Full-service Airlines Research Articles

INVESTIGATING PASSENGERS’ PERCEIVED VALUE OF FULL SERVICE AIRLINES AND LOW-COST CARRIERS

This study investigates the customer perceived value seen by Taiwanese passengers who flew between Taipei and Singapore regarding full service airlines and low-cost carriers. We collected a sample of passenger survey data at Taiwan Taoyuan International Airport. Five constructs, forming into customer perceived value, namely, nonmonetary cost, perception of monetary cost, reputation, service quality, and service contact are identified based on the results of factor analysis. A regression model is then adopted to measure the relationships between customer perceived value and potential determinants. Passengers from traditional airlines determined their perceived value based mostly on what they gained from the airlines. Nevertheless, passengers formed their perceived value for the low-cost carrier, Jetstar in this study, according to the trade-off between what they gave, especially the nonmonetary cost, and what they received.

Customer experience — An analysis of the concept and its performance in airline brands

This paper investigates the application of the concept of customer experience to the airline industry and the extent to which airline brands are delivering customer experience. Literature shows that the concept of customer experience is not well understood and has had no clear and consistent definition. The purpose of customer experience is identified as to deliver satisfaction throughout the customer experience that, in turn, leads to brand loyalty and advocacy.The customer experience concept is applied to the airline industry. In order to measure its performance a study was undertaken using International Air Transport Association data collected over a twelve-month period from a sample size of 18,567 passengers on fifteen major full-service airlines in Europe, Middle East and Asia.The elements of the airline passenger journey most strongly related to overall satisfaction, loyalty and advocacy were, for most airlines, cabin features followed by crew (for satisfaction) and inflight food and drink (for loyalty and advocacy). The analysis did not identify strong effects from the impact of airline continent, individual airline and flight class. The relationships between the passengers’ satisfaction ratings for specified elements of the journey and the overall satisfaction, loyalty and advocacy were not moderated by flight class.

Competitive effects of the airlines-within-airlines strategy – Pricing and route entry patterns

This paper investigates the effects of the airlines-within-airlines strategy adopted by Qantas airline group, which simultaneously runs a full-service airline (Qantas Airways) and a low-cost carrier (Jetstar Airways). Our empirical investigation of airline pricing and route entry patterns in the Australian domestic market suggests that Jetstar has been used as a fighting brand against rival low cost carriers. Such a strategy increases group airlines’ prices at the expenses of rival airlines. There is preliminary evidence that pricing benefits to Qantas Group come from increased market power as well as service quality improvements.

Segmentation of Airline Market in the GCC Region: Profiling Business Customers Using Low Cost and Full Service Carriers

Aims: This paper was designed to identify the differences and similarities between business travelers using low-cost carriers (LCCs) and full-service carriers (FSCs) in the GCC region. Research on the characteristics of business travelers, who are seen as an important market segment for both low-cost and full-service airlines, is sparse and anecdotal at best. This paper represents an initial effort at developing profiles of business travelers using LCCs and FSCs. Study Design : Research paper based on survey data. Methodology: The study employed a survey research design and collected data on business travelers using LCCs and FSCs by means of a brief questionnaire. Data analysis was conducted using the SPSS software package. A combination of nonparametric tests such as Chi Square and T-Test for two independent samples was employed to assess the extent of differences and similarities between the LCC and FSC customer samples. Findings: The findings lend partial support to the hypothesis that short haul business travelers using LCCs form a fairly distinct market segment from business travelers using FSCs in the GCC region. The two samples revealed substantial differences in terms of organizational resources, respondents’ demographic characteristics, and perception of different service dimensions. While both groups displayed similar level of service

A Framework and Models for Evaluating the Multifare Dynamic Pricing Mechanism of Low-cost Carriers

Abstract In general, traditional airlines (legacy airlines or full-service airlines) develop multifare mechanisms and rely on seat inventory control to make quantity-based decisions. On the other hand, low-cost carriers (LCCs) tend to adopt the single-fare system and dynamically adjust the price. Nonetheless, more and more LCCs have begun to offer multiple-fare classes so as to take advantage of market segmentation and price discrimination. In order to evaluate the effectiveness of various revenue management (RM) mechanisms, the concept of willingness-to-pay is applied to model the customer choice with respect to RM control decisions. Dynamic programming–based models are then developed to provide a unified framework to evaluate the dynamic pricing mechanism of LCCs against the traditional seat inventory control policy that makes the open/close decisions of the fare classes with predetermined prices. Based on the numerical experiment, it is found that the former results in significantly higher revenue than the latter.

The measurement scale for airline hospitality: Cabin crew's performance perspective

The main objectives of this study are to identify the underlying dimensions of airline hospitality in the context of a full-service airline and subsequently to propose a scale to measure the construct in the case of Malaysian airline industry. In this study, airline hospitality is defined based on cabin crew performance or hosting behaviour. In order to stand out among extremely intense competition in today's air travel industry, airline companies must find ways to offer not only distinctive service but hospitable in-flight services. The exploratory factor analysis performed on the first data set involving 391 airline passengers indicated that airline hospitality consists of four underlying dimensions that explained 67% of the total variance. The dimensions are labelled as Courtesy, Appreciation, Socialising, and Comfort. The results of the confirmatory factor analysis carried out on a second data set comprising 546 respondents validated the four-factor structure measurement model that consisted of 19 items with satisfactory reliability and validity indices.

Jetstar Airways: How Modeling Guided the Brand Migration Strategy of a Low-Cost Carrier

Abstract This article describes the application of a dynamic choice model of consumer preferences. It supported Jetstar, a subsidiary of Australia’s leading airline, QANTAS, to effectively and profitably compete in the low-cost carrier marketplace. The evolution of the Jetstar strategy is traced from its initial position through to its efforts to attain price competitiveness and service parity. The model helped service design and pricing initiatives to shift the perceived performance of Jetstar relative to its competitors. It further indicated how the airline could move market preferences towards areas in which it had competitive advantage. The Jetstar market share went from 14.0 % to 18.1 % during the first five quarterly waves of the research, while profits went from US $ 79 million 2006 / 07, before the study was commissioned, to US $ 124 million in 2008 / 09. Today, Jetstar remains the only successful low-cost offshoot of a full service airline in terms of shareholder returns

Low-cost carriers and airports’ performance: empirical evidence from a panel of UK airports

During the last decade, the proliferation of Low Cost Carriers and the related huge increase in tra¢ c has been the most visible eect of the deregulation of the airline market in Europe. Little attention has been paid to how airports were aected by the changes in the new institutional environment. In this study we model the total factor productivity (TFP) for a panel of the UK largest airports over the 2002-2005 period and investigate whether the presence of LCCs had some impact on airports'TFP. Empirical results are consistent with the hypothesis that conspicuous entry of LCCs on European markets has impacted positively on the vertical chain by facilitating airports'productivity improvements. This result is robust to reverse causality issues associated with the possibility that most e¢ cient airports are those that are more likely to attract LCCs. Dierent possible argu- ments may explain our results: tra¢ c increases brought about by LCCs for a given installed capacity might have generated higher TFP; more e¢ cient organizational models might have been adopted to meet LCCs operational requirements (short turnaround times); cost reductions might have been realized in order to lower charges and attract LCCs; competition from a larger number of airports induced by LCCs'wider catchment areas (with respect to full service airlines) might have exerted further pressure toward TFP improvements.

Assessing the Nonaviation Performance of Selected US Airports

Abstract This article applies econometric analysis to identify the determinants of nonaeronautical revenues and rent payments at selected US airports, based on a panel data set from 2000 to 2008. The study focuses on specialty retail and food and beverage (F&B) services, which are the major nonaviation activities at US airports, in addition to parking and rental car services. The performance of specialty retail and F&B is influenced by characteristics such as concession space and number and characteristics of passengers—in particular, domestic versus international, leisure versus business, and origin and destination (O&D) versus connecting passengers. The article illustrates how different passenger types contribute to specialty retail and F&B revenue, and how specialty retail and F&B revenues differ in their contributions to rent payments to airports. We also show how nonaviation performance differs for terminals serving only low-cost carriers (LCCs) and terminals that serve full-service airlines.

The Impact of Airline Flight Schedules on Flight Delays

Airline flight delays have come under increased scrutiny lately in the popular press, with the Federal Aviation Administration data revealing that airline on-time performance was at its worst level in 13 years in 2007. Flight delays have been attributed to several causes such as weather conditions, airport congestion, airspace congestion, use of smaller aircraft by airlines, etc. In this paper, we examine the impact of the scheduled block time allocated for a flight, a factor controlled by airlines, on on-time arrival performance. We analyze empirical flight data published by the Bureau of Transportation Statistics to estimate the scheduled on-time arrival probability of each commercial domestic flight flown in the United States in 2007 by a major carrier. The structural estimation approach from econometrics is then used to impute the overage to underage cost ratio of the newsvendor model for each flight. Our results show that airlines systematically “underemphasize” flight delays, i.e., the flight delay costs implied by the newsvendor model are less than the implied costs of early arrivals for a large fraction of flights. Our results indicate that revenue drivers (e.g., average fare) and competitive measures (e.g., market share) have a significant impact on the scheduled on-time arrival probability. We also show that the scheduled on-time arrival probability is not positively affected by the total number of passengers on the aircraft rotation who could be affected by a flight delay, or the number of incoming and outgoing connecting passengers on a flight. Operational characteristics such as the hub and spoke network structure also have a significant impact on the scheduled on-time arrival probability. Finally, full-service airlines put a higher weight on the cost of late arrivals than do low-cost carriers, and flying on the lowest fare flight on a route results in a drop in the scheduled on-time arrival probability.

Competition in the European aviation market: the entry of low-cost airlines

This paper investigates the price-setting behavior of full-service airlines in the European passenger aviation market. We develop a model of airline competition, which accommodates various market structures, some of which include low-cost players. Using data on published airfares of Lufthansa, British Airways, Alitalia and KLM for the main city-pairs from Italy to the rest of Europe, our empirical findings substantially confirm the propositions of the theoretical model. We find that competition among full-service carriers appears to affect the price levels of the business and the leisure segments asymmetrically: there are small reductions in the leisure segments and significant reductions in the business segment of the aviation market. In contrast, competition with low-cost carriers reduces both the business and leisure fares of full-service carriers quite uniformly, with an emphasis on the mid-segment fares.

Operating cost control strategies for airlines

The purpose of this study is to explore the ranking of international airlines operating cost control strategies based on empirical studies of an international full-service airlines operation in Taiwan. Cost control has become more and more important for airlines in recent years, especially after the dramatic increases in crude oil prices that began in 2008, as well as the on-going global financial crisis that started in the same year. In this study, the ranking policies and cost control strategies were extracted from questionnaires answered by airline industry experts and evaluated using the fuzzy Delphi method. The cost control strategies were then ranked using the analytic hierarchy process. The findings of this study can provide international full-service airlines with five key policies for operating cost control, including a fuel cost reduction policy, employee productivity improvement, flight operations, aircraft maintenance cost reduction, and operating procedure simplification. By ranking these potential cost reduction strategies, we identified the ten most significant ones out of twenty-one that branched out of the upper five criteria. These were as follows: (1) optimizing aircraft fleet dispatch, (2) conducting fuel hedging strategies, (3) improving aircraft fuel saving performance, (4) reducing the dead weight of an aircraft, (5) optimizing flight speeds using the efficient cost index, (6) scheduling reasonable flight hours for flight crew, (7) correcting en route flight plans and alternate airports, (8) increasing direct ticket sales, (9) encouraging employees to provide cost-control strategies, and (10) replacing old aircraft. The results of this study could be used to establish guidelines for international airlines with regard to the possibly best distribution of operational resources. We expect that the total operating costs of airlines can be reduced significantly through the use of these cost control strategies. Key words: Airline, operating cost control, fuzzy Delphi, analytical hierarchy process.

European vs. U.S. airlines: Performance comparison in a dynamic market

This study measures and compares the efficiency and productivity of European and U.S. airlines, over the period from 2001 to 2008. We measure efficiency by estimating a Bayesian distance frontier model subject to regularity constraints. Productivity estimates are also derived parametrically, based on the estimates of the distance frontier model. We estimate both a constrained (i.e. subject to regularity conditions) and an unconstrained model and we show the importance of imposing the monotonicity and curvature conditions on the distance function. The efficiency and productivity results based on the constrained model indicate that European airlines have slightly higher efficiency and productivity growth than U.S. airlines. A comparison based on the type of airlines indicates that low-cost airlines are on average more productive and efficient than full-service airlines. The decomposition of productivity growth and related market discussions are also provided.

Branding satisfaction in the airline industry: A comparative study of Malaysia Airlines and Air Asia

Brand is crucial in differentiating the superiority of products or services over others. This is an exploratory study examining the differences in brand satisfaction between Malaysian Airlines (full service airlines) and Air Asia (low cost airlines) in Malaysia. 350 usable questionnaires were obtained from respondents in the two main airlines terminals in Kuala Lumpur. Exploratory factor analysis revealed seven brand satisfaction dimensions which are tangibles, price, core service, reputation, publicity, word-of-mouth, and employee. Generally, respondents were not satisfied with all brand dimensions of both airlines. The level of brand dissatisfaction is also higher for Malaysian Airlines compared with Air Asia. Air Asia was perceived better than Malaysian Airlines in price, publicity, and word-of-mouth. On the other hand, Malaysian Airlines was perceived better in tangibles, core service, reputation, and employee. The paper highlights some of its theoretical, managerial and marketing implications to the development of airline industry.

Growth and internationalisation strategies in the airline industry

This paper analyses the international growth of the global air transport sector to identify factors that determine the emergence of transnational companies and different forms of international expansion in the airline industry. An analysis of the market structure is conducted to understand why traditional, full service airlines have adopted alliances and code sharing to internationalise their business, while low-cost carriers prefer more direct methods to enter new foreign markets.

Effects of transport service differentiation in the US domestic airline market

This study proposes a framework to identify and measure the extent of product differentiation among services provided by transportation firms, and applies it to the US domestic airline markets. By formulating and estimating an Almost Ideal Demand System and a set of price response equations for competing carriers, we investigate empirically the degree of substitutability between the services provided by Full Service Airlines (FSAs) and Low Cost Carriers (LCCs). Our results indicate that there is a significant differentiation in services provided by FSAs and LCCs. As a result, the presence of LCCs alone will not ensure healthy competition in a market. Therefore, it is important for public policy makers to attempt to maintain competition between FSAs even in the markets where LCCs have substantial market shares.

What drives passenger loyalty to traditional and low-cost airlines? A formative partial least squares approach

Based on a case study involving passengers from Lufthansa, Croatia Airlines and Germanwings, we examine the determinants of passenger loyalty among users of traditional full-service airlines and of low-cost carriers. In particular, using formative modeling the study analyzes the effects of service quality and price on carrier choice and loyalty.

Factors Influencing Mode Selections of Low-cost Carriers and a Full-service Airline in Thailand

Abstract This article investigates factors influencing Thai travelers' selection of traveling modes: lowcost carriers and a full-service airline in Thailand. The field data were collected using the revealed preference technique. The results on travelers' perceptions show that fare and safety concerns are most satisfied by low-cost carriers and full-service airline travelers, respectively. Based on the logit model developed, significant factors influencing mode selections are group size, fare deviation to income ratio, waiting time deviation multiplied by income, punctuality, and safety. The changes of significant factors affected on number of passengers have also been studied and presented.

Factors Influencing Mode Selections of Low-cost Carriers and a Full-service Airline in Thailand

Abstract This article investigates factors influencing Thai travelers' selection of traveling modes: lowcost carriers and a full-service airline in Thailand. The field data were collected using the revealed preference technique. The results on travelers' perceptions show that fare and safety concerns are most satisfied by low-cost carriers and full-service airline travelers, respectively. Based on the logit model developed, significant factors influencing mode selections are group size, fare deviation to income ratio, waiting time deviation multiplied by income, punctuality, and safety. The changes of significant factors affected on number of passengers have also been studied and presented.

Making the Organization Fly

Recently, the service industry has seen a low-cost sector emerge alongside the traditional full-service sector. We explored whether these business models have different implications for employee cooperation, one factor that plays an important role in organizational functioning. Drawing on the social identity perspective, we argue that employees will identify less strongly with the lower-status, low-cost organizations, reducing their intrinsic motivation for such cooperation. We tested these relationships among employees in Thailand’s airline industry. In line with expectations, flight attendants working for low-cost airlines (N = 77) perceived their organizations to have lower status than those working for the full-service airlines (N = 77), and this was associated with reduced organizational identification. This in turn predicted lower levels of organizational citizenship behaviour and a stronger desire for organizational exit.