Exploring characteristics of passengers using traditional and low-cost airlines: A case study of Belgrade Airport

Low cost carriers entered the Serbian air travel market after Serbia joined the European Common Aviation Area (ECAA) in 2006, prompting the development of healthy competition among airlines and resulting in significant traffic increase at Belgrade Airport. The aim of this paper is to examine the characteristics of passengers traveling on low-cost carriers (LCC) in comparison with those traveling on traditional airlines by using cluster analysis, and to provide practical implications to airport management in tailoring their strategies to meet growing demand. A comprehensive passenger survey was recently conducted at Belgrade Airport on the routes where competition between traditional and LCC carrier exists. The results reveal that emigrants, primarily encouraged by favorable fares, constitute a substantial portion of LCC passengers. Affordable service offered by LCC has also been a positive stimulus for emigrants, who purchase tickets for their friends and relatives to visit them in their host countries. On the other hand, passengers using traditional airlines could be generally classified into two segments, those who fly on business and those who fly for leisure purposes, and each had specific needs when choosing their airline.     

Strategic airline alliances and endogenous Stackelberg equilibria

This paper analyzes the economic effects of the code-sharing alliances between an international and a domestic airline. If these two allied airlines and a separate unallied international airline endogenously choose the role of fare-leader or fare-follower, two types of Stackelberg equilibria exist. This finding suggests that the Stackelberg solution seems reasonable, and provides a guideline for the airlines’ role-choosing. Furthermore, although this complementary alliance improves the social welfare, it decreases the consumer surplus of the direct international passengers and may decrease that of the direct domestic passengers. The negative effects should also be considered when governments evaluate a complementary alliance.     

An airline's management strategies in a competitive air transport market

Over the last decade, the demand for domestic and international flights in Korea has increased substantially. To meet the strong flight demands, several low cost carriers have begun to offer flight services. In addition, full service carriers have been motivated to establish their own subsidiary low cost carriers to maintain their market share against rival low cost carriers. This paper studies the management strategies of three kinds of airlines - full service carrier, its subsidiary low cost carrier and rival low cost carrier - based on game theory in the competitive air transport market. Each airline is assumed to act as a player and chooses strategies regarding airfare, flight frequency, and the number of operating aircrafts for specific routes while maximizing its own profits. Demand leakages between the airlines are considered in the flight demand function according to the selected strategies of all airlines. Through various game situations reflecting realistic features, this study provides managerial insights that can be applied in the competitive air transport market.     

Airport–airline interaction: the impact of low-cost carriers on two European airports

This paper uses case studies to look at the impact of low-cost airlines on two European airports. Low-cost airlines continue to exert an influence in air transport markets and small airports face pressures to compete for their business. The low-cost model motivates airlines to negotiate contracts that significantly reduce aeronautical revenues, leaving airports to compensate by seeking commercial revenues from the increase in passengers. This has consequences for the airports, their passengers and the relationship between the airport and its existing operators. It is found that it is important for airport management to see both passengers and airlines as customers and to understand the resultant revenue streams, before negotiating preferential contracts with low-cost carriers.     

Cost convergence in the US airline industry: An analysis of unit costs 1995–2006

Recent changes in the strategies of US airlines have led to a convergence of unit costs between the network legacy carriers and low-cost carriers. We develop a methodology for breaking down operating cost data reported by the airlines and argue that certain cost categories must be excluded to make a valid comparison between the carrier groups. We find significant evidence of convergence in unit costs excluding fuel and transport-related expenses, and labor unit costs in particular. While network legacy carriers have improved cost efficiency through dramatic labor cost reductions and longer stage length flying, low-cost carriers labor unit costs continue to increase as these former new entrant airlines mature.     

Segmentation of passengers using full-service and low-cost carriers – Evidence from Taiwan

Low-cost carriers in Taiwan have rapidly drawn a large number of passengers away from full-service carriers in recent years. However, many passengers still stick with traditional airlines as their primary air carriers. These two groups of passengers should differ in terms of their personal and trip characteristics, valuations of factors in determining an airline, and perceptions of need for ancillary services. The present paper compares the profiles of passengers using different types of air services in Taiwan using data collected from an online survey and assesses the potential of principal component analysis with biplot technique to define different passengers based on their preferences of services and valuations of the importance of factors. Our study shows that passengers of full-service and low-cost carriers have different trip characteristics; principal component analysis is applicable for this context of passenger profile segmentations.     

The city-airport connection in the low-cost carrier era: Implications for urban transport planning

This article, examines differences between the behavior of passengers of low-cost and network airlines when choosing their transport mode for travel to airports. It is found that a passenger flying with a low-cost carrier is 6% less likely to take a taxi to the airport, but more than 4% more likely to drive a rented car and 2% more likely to use public transport than a user of a network carrier.     

Different models in different spaces or liberalized optimizations? Competitive strategies among low-cost carriers

This paper asks whether the economic success of low cost carriers (LCCs) has been achieved through optimizations of network structures to liberalized market conditions. By examining the network structures of six successful LCCs, the paper moves away from the idea of a “low cost carrier model” and instead highlights the range of spatial strategies employed by budget airlines in liberalized marketplaces. Findings show that significantly different spatial models are employed by the six carriers examined in this study. Unlike previous studies on the networks structures of LCCs, this paper moves beyond any one specific region and looks at the networks of budget airlines in Asia, Europe, and North America. Fundamental differences in the network structures of LCCs on these three continents indicate that liberalization has allowed for the utilization of a variety of spatial operating models rather than a singular optimal model.     

Are low-cost carrier passengers less likely to complain about service quality?

Complaints made by airline passengers to the U.S. Department of Transportation (DOT) are often used in academic research and in the media as a proxy for the quality of commercial air service in the United States. In this paper, we test whether passengers of network carriers are more likely to make a complaint to the DOT about service quality failures than passengers of low-cost carriers. Through a fixed-effects regression, we find that passengers of low-cost carriers like Southwest Airlines are less likely to complain about service quality than passengers of network carriers like United Airlines, given the same levels of service quality and controlling for yearly fixed effects. This behavior could be explained by price-based expectations of service quality, lack of information about how to complain to the DOT, or qualitative differences in front-line customer service between airlines.     

Airline choice by passengers from Taiwan and China: A case study of outgoing passengers from Kaohsiung International Airport

Understanding what factors passengers consider when selecting an airline is critical, as airlines can utilize this information in market segmentation and marketing strategies. However, few studies have explored how passenger demographics and the nationality/type of carrier (full service or low-cost; regional or international) affect the choice factors of passengers when selecting airlines. The main objective of this study was to explore the airline choice factors considered by passengers, compare the choices of passengers with different demographics, and analyze which factors are emphasized by passengers from Taiwan and China when selecting airlines. We conducted a questionnaire survey of outgoing passengers at Kaohsiung International Airport in relation to 22 factors underlying their choice of airline. Using factor analysis, we identified the five factors: ground services, convenience, in-flight services, price, and travel availability. We then utilized cluster analysis to identify four groups, each concerned with price, comfort, convenience, and ground services, respectively. Nationality, age, income, flying frequency, and purpose of travel lead to differences in deciding which factors were considered by cross-strait passengers. Passengers of different nationalities concerned with different factors when selecting airlines. Our findings can add to the completeness of existing research as well as provide airlines with reference in developing marketing strategies for different customer groups.     

Airline strategies for aircraft size and airline frequency with changing demand and competition: A simultaneous-equations approach for traffic on the north Atlantic

Airport planners need to know the forecast demand on the facilities provided airside at airports. For this they need to know how airlines will deal with traffic in terms of the size of aircraft and frequency of service. In response to increasing demand, airlines may increase capacity by increasing the frequency of flights or they may choose to increase aircraft size. This may yield operating cost economies. If the airports they operate from are capacity constrained they will be limited in the extent that they can change frequency that will limit their ability to compete with the number of frequencies offered. Consequently, these airports are excluded as are major hubs as frequencies will be influenced by connecting passengers. Routes are identified on the north Atlantic that can be analysed and conclusions are suggested on the basis of three stage least-squares estimates for pooled time series-cross section data. An increase in passengers on the whole will result in a larger increase in frequency than in aircraft size but the impact of competition does not yield significant results due to the strategy of excluding certain categories of airport.     

An investigation of service quality,customer satisfaction and loyalty in China's airline market

Customer loyalty is a source of competitive advantage and an important intangible asset to any organisations, but empirical evidence from China's airline market regarding the determinants of passenger satisfaction and loyalty is lacking. This paper investigates the service quality of four major airlines in China's domestic market and explores the links between their service quality and customer satisfaction, as well as the conditions under which airlines can retain existing passengers. In line with previous studies, service quality variables are significant factors influencing customer satisfaction levels. However, satisfactory service was not found to result in higher customer loyalty among business travellers. In comparison to Hainan Airlines, passengers who travelled with Air China, China Southern and China Eastern were more likely to switch to an alternate carrier, indicating lower levels of brand loyalty. In addition, the frequent flyer programs (FFPs) have been largely a failure for the four major airlines in terms of increasing customer loyalty, as revealed in this study. It is necessary to draw distinctions between business and leisure travellers when studying the determinants of customer satisfaction and customer loyalty. Ticket pricing had a positive and significant effect on passengers' overall satisfaction and in turn strengthened customer loyalty among leisure travellers, but achieved no impact on the satisfaction and loyalty of business passengers. Some demographic variables such as gender, income and education are statistically significant for one group of passengers but not for another in the probit models estimated. It is suggested that different marketing strategies may be used to target different market segments to improve customer loyalty.     

Temporal configurations of European airline networks

The deregulation of the US domestic airline industry resulted in the reconfiguration of airline networks into hub-and-spoke systems. In contrast to the US airlines, airlines in Europe already operated spatially concentrated networks long before deregulation. This concentration at the national home-base was the outcome of bilateral traffic rights designated to the national carrier. With a few exemptions, however, most of these star-shaped networks were not coordinated in time. Transfer opportunities at most national airports only existed by accident. Only airports that were operated as gateways to Europe provided planned connectivity between intercontinental flights and European feeder services. The deregulation of the EU market stimulated a second phase of airline network restructuring. European airlines concentrated their networks by adopting or intensifying wave-system structures (‘banks’ to use the US term) in their flight schedules. This paper investigates these post-deregulation temporal concentrations in European aviation networks. The development and configuration of wave-system structures at European airline hubs is analyzed as well as the resulting transfer opportunities during the 1990s. It is found that a temporal concentration trend exists among European airlines with deregulation resulting in the adoption or intensification of wave-system structures by airlines. These wave-system structures, as well as overall traffic growth, have significantly stimulated the number of indirect hub connections. Airline hubs with wave-system structures generally perform better because of the increased indirect connectivity given the number of direct connections.     

What are passenger perspectives regarding airlines' environmental protection? An empirical investigation in Taiwan

Many airlines recognize the importance of environmental protection. The airlines implement a number of environment-friendly activities related to in-flight services and wish to trigger passengers' support and therefore inquire as to their preferences. Because these activities are not identical between airlines, it is not known which items are actually supported and which items are opposed. In this paper, major airline environmental protection activities were collated, and the Smart partial least square software was used to analyse data from 442 passengers who have experienced air travel in the past 3 years. The results showed that in general, passengers would prefer to choose airlines that supported environmental protection activities. However, several activity items would be rejected if passengers felt their rights or interests being compromised. It was also indicated that people from countries at different stages of economic development had varying preferences regarding their support of airlines' environmental protection activities, and the young generation had more concern about environmental protection than others. The findings of this research could be beneficial for airlines setting up their differentiated marketing strategies for enhancing both environmental protection efforts and business performance.     

Characterisation of airline networks: A North American and European comparison

This paper contrasts the North American and European air transport markets using the extensive Official Airline Guide Databases. The pattern of network development in the two continental regions is examined using data for 1996–2008. The top ten carriers in both regions are analysed closely in terms of network structures and the basic geographical characteristics of these networks are highlighted. In addition, different measures of air transport activity such as seating capacity, and number of movements and of routes are compared. Visualisations of carrier networks are used to highlight the different network strategies operated by low cost and full service carriers. European carrier networks display many significant differences to North American carrier networks. European carriers generally organise their networks around one or two key nodes within the member state in which they are registered and generally do not operate interactive, continental-wide, multiple hub-and-spoke networks as do North American carriers. European and North American low-cost carriers operate much more interconnected networks than full services carriers. Southwest Airlines stands out as operating a particularly highly interconnected network.     

EU network carriers,low cost carriers and consumer behaviour: A Delphi study of future trends

This paper uses a Delphi panel of 26 air transport experts to forecast the structure of air transport in the EU in 2015 in respect of network carriers, low cost airlines and passenger behaviour. Secondary research was used to construct a number of scenarios about the future structure and strategy of EU network and low cost airlines and also traveller behaviour. Consensus of opinions was sought amongst the panel in a two-round process. The consensus opinion of the Delphi experts was that; network carrier consolidation will reduce EU players to less than five, there will be only two or three large low cost carriers, Business Class products will disappear on short hauls, and leisure travellers will take an increasing number of multiple short-duration holidays.     

Competing on value: Perspectives on business class aviation

This paper presents an airline consumer choice model to analyze value propositions – the benefits delivered to passengers in relation to the fares paid. The model is developed using a study of clientele flying business class, studying three premium start-up airlines Eos, MaxJet and Silverjet that provided business-class-only flights on London–New York routes. Premium airlines were compared to selected rival full-service carriers for sustainability of their business class value propositions, using preference profiles of five target customer groups that comprise the business class passenger population. We find that the three premium start-up airlines were superior in offering some appealing features at reasonable fares that were highly valued by some passengers, although they were unable to replicate some other attractive aspects in the value propositions of the incumbents. This suggests a coexistence of premium entrants and incumbent carriers would have been possible, had the environment they operated in not changed drastically for the worse, before the premium entrants had achieved the financial robustness necessary for survival.     

Consumer willingness to pay for in-flight service and comfort levels: A choice experiment

In the competitive aviation market as a result of the emergence of low cost carriers, charter airlines have had to reconsider their approach to service provision. Specifically, the reduction in service and comfort levels offered by the low cost airlines provides charter carriers with an opportunity to differentiate their product based on the quality of the offering. To consider this strategic option we employ an on-line choice experiment to examine consumer choices with respect to the bundle of services on offer when deciding to purchase a flight. With these data we use the Bayesian methods to estimate a mixed logit specification. Our results reveal that in principle passengers are willing to pay a relatively large amount for enhanced service quality.     

Network competition and the difference in operating cost: Model analysis

In this paper, we propose a bi-level air transport market model which can handle the shape of network, airfare and service frequency as airline’s control variables and passenger’s behavior. We apply the model to the simple duopolistic market and observe how airlines change their network shape. We assume two types of airlines, the incumbent and the entrant, having different operating cost and conduct numerical computation. From the results, we discuss the features of network equilibrium considering difference in operating cost and confirm that inviting low cost carriers contributes to improving social welfare.     

Legacy carriers fight back: Pricing and product differentiation in modern airline marketing

The adoption of the low-cost carrier business model has applied competitive pressure on established network or “legacy” carriers, by offering fares at prices that legacy carriers find it difficult to match and still cover their fixed costs. This paper reports how two medium-sized national airlines-Air New Zealand and Air Canada-have coped with the low-cost threat by, in effect, turning their fixed costs into profit centres. Features such as full regional networks, long-haul connections, frequent flyer programs, membership in global alliances, lounges and business class cabins can be bundled into products which can be marketed and sold profitably to business and even some leisure travellers, and which cannot be easily replicated by low-cost carriers. Although not panaceas, the innovations of Air New Zealand and Air Canada to the competition they face in their domestic and trans-border markets demonstrate the possibility of an effective legacy carrier response to the low-cost carrier business model.