growth strategy, expands its presence in a strategically important emerging market, and creates opportunities for significant value creation through operational improvements, airport development, and potential diversification into related businesses.
2. Background
TAV Airports, a leading airport operator in Turkey, is seeking to expand its international presence through acquisitions. Almaty International Airport, the largest airport in Kazakhstan, presents an attractive opportunity due to its strategic location, growing passenger traffic, and potential for development. This case study explores the feasibility of the acquisition, considering TAV's strategic objectives, the competitive landscape, and potential challenges.
The main protagonists of the case study are:
- TAV Airports: A Turkish company with a strong track record in airport management and a desire to expand its international portfolio.
- Almaty International Airport: The largest airport in Kazakhstan, experiencing rapid growth and significant potential for further development.
- The Government of Kazakhstan: Plays a crucial role in regulating the airport industry and influencing the investment environment.
3. Analysis of the Case Study
To assess the acquisition's viability, we will employ a combination of frameworks:
a) Porter's Five Forces Analysis:
- Threat of new entrants: Moderate, as the airport infrastructure development requires significant capital and government approvals.
- Bargaining power of buyers: Low, as passengers have limited choices for air travel.
- Bargaining power of suppliers: Moderate, as the airport relies on airlines and other service providers.
- Threat of substitute products: Low, as air travel remains the primary mode of transportation for long distances.
- Competitive rivalry: Moderate, as the airport faces competition from other airports in Kazakhstan and the region.
b) SWOT Analysis:
TAV Airports:
- Strengths: Strong operational expertise, proven track record, established brand, financial resources.
- Weaknesses: Limited experience in Central Asia, potential cultural differences.
- Opportunities: Expanding into a high-growth market, potential for airport development, diversification into related businesses.
- Threats: Political instability, economic downturn, competition from other airport operators.
Almaty International Airport:
- Strengths: Strategic location, growing passenger traffic, potential for expansion.
- Weaknesses: Limited infrastructure, outdated facilities, potential for regulatory challenges.
- Opportunities: Increased passenger traffic, development of new routes, expansion of non-aeronautical services.
- Threats: Competition from other airports, economic instability, political risks.
c) Value Chain Analysis:
The acquisition allows TAV to leverage its core competencies in airport operations, infrastructure development, and customer service to enhance Almaty International Airport's value chain. This includes:
- Inbound logistics: Improving cargo handling and logistics operations.
- Operations: Optimizing airport processes, enhancing passenger experience, and improving operational efficiency.
- Outbound logistics: Expanding cargo and passenger connections through strategic partnerships.
- Marketing and sales: Strengthening brand awareness and attracting new airlines and passengers.
- Customer service: Enhancing passenger experience through improved facilities, technology, and service quality.
d) Business Model Innovation:
TAV can leverage its experience and technology to implement business model innovation at Almaty International Airport, including:
- Digital transformation: Implementing digital solutions for passenger check-in, baggage handling, and airport information.
- Non-aeronautical revenue generation: Expanding retail, dining, and other non-aeronautical services to increase revenue streams.
- Strategic partnerships: Collaborating with airlines, travel agencies, and other stakeholders to enhance passenger experience and generate revenue.
4. Recommendations
TAV should proceed with the acquisition of Almaty International Airport, subject to the following:
- Comprehensive due diligence: Conducting a thorough assessment of the airport's financial performance, operational efficiency, regulatory environment, and potential risks.
- Robust integration plan: Developing a detailed plan for integrating Almaty International Airport into TAV's existing operations, including cultural considerations, organizational structure, and operational processes.
- Strategic planning: Developing a long-term strategic plan for the airport's development, including infrastructure upgrades, route expansion, and diversification into non-aeronautical services.
- Investment in technology and analytics: Implementing digital solutions to enhance operational efficiency, improve passenger experience, and generate data-driven insights.
- Focus on customer service: Prioritizing customer satisfaction through improved facilities, technology, and service quality.
- Building strong relationships with stakeholders: Establishing strong relationships with the government, airlines, and other stakeholders to ensure smooth operations and support for the airport's development.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: The acquisition aligns with TAV's core competencies in airport management and its mission to be a leading airport operator.
- External customers and internal clients: The acquisition benefits passengers through improved facilities, technology, and services, and employees through career development opportunities.
- Competitors: The acquisition strengthens TAV's competitive position in the region and allows it to leverage its expertise to improve Almaty International Airport's competitiveness.
- Attractiveness: The acquisition presents a strong financial case, with potential for significant returns on investment through improved operations, airport development, and diversification into non-aeronautical services.
6. Conclusion
Acquiring Almaty International Airport presents a strategic opportunity for TAV to expand its international presence, enter a high-growth market, and create significant value. By leveraging its expertise, technology, and commitment to customer service, TAV can transform Almaty International Airport into a leading regional hub, contributing to the economic development of Kazakhstan and generating long-term value for its shareholders.
7. Discussion
Alternatives:
- Joint venture: TAV could consider a joint venture with a local partner, which could mitigate some of the risks associated with a full acquisition. However, this might limit TAV's control over the airport's operations and strategic direction.
- Greenfield development: TAV could consider developing a new airport in Kazakhstan, but this would require significant investment and time.
Risks:
- Political instability: Political instability in Kazakhstan could disrupt operations and affect the airport's profitability.
- Economic downturn: An economic downturn in Kazakhstan could reduce passenger traffic and affect the airport's revenue.
- Regulatory challenges: The Kazakh government could impose new regulations that affect the airport's operations or profitability.
Key Assumptions:
- The acquisition is approved by the Kazakh government and regulatory authorities.
- TAV successfully integrates Almaty International Airport into its existing operations.
- The Kazakh economy continues to grow and passenger traffic at the airport increases.
8. Next Steps
- Due diligence: Conduct a comprehensive due diligence process to assess the airport's financial performance, operational efficiency, regulatory environment, and potential risks.
- Negotiations: Negotiate the acquisition agreement with the current owners of Almaty International Airport.
- Integration planning: Develop a detailed integration plan, including cultural considerations, organizational structure, and operational processes.
- Investment planning: Secure financing for the acquisition and develop a detailed investment plan for the airport's development.
- Implementation: Implement the integration plan and begin operations at Almaty International Airport.
The successful implementation of these steps requires strong leadership, effective communication, and a commitment to collaboration between TAV and Almaty International Airport's stakeholders. By embracing these principles, TAV can realize the full potential of this acquisition and create a win-win situation for all parties involved.
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Case Description
The case opens in April 2020 with Sani Εener, CEO of TAV Airports, a vertically integrated regional airport operator headquartered in Istanbul, Turkey, and his team discussing the pending acquisition of the Almaty International Airport in Kazakhstan. The company had been looking for ways to increase its revenues, which had shrunk by 35% in 2019 after the closing of its flagship airport in Istanbul. The business case for acquiring Almaty International was quite strong: it was an asset acquisition with no maturity, and it came with fuel and cargo operations, functions that were unaffected by the cyclicality of passenger traffic. But the world had changed significantly since TAV made a conditional offer of $415 million, outbidding all other interested parties in November 2019. Due to the COVID-19 pandemic, the aviation industry had been facing unprecedented challenges, and passenger traffic in Almaty had dropped by around 40%. In the meantime, the seller of Almaty International was undeterred and pressed TAV to close the deal. Εener and the senior management team were at a critical juncture: they had to move ahead soon or risk missing out on an opportunity that had looked very bright pre-pandemic.
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