Mayday: is TAP air Portugal worth saving? at what extend should the national flag carrier be a state-owned company

Abstract

TAP has struggled in the past with financial problems, mainly due to the mismanagement of the government. Since the beginning the company made several bad investments and strategic decisions that left the company vulnerable, leaving the company in risk of insolvency. Therefore, in 2015 the company went through a privatization process, and give a future back to the company. Atlantic Gateway acquired 61% of TAP, privatizing the company to prevent insolvency. At the time, the equity position was negative, costs were high, and money was being lost from most of their investments. The "Growth route strategy" was born, consisted in making TAP a hub-spoke-carrier, taking passengers to Portugal to do a layover to then continue to the America's with TAP which is where the profits were possible to make. The short-haul flights were never profitable for the company as they have a high-cost structure and cannot compete with the low-cost airlines. The acquisition of a new fleet was also made, to be more efficient with the fuel burn and travel longer distances increasing their margins in the long-haul flights. The intention was to dominate the "Atlantic" market taking advantage of the geographic positioning of Portugal. Smaller decisions were also taken, such as creating programs to incentive tourism in Portugal and rebuilding the digital ecosystem to look like a modern company. The new TAP strategy seemed to be effective in the four years of control under Atlantic Gateway. The EBITA of the company was improving and we could see a significant increase in RPK. Their leverage went down from a 10,5to a 4 from 2016 to 2019 and the long-haul routes were bringing profitable. But then, the pandemic arrived and brought the worst year for the airline industry. However, in this challenging time TAP still had a plan to recover, but the Portuguese government had other plans. TAP requested financial aid from the government while Atlantic Gateway would keep the decision-making power. But the government wanted the power, and therefore expelled the private company and acquired a new 22,5% of TAP ownership to regain the decision-making power of the airline. As we have seen in the past TAP has never been positive under government control. Customer perception went down, and inefficiency and bad strategic decision came into play. A flagship airline can never be managed by a government because of conflicts of interest, therefore several options for the future of the company need to be considered to save TAP again from bankruptcy. Keywords: Portugal, Business Strategy, TAP, Government, Privatization