The impact of airline service The impact of airline service failures on travelers’ carrier failures on travelers’ carrier

choicechoice

Yoshinori SuzukiYoshinori Suzuki

BackgroundBackground Understanding airline choice behavior is Understanding airline choice behavior is

important for airline managersimportant for airline managers Pricing strategyPricing strategy Marketing strategyMarketing strategy Yield managementYield management

Several discrete-choice studies have been Several discrete-choice studies have been conductedconducted

Limitation = Ignored possible impact of Limitation = Ignored possible impact of airline service failures on future choicesairline service failures on future choices

Airline service failuresAirline service failures Types of service failures Types of service failures

Seat denials (bumping)Seat denials (bumping) Flight delaysFlight delays Baggage mishandlingBaggage mishandling

Importance of investigating this issueImportance of investigating this issue Overbooking policiesOverbooking policies On-time targetsOn-time targets

Some attempts, but service failures did not Some attempts, but service failures did not reflect the actual experiences of decision reflect the actual experiences of decision makersmakers

The nature of the effects largely unknownThe nature of the effects largely unknown

Study HypothesesStudy Hypotheses Service-failure experiences adversely affect Service-failure experiences adversely affect

one’s future airline choicesone’s future airline choices Loss aversion theoryLoss aversion theory ““Loss Aversion Hypothesis”Loss Aversion Hypothesis”

Service-failure experiences have no impact on Service-failure experiences have no impact on one’s future airline choicesone’s future airline choices Random utility theoryRandom utility theory ““No-Service Carryover Hypothesis”No-Service Carryover Hypothesis”

They are mutually exclusive hypothesesThey are mutually exclusive hypotheses The effects of service failures on choice The effects of service failures on choice

probabilities are separately estimated by type of probabilities are separately estimated by type of service failure (bump, delay, mishandling)service failure (bump, delay, mishandling)

Discrete Choice ModelDiscrete Choice Model

Multinomial Logit ModelMultinomial Logit Model Estimates the impact of utility variables on Estimates the impact of utility variables on

choice probabilitieschoice probabilities Two models estimatedTwo models estimated

Loss Aversion ModelLoss Aversion Model No-Service Carryover ModelNo-Service Carryover Model

If loss aversion hypo holds, the former model If loss aversion hypo holds, the former model should explain the actual choices bettershould explain the actual choices better

If no-service carryover hypo holds, the two If no-service carryover hypo holds, the two models will be statistically indistinguishablemodels will be statistically indistinguishable

Sample DataSample Data

Survey of “recent” flyers in DSM service area Survey of “recent” flyers in DSM service area (IA DOT, Travel and Transport)(IA DOT, Travel and Transport)

Two data gathering methodsTwo data gathering methods Mail survey (835 sent, 198 returned)Mail survey (835 sent, 198 returned) Intercept survey at DSM (331 collected)Intercept survey at DSM (331 collected)

Total sample = 635, usable sample = 529Total sample = 635, usable sample = 529 Summary statistics in Table 1Summary statistics in Table 1

Utility functionUtility function

Airfare (perceived fare)Airfare (perceived fare) Service frequency (OAG Flight Guide)Service frequency (OAG Flight Guide) Flight miles (DB1A)Flight miles (DB1A) Frequent Flyer Program (active members)Frequent Flyer Program (active members) Direct flight availability (DB1A)Direct flight availability (DB1A) Service failure experiencesService failure experiences Airline constantsAirline constants

Measuring service failure experiencesMeasuring service failure experiences

3 Variables3 Variables BUMP – involuntary denied boardingBUMP – involuntary denied boarding DELAY – “substantial” arrival delayDELAY – “substantial” arrival delay BAG – lost, damaged, delayed, or pilferedBAG – lost, damaged, delayed, or pilfered

Separate impacts for business and leisureSeparate impacts for business and leisure Do not include the experience at time tDo not include the experience at time t Out-dated experiences deleted (> m months)Out-dated experiences deleted (> m months) ““m” is estimated by testing variety of valuesm” is estimated by testing variety of values

ResultsResults

Duration of service carryover (Table 2)Duration of service carryover (Table 2) Comparison of the two models (Table 3)Comparison of the two models (Table 3) Coefficients are generally in line with theoryCoefficients are generally in line with theory Service-failure variables not statistically Service-failure variables not statistically

significant or have incorrect signssignificant or have incorrect signs Two models are statistically indistinguishableTwo models are statistically indistinguishable Favors the “No-Carryover” hypothesisFavors the “No-Carryover” hypothesis Cross validation shown in Table 4 Cross validation shown in Table 4

Conclusions and ImplicationsConclusions and Implications

Air travelers may not be loss averse with Air travelers may not be loss averse with respect to service failure experiencesrespect to service failure experiences

Air travelers may be “rational” decision makersAir travelers may be “rational” decision makers Airline choices may be made without regard to Airline choices may be made without regard to

the past service-failure experiencesthe past service-failure experiences May maximize utility on each trip occasion May maximize utility on each trip occasion

using the traditional frameworkusing the traditional framework

Discussion questionsDiscussion questions

What are implications of this study to airlines? What are implications of this study to airlines? (Overbooking policies?)(Overbooking policies?)

Are the study results counter-intuitive to you? Are the study results counter-intuitive to you? Why?Why?

Are the study results generalizable?Are the study results generalizable? Do airlines lose “goodwill” by service failures?Do airlines lose “goodwill” by service failures? What other service-failure experiences can What other service-failure experiences can

you think of? Do you think they will affect you think of? Do you think they will affect future choices of travelers?future choices of travelers?