Non-price competition in the US airline industry: a VAR model

Abstract

PurposeThe purpose of this paper is to analyze the extent to which major US airlines respond to one another in quality of service improvements.Design/methodology/approachUtilizing monthly data, the authors estimate a five-equation vector autoregressive model to determine which airline leads or follows others in quality of service improvements.FindingsThis study found that the five major airlines make interrelated decisions when responding to customer complaints concerning flight problems, over-sales, reservations, ticketing, boarding, and customer service. Every airline either responds to or influences the changes in customer complaints faced by at least one other airline, while some airlines do both. However, only one such relationship was found when examining if airlines change the percent of flight delays they have control over in response to changes in flight delays faced by another airline.Practical implicationsThe number of passenger complaints against an airline can be influenced by the airline, as can the number of carrier-caused flight delays. The industry leaders in responsiveness to consumer complaints are US Airways and United. However, airlines do not, as a group, respond to the carrier-caused delays of their competitors. The prescription to improve airline service vis-à-vis flight delays is simple: tell passengers why flights are delayed. To protect or gain market share, airlines would compete for customers by minimizing flight delays in a similar manor to how they respond to customer complaints.Originality/valueNo other paper that the authors are aware of has addressed the issue of identifying leaders and followers in the US airline industry regarding changes in service quality as reflected by changes in passenger complaints and flight delays.