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The impact of airline service failures on travelers’ carrier choice

The impact of airline service failures on travelers’ carrier choice. Yoshinori Suzuki. Background. Understanding airline choice behavior is important for airline managers Pricing strategy Marketing strategy Yield management Several discrete-choice studies have been conducted

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The impact of airline service failures on travelers’ carrier choice

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  1. The impact of airline service failures on travelers’ carrier choice Yoshinori Suzuki

  2. Background • Understanding airline choice behavior is important for airline managers • Pricing strategy • Marketing strategy • Yield management • Several discrete-choice studies have been conducted • Limitation = Ignored possible impact of airline service failures on future choices

  3. Airline service failures • Types of service failures • Seat denials (bumping) • Flight delays • Baggage mishandling • Importance of investigating this issue • Overbooking policies • On-time targets • Some attempts, but service failures did not reflect the actual experiences of decision makers • The nature of the effects largely unknown

  4. Study Hypotheses • Service-failure experiences adversely affect one’s future airline choices • Loss aversion theory • “Loss Aversion Hypothesis” • Service-failure experiences have no impact on one’s future airline choices • Random utility theory • “No-Service Carryover Hypothesis” • They are mutually exclusive hypotheses • The effects of service failures on choice probabilities are separately estimated by type of service failure (bump, delay, mishandling)

  5. Discrete Choice Model • Multinomial Logit Model • Estimates the impact of utility variables on choice probabilities • Two models estimated • Loss Aversion Model • No-Service Carryover Model • If loss aversion hypo holds, the former model should explain the actual choices better • If no-service carryover hypo holds, the two models will be statistically indistinguishable

  6. Sample Data • Survey of “recent” flyers in DSM service area (IA DOT, Travel and Transport) • Two data gathering methods • Mail survey (835 sent, 198 returned) • Intercept survey at DSM (331 collected) • Total sample = 635, usable sample = 529 • Summary statistics in Table 1

  7. Utility function • Airfare (perceived fare) • Service frequency (OAG Flight Guide) • Flight miles (DB1A) • Frequent Flyer Program (active members) • Direct flight availability (DB1A) • Service failure experiences • Airline constants

  8. Measuring service failure experiences • 3 Variables • BUMP – involuntary denied boarding • DELAY – “substantial” arrival delay • BAG – lost, damaged, delayed, or pilfered • Separate impacts for business and leisure • Do not include the experience at time t • Out-dated experiences deleted (> m months) • “m” is estimated by testing variety of values

  9. Results • Duration of service carryover (Table 2) • Comparison of the two models (Table 3) • Coefficients are generally in line with theory • Service-failure variables not statistically significant or have incorrect signs • Two models are statistically indistinguishable • Favors the “No-Carryover” hypothesis • Cross validation shown in Table 4

  10. Conclusions and Implications • Air travelers may not be loss averse with respect to service failure experiences • Air travelers may be “rational” decision makers • Airline choices may be made without regard to the past service-failure experiences • May maximize utility on each trip occasion using the traditional framework

  11. Discussion questions • What are implications of this study to airlines? (Overbooking policies?) • Are the study results counter-intuitive to you? Why? • Are the study results generalizable? • Do airlines lose “goodwill” by service failures? • What other service-failure experiences can you think of? Do you think they will affect future choices of travelers?

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