The asymmetric effects of service quality on passengers' choice of carriers for international air travel

Journal of Advanced Transportation, Spring, 2008 by Rong-Chang Jou, Soi-Hoi Lam, Chung-Wei Kuo, Chih-Ching Chen

The asymmetric effects of service quality on international travelers' airline choice behavior were investigated in this paper. The linear structural equation modeling system was first applied to quantify passengers' perceptions of service quality provided by airlines, which were then used as the input variables of the asymmetric response model developed to capture international travelers' airline decision. Their asymmetric responses to various service quality of airlines were assumed to be either gains or losses with respect to their reference points. The results showed that the asymmetric response model performs better than the traditional logit models that capture only symmetrical effects.

Keywords :Service quality, linear structural relations model, asymmetric response model, reference point, logit model.

1. Introduction

The air travel demand is related closely with a country's economic status. For example, due to the rapid industrialization in a number of countries in Asia, the air travel demand has been growing very rapidly in the recent years. This is especially obvious after the impacts due to the Asian financial crisis in 1997 waned. Taiwan, regarded as a typical example, is one of the countries that achieved rapid growth in its economy in the past few decades. With a current population of more than 20 millions, its gross national product (GNP) per capita has increased significantly in just a few decades. As a result, the individual income in Taiwan has also increased impressively with the economic development. This has a direct impact on the air travel demand. With the increasing income, more and more population in Taiwan, like its counter parts in other Asian countries, has been traveling abroad for a number of different purposes. At the same time, the government's open and external trade strategies have expanded the international business exchange between Taiwan and other countries in the recent years.

These above reasons all contributed to the rapid increase of the international travel demand in Taiwan. The number of Taiwanese traveled abroad increased 4.8 times from 1981 to 1991, and 1.1 times from 1991 to 2001, with an average annual growth rate of 8%. Traditionally, most of these travels are within Asia (about 80%), although more rapid growth has been observed in travel sectors outside of Asia, with North America a more popular non-Asian destination than other non-Asian regions. The flying times within Asia are usually less than 5 hours. The proportion of trips to Europe grows gradually, even though the rate is still small compared to the trips to USA and Canada. Currently, Europe is increasingly a popular transit point for most passengers on their journeys to North America, with more than 10 hours of flight time.

In Taiwan, the international flight market is served by a number of local and international airlines. The market is highly competitive. As shown in Table l, the two local carriers, China Airlines and EVA Air, are the dominant airlines and together have the largest share of passengers in the international flight market (62.9%). The remaining 37.1% are shared by other six airlines. In order to increase the load factor on flights, the airlines all actively provide a number of competitive strategies to expand their own market share. These strategies, to name a few, include incentive pricing, convenient flight arrangement, flight safety, and priority services worldwide. All these service strategies could influence passengers' perceptions and preferences on the airlines. Since the service quality attributes are crucial to passengers' choice of carriers for international air travel and the number of passengers to the North America accounts for over 50% of the international air travel market, the passengers traveling between Taipei and North America are the aimed samples in this study.

There are quite a number of studies on the choice of airlines from the passengers' perspective (Proussaloglou and Koppelman, 1995, 1999; Ghobrial, 1989; Park et al., 2004; Wei and Hansen, 2005; Rose et al., 2005). Although these studies have provided useful insight into the understanding of airline choice behavior, the service attributes (most of them are qualitative and not easy to be quantified) were not substantially taken into consideration. As a result, the behavioral implications obtained from these studies, though important, may not be able to explain the full effects. In this paper, we focus on how the service level provided by an airline influences a passenger's flight choices and how changes in service quality of one airline could affect market shares of the airline itself and others in the same market. The service level is measured by a combination of aspects, some of which are qualitative measures that can not be quantified. The linear structural equation system as developed in the past decade can be applied to resolve this problem. These quantified service levels, obtained from the linear structural equation system, are then incorporated into the choice model, or multinomial logit model (MNL), to identify the significance of the service quality provided by an airline for international travellers' air travel decision.