The Impact of Airline and Customer Characteristics on - DRUM

257 Pages·2012·4.46 MB·English

ABSTRACT

Title of Document: The Impact of Airline and Customer
Characteristics on Airline and Airport Choice
Woohyun Cho, Ph.D. Candidate, 2012

Directed By: Professor Robert J. Windle, Ph.D.
Professor Martin E. Dresner, Ph.D.
Robert H. Smith School of Business
University of Maryland, College Park

The customer choice of a particular air flight is composed of two choice decisions in a
multi airport region. The customer chooses the airline and the airport that best meets
their needs. This dissertation is composed of two essays. The first essay examines the
airline choice decision and the second essay investigates the airport choice decision.

In the first essay the focus is the impact of airline operational quality among airline
characteristics. This may include nonstop flight services, service frequency, on-time
operations, etc. These factors contribute to the overall utility of airline service.
Improvements in operational quality can lead to increases in reliability and convenience.
As a result customers will choose airlines that offer higher levels of operational quality.
Particularly, some customers are more sensitive to operational quality based on their
unique characteristics and tend to have stronger preference for the airlines that provide
higher levels of operational quality.

This essay examines the following three issues; (1) the impact of operational quality on
customer’s choice of airline, (2) the moderating role of operations exposure (i.e., the
extent to which customers are exposed to service operations) on customer choice, and (3)
the moderating effect of customer characteristics on operational quality.

The second essay looks at the impact of Low Cost Carrier (LCC) presence at airports and
focuses on the following issues: (1) the impact of LCC presence on a route (after
controlling for the impact of fares and service frequencies) on a customer’s choice of
airport, (2) the moderating effect of customer demographic characteristics on airline
characteristics, and (3) the moderating role of the customer’s geographical location on a
customer’s choice of airport.

Both of these essays will utilize survey data collected from the customers departing from
the three airports in the Washington Metropolitan Area. This data includes customers’
choice of airline and airport along with extensive information on each customer including
trip related information and demographic information.
The Impact of Airline and Customer Characteristics on Airline and Airport Choice

By

Woohyun Cho

Dissertation submitted to the Faculty of the Graduate School of the
University of Maryland, College Park, in partial fulfillment
of the requirements for the degree of
Philosophical Doctor
2012

Advisory Committee:
Professor Robert J. Windle, Co-chair
Professor Martin E. Dresner, Co-chair
Professor Thomas M. Corsi
Professor Yan Dong
Professor Paul M. Schonfeld
© Copyright by
Woohyun Cho
2012
Dedication

To God: Without the strength, wisdom, and grace bestowed upon me by God, this
dissertation would not have been possible.
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Acknowledgements

The writing of this dissertation has been the most significant challenges I have ever had
to face in my doctoral program. I would never have been able to finish my dissertation
without the guidance of my advisors, my committee members, help from staff, friends,
and support from my family and wife.

I would like to express my deepest gratitude to my advisors, Bob Windle and Martin
Dresner, for their excellent guidance, caring and patience during the program. I was
extraordinarily fortunate in having both not only as academic advisors but also as great
teachers and mentors who provided invaluable advices in every one of the hundred
meetings we had, resulting in fruitful learning processes.

I would also like to thank the professors, Tom Corsi, Curt Grim and Phil Evers for
creating and handing down a great learning atmosphere throughout the LBPP Department
at the Robert H. Smith School of Business. What they taught me ultimately shaped and
contributed to all my research (particularly, thank you, Tom for driving me home when
needed). Special thanks go to Yan, who provided tips and encouraged me in every
situation.

I would like to thank Dr. Schonfeld from the A. James Clark School of Engineering for
kindly agreeing to serve on the dean’s representative committee member and generously
sharing his expertise and thoughts.

My research would not have been possible without help and support from Diane Fox and
Justina Blanco. Without them, this program would not be as smooth as it is now.

Many thanks go to all my doctoral student colleagues who were willing to help and to
give their best suggestions as good friends. It would have never been an enjoyable
program without them. Thank you, John, Dina and Fisher, for your encouragement.

I will not forget the time I spent with my church members in faith, which kept reminding
me of how thankful I was for being and why I was in the program.

Last but not least, my deepest thanks with all my heart are saved for my parents, my
parents in law and my kids (Yehum and Yewon). They were always supporting me with
their prayers. Finally, I would like to thank my wife, Kyounghye. She was always there
standing by me through the good times and bad times, travelling a life journey together as
my friend.
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Table of Contents
Dedication ........................................................................................................................... ii
Table of Contents ............................................................................................................... iv
List of Tables ..................................................................................................................... ix
List of Figures .................................................................................................................... xi
Chapter 1 Overall Introduction ...................................................................................... 1
1.1 Introduction ................................................................................................... 1
1.1.1 Airline Choice ............................................................................................... 1
1.1.1.1 Airline Operational Quality .......................................................................... 1
1.1.1.2 Operations Exposure ..................................................................................... 2
1.1.2 Airport Choice .............................................................................................. 2
1.1.2.1 LCC Presence Impact at Airports ................................................................. 2
1.1.2.2 Other Features of Low Cost Carriers ............................................................ 3
1.1.3 Customer Characteristics .............................................................................. 7
1.2 Research Question ........................................................................................ 7
1.3 Theoretical Framework ................................................................................. 9
1.3.1 Airline Choice ............................................................................................... 9
1.3.2 Airport Choice ............................................................................................ 12
1.4 Contribution to the Literature ..................................................................... 18
Chapter 2 Literature Review........................................................................................ 22
2.1 Airline Choice ............................................................................................. 23
2.2 Customer Operations Exposure .................................................................. 26
2.3 Airport Choice ............................................................................................ 28
2.3.1 Airport Accessibility ................................................................................... 29
2.3.2 Flight Service Schedules ............................................................................. 32
2.3.3 Fares ............................................................................................................ 33
2.4 LCCs Operations ......................................................................................... 34
2.4.1 Focused Service Carriers ............................................................................ 35
2.4.2 Full Service Carriers ................................................................................... 36
2.5 Impact of LCC Presence at Airports ........................................................... 37
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2.6 Choice Models ............................................................................................ 41
2.6.1 Development of Choice Models ................................................................. 42
2.6.2 Variable Choice Set .................................................................................... 44
2.7 Summary ..................................................................................................... 46
Chapter 3 The Impact of Airline Operational Quality on Airline Choice ................... 47
3.1 Introduction ................................................................................................. 47
3.2 Background ................................................................................................. 52
3.2.1 Motivation ................................................................................................... 52
3.2.2 Airline Operational Quality ........................................................................ 53
3.2.3 Customer Characteristics ............................................................................ 55
3.2.4 Research Questions ..................................................................................... 58
3.2.5 Contribution ................................................................................................ 59
3.3 Literature Review........................................................................................ 60
3.3.1 Airline Choice Determinants ...................................................................... 61
3.3.2 Customer Characteristics ............................................................................ 64
3.3.2.1 Operation Characteristics ............................................................................ 64
3.3.2.2 Demographic Characteristics ...................................................................... 67
3.4 Hypotheses .................................................................................................. 68
3.5 Data Sample ................................................................................................ 72
3.5.1 Source ......................................................................................................... 72
3.5.2 Sample Analysis.......................................................................................... 76
3.6 Model .......................................................................................................... 84
3.6.1 Model Specification .................................................................................... 84
3.6.2 Measurements ............................................................................................. 91
3.6.2.1 Dependent Variables: .................................................................................. 91
3.6.2.2 Independent Variables ................................................................................ 91
3.6.2.2.1 Airline Characteristics ................................................................................ 91
Nonstop Service Frequency (FQ) and Presence Dummy (FQD)................ 91
On-Time Performance (OT) ....................................................................... 92
Fares ............................................................................................................ 94
3.6.2.2.2 Customer Characteristics ............................................................................ 97
Income (INC) .............................................................................................. 97
Business Trip Purpose (BUSI) .................................................................... 98
Travel Companions (COM) and Checked Bags (BAG) ............................. 99
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3.7 Analysis and Results ................................................................................... 99
3.7.1 Summary Statistics...................................................................................... 99
3.7.2 Choice Model Results ............................................................................... 102
3.7.3 Hypotheses Results ................................................................................... 112
3.8 Discussion ................................................................................................. 116
3.9 Conclusion ................................................................................................ 122
Chapter 4 Low Cost Carrier (LCC) Impact on Airport Choice ................................. 126
4.1 Introduction ............................................................................................... 126
4.1.1 Three Main Determinants in Airport Choice ............................................ 128
4.1.2 Low Cost Carrier (LCC) ........................................................................... 128
4.1.2.1 LCC’s FARE and Nonstop Flight Frequency ........................................... 129
4.1.2.2 LCC’s Other Features ............................................................................... 130
4.1.3 Customer Characteristics .......................................................................... 133
4.1.4 Research Question .................................................................................... 136
4.1.5 Contribution .............................................................................................. 136
4.1.6 Managerial Implications ........................................................................... 137
4.2 Literature Review...................................................................................... 138
4.2.1 Airport Choice .......................................................................................... 138
4.2.1.1 Accessibility .............................................................................................. 139
4.2.1.2 Flight Frequency ....................................................................................... 140
4.2.1.3 Fare ........................................................................................................... 142
4.2.2 Impact of LCC Presence at Airports ......................................................... 143
4.2.2.1 LCC’s Fare and Nonstop Flight Frequency .............................................. 143
4.2.2.2 LCC’s Features Other than Fare and Nonstop Flight Frequency ............. 144
4.3 Hypotheses ................................................................................................ 146
4.4 Data ........................................................................................................... 150
4.4.1 Data Source ............................................................................................... 150
4.4.2 Sample Routes .......................................................................................... 153
4.4.2.1 City Pair for Destination ........................................................................... 153
4.4.2.2 Market Size ............................................................................................... 154
4.4.3 Survey Sample Analysis ........................................................................... 159
4.5 Model ........................................................................................................ 161
4.5.1 Model Specification .................................................................................. 161
4.5.2 Measurement ............................................................................................. 166
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4.5.2.1 Dependent Variable .................................................................................. 166
4.5.2.2 Independent Variables .............................................................................. 166
4.5.2.2.1 Airport Characteristics .............................................................................. 166
Nonstop Service Frequency (FQ) ............................................................. 166
Fare (FARE).............................................................................................. 167
Presence of LCC ....................................................................................... 168
Access Time (ACCESS) ........................................................................... 168
4.5.2.2.2 Customer Characteristics .......................................................................... 169
Income (INC) ............................................................................................ 169
Business Trip Purpose (BUSI) .................................................................. 170
Geographical Distance Gap to the Closest Alternative Airport (GAP) .... 170
4.6 Analysis and Results ................................................................................. 171
4.6.1 Summary Statistics.................................................................................... 171
4.6.1.1 Airport Choice Determinants .................................................................... 171
4.6.1.2 Customer Characteristics .......................................................................... 174
4.6.2 Choice Model Results ............................................................................... 176
4.6.2.1 Impact of Airport Choice Determinants ................................................... 176
4.6.2.2 Moderating Impact of Customer Characteristics ...................................... 178
4.6.2.3 Correlation between Customer Characteristics (Income and Business) ... 182
4.7 Discussion ................................................................................................. 183
4.7.1 Hypothesis Results .................................................................................... 183
4.7.2 Predicted Probability ................................................................................. 187
4.7.2.1 Base Case .................................................................................................. 187
4.7.2.2 The Impact of Customer Characteristic Change ....................................... 188
Change in Airport Access Time ................................................................ 188
Change in Trip Purpose (Leisure and Business) ....................................... 190
4.7.2.3 The Impact of Airport Choice Determinants ............................................ 190
Change in Nonstop Flight Frequency (FQ) .............................................. 192
Change in Fare (FARE) ............................................................................ 192
Change in Airport Access Time (ACCESS) ............................................. 193
Change in LCC Presence (LCC) ............................................................... 193
4.8 Conclusion ................................................................................................ 194
Chapter 5 Summary and Conclusion ......................................................................... 198
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