Institute of Hospitality Management in Prague Akmaral Berikova Bachelor dissertation

 
Institute of Hospitality Management in Prague Akmaral Berikova Bachelor dissertation
Institute of Hospitality Management in Prague

                        Akmaral Berikova

Comparative Assessment of Customer service in High-Cost Airline Industry

                       Bachelor dissertation

                                 2018
Comparative Assessment of Customer Service in High-Cost Airline
                          Industry

                                  Bachelor dissertation

                                  Akmaral Berikova

                 Institute of Hospitality Management in Prague

                                Hospitality Management

Major field of study: Hospitality Management
Dissertation advisor: Ing. Martin Petříček, Ph.D.
Date of submission: 2018-04-26
Date of defence: 2018-06-03

Email: akmaral.berikova@gmail.com

                                       Prague 2018
Oath

I swear
that the bachelor dissertation titled Comparative Assessment of Customer Service in
High-Cost Airline Industry was written by me independently, and that all literature and
additional material used are cited in the bibliography and that this version is exactly the
same as the work submitted electronically.

In accordance with §47b law no. 111/1998 coll. on higher education institutions, I agree
to my dissertation being published in its complete form in the publicly accessible
electronic database of the Institute of Hospitality Management in Prague.

                                                     Signature

                                                     ……………………………………
                                                      Akmaral Berikova

In Prague on 26.04.2018
Abstract

BERIKOVA, Akmaral. Comparative Assessment of Customer Service in High-Cost Airline
Industry. [Bachelor dissertation] Institute of Hospitality Management in Prague. Prague
2018 50 Pages

This work deals with full-service airlines focusing on their customer service level. The aim
of this thesis is to analyse the relation between the ownership style of airline and if it
effects their customer service level. The theoretical part of this work gives an overall
understanding of the industry and its place today. The research focuses on comparison of
customer service level of top 20 full- service airlines using Fuller’s Triangle method. To
support the research the author compares Top 20 airlines according to Skytrax for last 6
years.

In the process of the research it was discovered that the service level of top 20 airlines
chosen for the research were not directly depending on their ownership style but rather
the financial support that they are getting. However, during the research in regard to the
ownership style of other airlines in the market the ownership style had influenced their
service level, showing that privatized airlines were delivering lower standards to their
travellers but having a better impact on the airline giving more revenue. According to the
findings, the author has presented some recommendations on how to improve the
research quality and study this field more in depth.

Key words: Airlines, Deregulation Act, Customer service, Full-service Airlines, Service
quality
Abstract

BERIKOVA, Akmaral. Comparative Assessment of Customer Service in High-Cost Airline
Industry. [Bachelor dissertation] Institute of Hospitality Management in Prague. Prague
2018 50 Pages

Téma této práce jsou letecké společnosti a jejích zaměření na úroveň služeb a servisu vůči
zákazníkům. Cílem této práce je analyzovat vztah mezi stylem vlastnictví letecké
společnosti a její efektivností. Teoretická část této práce dává celkový přehled o vývojí
tohoto průmyslu a jeho dnešním stavu. Výzkumná část práce se zaměřuje na porovnání
úrovně služeb zákazníkům s 20 nejvýznamnějšími leteckými společnostmi pomocí
Fullerové srovnávácí formuly aneb. „Fullerův trojúhelník“. Těmito leteckými společnostmi
jsou ve výzkumu Top 20 aerolinek podle žebříčku Skytrax za posledních 6 let.

V průběhu výzkumu bylo zjištěno, že úroveň služeb nejlepších 20 leteckých společností
není přímo závisla ani na stylu vlastnictví, ani na finační podpoře, kterou dostávájí. Během
výzkumu týkajícího se vlastnického stylu ostatních leteckých společností na trhu se zjistilo,
že jejích vlastnictví přece jen ovlivňuje úroveň služeb, což ukazuje, že privátní letecké
společnosti sice mají nižší servisové standarty, ale na druhou stranu přináší větší výnosy.
Jako závěr autor předložil několik doporučení, jak zlepšit kvalitu výzkumu a studovat tuto
oblast hlouběji.

Klíčová slova: letecké společnosti, zákon o deregulaci, zákaznický servis, letecké
společnosti s plným servisem, kvalita služeb
TABLE OF CONTENTS
Introduction ...................................................................................................................... 8
1 Theory .......................................................................................................................... 10
   1.1 Literature Overview ............................................................................................... 10
   1.2 Airline Industry ...................................................................................................... 13
   1.3 Airline Classification ............................................................................................... 15
   1.4 Airline Deregulation Act ......................................................................................... 17
   1.5 Airline Privatization ................................................................................................ 18
   1.6 Airline Alliances ...................................................................................................... 18
   1.7 Open Skies Agreement ........................................................................................... 20
   1.8 Airports .................................................................................................................. 20
   1.9 Customer Service ................................................................................................... 22
2 Methodology ................................................................................................................ 29
   2.1 Research Approach ................................................................................................ 29
   2.2 Fuller’s Triangle Method ........................................................................................ 29
   2.3 Research Method ................................................................................................... 30
   2.4 Data Analysis .......................................................................................................... 32
3 Analysis and Results ..................................................................................................... 34
4 Conclusion and Recommendations ............................................................................... 41
   4.1 Conclusion ............................................................................................................. 41
   4.2 Recommendations for Future Research ................................................................. 43
Bibliography .................................................................................................................... 44
List of Figures and Tables:

Figure 1: Leading airline group worldwide in 2016………………………………………………………….14

Figure 2: Airline Alliance market share……………………………………………………………………………19

Figure 3: Measuring Service effectiveness using SERQUAL Model…………………………………..24

Figure 4: Worldwide airline industry……………………………………………………………………………….26

Table 1: Paired comparison analysis matrix…………………………………………………………………….31

Table 2: Top 20 Airlines and star ratings by SKYTRAX………………………………………………………33

Table 3: Evaluation of service of Top 20 airlines applied Fullers Triangle method……………35

Table 4: Airlines ownership showed in percentage in relation to ratings for last 6 years…37
List of Abbreviations

CAB - Civil Aeronautics Board

IATA - Air Transport Association

ICAO - International Civil Organization

MCDM – Multiple Criteria Decision Making

O&D - Origin and Destination

SARS - Severe Acute Respiratory Syndrome
Introduction

In today's world, at a time when traveling around the world have become large-scale, the
role of air transport has increased substantially as the fastest means of transport over
long distances. Especially the air transportation plays a big role in the implementation of
mass tourism. Its rapid development in the middle of the last century required the
creation of aircraft that meet various travel goals and have a high level of comfort. On
board of aircrafts and at airports, passengers are often offered a big variety of goods and
services, making travel pleasant and accessible to a wide range of people.
       The main factor of service, regardless of the types of transportation is the quality
of passenger service. In a market economy, the quality of a service, like any other
product, is the determining factor for its competitiveness, as well as in aviation industry.
The world practice shows that it is impossible to ensure the high quality of tourist
transportation by the criteria of ensuring safety and regularity of flights, the culture of
servicing tourist groups, as well as environmental protection within a market economy,
without airline activities being controlled by the state.
       Airline industry has developed immensely in the last few decades and continuing
to rapidly grow and develop as a business that delivers great profit. It has grown from
being a way of transportation to becoming a hotel in the air providing same services and
having the same concept as hotels on the ground.
       The main hypothesis of this work is that airlines that are owned by the
government of the country usually have better financial support from the government by
subsidies, therefore tend to deliver higher standard of service quality. As the main airline
of the country is usually their flag carrier and represent the country and its reputation in
the market. Such airlines pay more attention to their service delivery and overall airline
ranking is higher. Considering these and many other factors the primary research part of
this thesis will be focusing on answering questions such as if financing those airlines
affects the main service quality level? How does it affect the customer service quality and
what factors should be considered while analyzing and comparing service quality?

                                               8
The main purpose of this work is to analyze the technology of providing services in
high cost airlines. The work shall focus on comparison of full service airlines. Moreover,
analyzing the main theory of airlines owned by government or being privatized influences
the service quality. What areas of the industry and laws in the past have had an effect on
airline industry and if it had played a role in affecting service quality in general.
       The theoretical part of this dissertation shall focus on understanding of the airline
industry as whole from where it begins to where it has come today. It shall focus on giving
an overall understanding of the industry and focusing on giving the reader the basic
understanding towards the main hypothesis. The empirical part shall address the research
question mentioned above, and hypothesis stated in the following chapter, as well as
analysing service delivery level in full service airlines, by means of multi criteria decision
making analysis using Fuller’s triangle method.
       Airlines have started off by being only government owned till the 1978
Deregulation Act has changed airline industry from political to market share. (Fred L.
Smith Jr. and Braden Cox, 2008) This deregulation act has given a lot of airlines to lower
their costs and increase their sales and destinations opening up to new market.
Considering that it has lowered service levels drastically because of the rise of
competition in the market and a race behind profit. Another key thing to remember that
airlines have a lot of other means of funding through investments and profit inflows
which will not be mentioned in this thesis. Despite above mentioned and considering
such factors this dissertation shall focus only on relation between service level and
ownership style of the airlines.

                                                9
1 Theory

The following section will more closely examine the topic by giving bases for
understanding the main idea. The main objective of this chapter is to introduce a reader
to airline industry as a research field by means of using a scientific research method.
Continuing the discussion on customer service and the importance of its quality level in
the industry focusing on high cost airlines. There are many studies focused on the
importance of customer service and customer satisfaction, however, due to the large
number of theoretical data, this chapter shall only focus on relevant aspects focusing on
high cost airlines. This section will be consisting of literature overview, main
understanding of airline industry focusing more on full service airlines, will talk about
airline Deregulation and how it has affected airline industry, customer service and its
quality, airline financial performance and SKYTRAX.

1.1 Literature Overview
The main piece of literature that was used to draft this thesis is The Good Research Guide
for Small-Scale Social Research Projects by Martyn Denscombe. The book takes a detailed
view on a number of various approaches and methods that are often applied while
conducting a research. Its main purpose is to introduce the reader to basic strategies of
analysis, observations, and theories that can be utilised in a comprehensible research
development, be it a short paper, or a university dissertation.

       The most useful part of the book was a clear and well-elaborated distinction
between quantitative and qualitative data and their use in analysis. Considering that
customer service in airline business is a quite ambiguous topic and its accurate
measurement requires both statistical and empirical data (e.g. customer reviews and
feedback), it is important to keep track of both choices of analysis data as it offers a more
in-depth view on the whole topic of airline services.

       Furthermore, the work offers an insight and better understanding of a case study
approach, which is a crucial aspect for this research given its nature (a comparative case
study of multiple airlines). In addition to that, it helps understand the overall significance
                                              10
of surveys, questionnaires, interviews, and experiments, and their role in gathering data
for an academic paper.

       Aside from the aforementioned factors, the largest contribution this book has
made to the writer is guidance through their choice of a research method which was
eventually used to collect data and information necessary for a successful analysis and
completion of this thesis.

       The next book that was used as a source of information for this thesis is The
Global Airline Industry by Peter Belobaba and Amedeo Odoni. Its main objective is to
provide the reader with an in-depth understanding of airline industry and its importance
in the global economy and tourism, international business, and day-to-day lives of people.

       The authors of the book discuss a number of important topics and aspects of the
global airline industry and provide its brief history, main benefits and drawbacks on a
global scale, and numerous statistics and data. According to the authors, airline industry
has a direct influence on several other industries, such as aircraft manufacturing, tourism,
and international trade which have all been increasingly growing along with the airline
business.

       In addition to that, the authors point out the significance of global politics and
economy and its direct impact on the airline industry. According to them, the industry has
often been affected by an unstable political or economic situation in the world, such as,
for instance, terrorist attacks on 11 September 2001, Global stock market crisis in 2008, or
the first Gulf War in 1991 and the subsequent oil crisis.

       Furthermore, the work provides a very useful description of aviation security
standards and passenger processing on commercial carriers. Knowledge of such
mechanisms leads to a better understanding of main aspects of airport and aircraft
security, customer service management, and labour distribution.

       The next book in the overview is Airline Marketing and Management: Sixth Edition
by Stephen Shaw. It provides the reader with a series of fundamental concepts,

                                             11
definitions, and strategies, along with cost and customer management overview with
respect to the airline industry.

        In his work, Stephen Shaw points out the overall importance of marketing in the
airline business and an effect that successful application of appropriate marketing
principles can have on full-service airlines. A number of various strategies and theories
are also mentioned in the book, along with advertisement and promotional practices
used broadly in the business and designed specifically to attract new customers.

        The book also briefly covers the Airlines Deregulation Act from 1978, airline
privatization and their impacts on the industry and airline funding, analyses how political
and economic factors affect growth of airline business, and explains important concepts
such as target market, brand-building process, cost leadership, legacy airlines, and many
more. It also provides the reader with a general background of the airline industry and
the changes it has undergone since the Deregulation Act.

        Last but not least, thanks to this book, the writer was able to grasp the basics of
customer service strategies and quality management that were later used to discuss the
significance of service quality in full-service airlines and how it differs in each airline.
Appropriate customer-relation strategies can be very helpful when an airline wishes to
attract more potential customers and retain the existing ones.

        Another piece of literature used for this thesis is Airline Operations and
Management by Gerald N. Cook and Bruce G. Billig, which mainly focuses on operations
and control of air transportation, distinguishes the main processes on the ground and on
board and their main differences, and discusses flight and aircraft management in the
airports.

        The authors offer a brief background of airline and aircraft development and how
they have changed throughout the years, including the aforementioned Deregulation Act,
its implementation in the US, Europe, and Asia, and the subsequent results and impacts
on airline industry. Apart from that, the book discusses the changes that occurred in the
airport development as a result of economic and political factors.

                                                12
Furthermore, the book emphasizes the importance of strict planning and strategy-
development when it comes to flight operation. It uses a several airline case studies in
order to compare their business models, policies, and important factors such as customer
service, product management, frequent-flyer bonuses, and their revenue.

       Moreover, the work has been a great contribution to this thesis thanks to its in-
depth analysis of financial and economic aspects of airlines, such as their profit margin,
taxation, rental expenses, government/private funding, and operating costs of aircrafts.

       Aside from the aforementioned books, several websites have been used as source
of information for this thesis. The sources are as follows:

       Skytrax.com – used as a statistical foundation for the research, namely airline and
airport ratings based on reviews of travellers.

       IATA.com – an official website of International Air Transport Association which
produces all the fundamental and most recent data about airlines and represents 82% of
total air traffic. The website was used primarily for airline facts and financial data, which
form a large bulk of the theoretical part of this work.

       ICAO.com – stands for International Civil Aviation Organization, the source of a list
of government owned and privatized airlines used for the research.

Statista.com – source of revenue and profit statistic and market share of airline alliances
figures.

1.2 Airline Industry

Airlines has become much more than just a mean of transportation for people and
products. After the end of First World War it has started to really grow as a business and
the beginning of an expansion. Since 1978 deregulation airlines worldwide open for the
private market has made cost efficiency, operating profitability, and competitive
behaviour to be their dominant issues faced by the management. (MIT, 2007) Today this
industry has become one of the biggest and fastest growing industries in the world taking

                                              13
almost 11 per cent of consumer spending, making profits up to 38.4$ billion as of 2018.
(Statista, 2018), (Carlisle, S. and Hanlon, P. 2007) The Chart shows leading airline groups
worldwide in 2016, based on their revenue (in Billion U.S. dollars). (Statista, 2018) As it is
displayed on the chart most profitable airlines have been American Airlines followed by
European Lufthansa Group and Air France-KLM. Despite the fact that American Airlines is
very weak in their service quality and have the lowest American Consumer Satisfaction
Index, regardless they are leading in making profit. (Aimee Pichi,2016)

Figure 1: Leading airline group worldwide in 2016 (source: The Statistics Portal)

       According to The International Air Transport Association (IATA) there was an
increase of 7 % from year 2015, showing additional two hundred forty-two million air
trips worldwide. (IATA, 2017) The industry has provided a lot of workplaces all around the
world as well as being a big contribution to the governments economy. This market is
divided to domestic 36 per cent and international 64 per cent. (IATA, 2017)

       “Last year airlines safely carried 3.6 billion passengers—the equivalent of 48% of
the Earth’s population—and transported 52.2 million tonnes of cargo worth around $6

                                              14
trillion. In doing so, we supported some $2.7 trillion in economic activity and 63 million
jobs,” said Tony Tyler, IATA’s Director General and CEO. (IATA, 2016)

       There has been a stable demand for air travel worldwide despite events such as
September 11 terrorist attacks in New York, SARS epidemic outbreak in Asia in 2002-2003
and financial crisis in years 2007 to 2009 etc. all these and other factors has affected
airline industry only temporarily result being human fear of air transportation or
withholding certain geographical places. Moreover, other factors affect the demand for
air travel such as seasonality with heavy increase during holiday seasons with addition
changes in time of the day and days of the week. Travelers around the world have
different opportunities and different income levels, considering such factors there are
different airline classifications delivering different goods and service levels.

1.3 Airline Classification

There are different classifications that this industry has according to prices, services,
products, and experiences that they offer.

   Full – service carriers (FSCs) They have different aircrafts available for traveling to
   wide range with a hub-and-spoke network, as well as a wide range of O&D. Full-
   service airlines have a long-established history and usually carry a flag of their country
   of origin. In European countries most of the former national carriers operate as a Full-
   Service Network Carrier. (Analyses of the European air transport market, 2008) They
   offer a very different product range before the flight and onboard services than other
   carriers. It offers onboard entertainment, airport lounges, checked baggage, meals,
   beverages and comforts like blankets and pillows included in the ticket price.
   Passengers of a full-service airline usually offered a choice of economy and business
   class travel and on some aircrafts first class and premium economy class. The seats
   usually have more leg room and recline more, some business or first class offers an
   option of on board bed. (AirlineRatings, 2018)

                                              15
There are various commercial and legal reasons for airlines to use hub-and-spoke
networks. As the number of O&Ds offered rises, load factors do the same, yielding
lower unit costs per passenger (economies of density). If higher demand justifies the
use of larger equipment, unit costs per seat decline (economies of scale). This
phenomenon explains why the largest aircraft, Boeing 747, and Airbus 380, mainly fly
between hubs where traffic volumes tend to be extremely high. In addition,
economies of scope can be achieved through the centralised provision of e.g.
maintenance facilities, personnel and back up aircraft at the hub. From a marketing
and strategic view, the bundling and reallocation of incoming and outgoing airline
passengers at the hub airport enables the airlines to serve significantly more O&D
markets with a given amount of flights. In addition, hub carriers tend to gain market
power on their respective hubs, allowing them to reduce competition and to charge
so-called hub premiums, i.e. higher fares for passengers originating from the hub than
for transfer passengers and for passengers on similar routes that do not include the
carrier’s hub. In Europe, this aspect is of special relevance as capacity constraints at
the largest hubs and the established slot allocation mechanisms (grandfather rights)
hamper the entrance of new carriers additionally. (Analyses of the European air
transport market, 2008). A hub-and-spoke system means that the aircrafts go back to
their home airport (a hub), and from there they go to the other routes (spokes).
(Gillen David, 2006)
Low – cost carriers (LCCs) They are focused on cutting costs in order to strive for
leadership in a market they serve. Low-cost carriers often fly with medium-sized
aircrafts (mainly Boeing 737-700/800 or Airbus 319/320). Usage of smaller aircrafts
often lead to reduction of fuel usage, fleet members, maintenance fees, and in case of
large orders with discounted price – capital costs. In regard to this low-cost carrier
have lower prices and often offer huge discounts on prices booked long in advance.
These carriers usually focus on point-to-point flights and without any connections.
Regional carriers (RCs) Regional airlines, also called commuter airlines or feeder
airlines, generally use smaller aircraft with 20-100 seats and restrict their flight routes
to a geographically limited area. While some regional carriers operate independently
                                          16
and focus on decentralised point-to-point flights between smaller airports, others
   work as feeder airlines for FSNCs and connect their partner airline’s hub with regional
   airports in the hinterland. (Analyses of the European air transport market, 2008)
   Holiday carriers Holiday or leisure carriers are airlines that focus on the transportation
   of tourists. In the past, the term “charter airline” was widely used to describe these
   airlines as most holiday flights were then not sold directly by the airline to the
   passengers but were included in charter packages offered by tour operators.
   Nowadays, however, many holiday flights are operated as scheduled, albeit often
   seasonal services. (Analyses of the European air transport market, 2008)

1.4 Airline Deregulation Act
On October 24th, 1978 President Jimmy Carter signed the Airline Deregulation Act,
allowing airlines being privatized. This new law has changed the airline industry forever.
Before the Deregulation Act, things such as fares, routes, market entry of new airlines
were controlled by the government only. This has made it nearly impossible for new
airlines to enter the market, a lot of them could not maintain high costs and lower profits.
The Deregulation coming in act it resulted in rise of new kind of airline – the low -cost
carriers (LCC). (Madhu Unnikrishnan, 2015) Commercial airlines being open to a free
market has led to an increase number of flights, increasing the competition among them,
reduction of fares, a rise in number of passengers and increase in miles flown. The
deregulation has immediately transformed airline networks from linear point-to-point
system created by Civil Aeronautics Board (CAB) into a hub-and-spoke network. (Bailey,
E., 1985)

Furthermore, with the new deregulation in act airlines have had much more competition
and had lost its focus on service delivery. This resulting in service levels going very low
especially these affecting American airlines. As the fares has increased many airlines such
as Pan Am, Eastern Air Lines, Braniff International couldn’t compete and had left the
market. Before the deregulation airlines had no competition as fares were and many
other things were regulated by the state they were focused on service alone. The era was
remembered as the “golden age of aviation” when flight attendants used to wear white
                                              17
glows, serving chateaubriand on a silver carts and airlines had piano lounges in the upper
deck of their Boeing 747s. Passengers used to dress up to travel on a plane, and flying was
considered glamorous and exciting, and mainly for the people who could afford such
luxuries. (Madhu Unnikrishnan, 2015)

1.5 Airline Privatization

With the Airlines Deregulation Act in 1978 airlines were open to new market, this allowed
to airlines work as a private entity and earn profit. This meaning of airlines had the
freedom to be open for investments in the stock market. In America the deregulation has
had a heavy impact on airline industry having existing airlines go bankrupt and forming
new privately-owned airlines. This resulted in many positive factors affecting the
economy of the country by opening new destinations and reducing prices. Today many
airlines are government owned, privately owned, or have mixed public-private ownership.
Over the last 15 years a lot of government owned airlines have been privatized. The
reason is to increase financial performance of the airline. (Yin, Kwong-sang, 2017) in
European countries many airlines have chosen to be privatized, now operating as full-
service network carriers. For instance: Air France/KLM, Lufthansa, British Airways, Iberia,
Austrian Airlines, etc. USA is the only country that has a big number of fully privatized
airlines while Asia has the least of privately owned airlines. Despite the advantages of
privatization full service airlines in Middle East are remaining to be government owned
and do not see the need for privatization, the reason for this strong support of subsidies
($42 billion US over the last decade) received from the government. This big advantage of
airlines from Middle East had shook up American Airlines as it enabled to lower their
prices for their customers. (Reportlinker, 2016) However, US airlines still remain at the
top of list by being the most profitable airlines.

1.6 Airline Alliances

The real customer service expansion has happened when airline alliances has developed.
Nowadays there are several main alliances that currently exist. Their main purpose of

                                              18
forming was to “take passengers to every city on earth.” (Hopper, 2014) The advantage is
to offer passengers bigger range of travel possibilities through sharing agreements
between airlines and making booking easier. For travellers, the most obvious effect of
airline alliances is code sharing whereby one airline will sell a seat on a flight with its own
flight number, but the flight is performed by a different airline this enables moving
between connections faster and more efficient. (WikiVoyage, 2018) Moreover, the
alliance gives the airlines benefits of having lower operational costs, joint marketing,
frequent flyer benefits, baggage handling etc. However, there are airlines that prefer to
work independently ad not to have any alliances example being Emirate, Qatar etc.

The figure below depicts the market share statistics of the leading global airline alliances
in 2016, based on revenue passenger kilometres. In that year, Star Alliance was at the top
of the list, with a market share of 23.8 percent, followed closely by SkyTeam, with 20.6
percent. (Statista, 2018)

Figure 2: Airline Alliance market share (source: The Statistics Portal)

                                              19
1.7 Open Skies Agreement
The Open Skies agreement was established in 1992 between United States and European
Union. It’s an agreement that provides the rights for airlines to provide international
passenger and cargo services. This agreement allows any airline of United States to fly
between any points in the European Union, as well as all the European Union are allowed
to fly between the United States. In that agreement there are over 120 foreign partners
as of today. Recent Open Skies agreements include Ukraine, Serbia, Cote d’ Ivoire,
Seychelles, Togo, Azerbaijan, Curacao (Kingdom of the Netherlands), Saint Vincent and
the Grenadines, the Republic of Congo (Brazzaville), and a modernized air transport
agreement with Mexico. (U.S. DEPARTMENT OF STATE, 2017) As of today more than 70%
of United States flights now fly to Open Skies partners, which represents US airlines top
20 passenger market. United States has an Open Skies Agreement with countries with
different economic developments, with major economies are Canada, India, Japan, and
Republic of Korea as well as small countries such as Cabo Verde, Rwanda, and Brunei.
Open Skies Agreement between United States and European Union is believed to have its
benefits such as drop in fares and increase in passenger flow. Increase in transatlantic
travel by 11 million passengers a year which is 24% higher before the agreement. As well
as increase intra-EU travellers up to 35.7 million passengers a year this being 14%
additional. Increase economic output in directly related industries from $3.6 billion up to
$8.1 billion a year. (FLIGHT AIRLINE BUSINESS, 2003)

1.8 Airports

Provided that, the main topic being customer service in airlines the author has discovered
that it would be relevant for the study to mention the hub airlines a that is where airlines
start. When mentioning customer service quality every traveller starts to pay attention to
the main highlights of every airport since that’s where everyone faces customer service at
first. Ground service of every airport is on itself a very big industry and requires separate
attention which will be irrelevant for this thesis to get in to details.

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There are currently 17,678 commercial airports worldwide, those receiving cargo,
passenger aircrafts as well as business aircrafts. If counting both civilian and military
airports the number rises up to 41,788 worldwide, United States leading the list.
(Aeronewstv, 2015)

All full-service carriers have a hub-and-spoke system where every flight has to pass the
hub airport of the airline. there are many large hub airports depending on the passenger
flow. Among those that ranked the highest are:

       Hartsfield-Jackson Atlanta International Airport located in Atlanta, Georgia is
       considered to be the biggest airport according to the passenger flow totalling
       103,902,992.
       Beijing Capital International Airport located in Chaoyang-Shunyi, Beijing is the
       biggest Chinese airport.
       Dubai International Airport located in Dubai, UAE with total passenger flow of
       88,242,099. (World Airport Codes, 2016)

Moreover, there are biggest hubs according to their geographical location, Soekarno-
Hatta International Airport in Indonesia is considered to the be biggest airport in Asia
Pacific. This airport serves as a hub to many full- service airlines including Garuda
Indonesia which is one of the leading airlines in the world according to customer service
delivery. Notably, the customer service quality of airlines is evaluated starting from the
ground service. In Europe the largest megahub is London’s Heathrow Airport also being
the busiest in Europe. This large International connection between United States and
Europe is served as a hub to British Airways which is also considered to serve good quality
customer service. Sao Paulo-Congonhas Airport is considered to be the biggest Airport in
Latin America offering hundreds of daily connections. Middle Eastern Biggest Airports are
Dubai and Abu Dhabi International Airport and Doha that also serve as a hub to Emirates
Airlines, Qatar Airways and Etihad Airlines. All the three full-service airlines are
considered to deliver one of the outstanding customer service quality. (Dan Peltier, 2015)

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1.9 Customer Service
Airline industry is a highly competitive market. In order for them to stay a winning player
in such industry they have to focus on many aspects affecting their business. The main
factor being customer service, since in this industry just like in hospitality customers are
the main foundation of the business. The delivery of customer service starts before the
travellers’ step onboard of an aircraft. Airlines first impression are their tickets that
attract the customer the most, their website and additional services such as ability of
online check in etc. Ground service of an airline is one of the important aspects
considered in the evaluation of their service quality.

1.8.1 Service Quality

Many travellers pay a lot of attention on how the staff handle their baggage, how they
are being greeted, and in case of force major situations such as flight delay or a loss of a
baggage how the situation is being handled. In full-service airlines usually choose to have
big airports as a hub in order to make their travellers experience more pleasant noting
that many service options of such airlines are included in the ticket price. For frequent
flyer programs or the alliance airlines there can be a special lounge offered to the
travellers’ where they are served drinks and snacks. Onboard, passengers’ expectation of
the customer service n full-service airlines is usually very high. Mainly depending on how
the cabin staff displayed their attitude towards the passengers. Cabin staff is expected to
have warm, friendly, and confident attitude as they not only serve as customer service,
they answer for the safety of the whole flight. For this reason, full-service high cost
airlines usually are very fussy in selection of their cabin crew staff as they tend to be the
face of the brand and play the biggest role in the success of an Airline. (Shaw, S.,2007)
Famous airline brands such as Lufthansa, KLM, Emirates pay a lot of attention in the
selection of their staff that are working directly with customers as well as usually
providing very high-profile trainings that can take up to few months to complete.
However, these airlines have to consider the quality of the products served in the airports
as well as onboard of their aircrafts. Some of the full-service airlines of Asia, Europe and
Middle East provide fresh served food onboard for long haul fights and onboard
                                               22
entertainments. Food onboard can taste differently as it does on the ground, the reason
for it being the pressure on the aircraft that affects the taste buds. For this reason, many
airlines use special techniques for the enhancement and high quality of the meals served
onboard.

These and many other aspects that affect the service quality of an airline. passengers pay
attention the most to the friendliness of the staff members, then following with the
additional complementary services they get in airports and onboard of an aircraft
including meals served and the entertainment choices they get. (Shaw, S.,2007)

       In terms of customer service, it is the quality that has been the main strength of
any organisation working with customers. The main idea behind service quality is the
result of customer’s comparison between their expectations about the service and the
actual service they got.

       There have been a lot of studies and research methods done for in order to
measure service quality and find ways to improve it over the years. A lot of airlines have
been focusing and investing a lot in finding new innovations, hiring experienced, educated
in the field people, and increasing the quality of their product. But however, the factor of
the service itself being a process and not a product has made it a problem to
measurement. (Ripepi Giuseppe Mario, 2014)

       In the early 1980’s there has been a rise in interest for customer satisfaction and
service quality. Three have been a lot of work done on measuring the service quality in
those years. Gronroos introduced the primary model for measurement service quality
called as the Nordic model. Researchers A. Parasuraman, Valarie Zeithaml, and Leonard
Berry jointly published their approach for measuring service quality, SERVQUAL. Their
research among company executives led to the identification of four key gaps/shortfalls:
(1) Management's perceptions of both internal and external customer expectations are
different from actual customer desires, i.e. managers do not necessarily know what
customers want and expect from the company. (2) Actual service quality specifications

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are different from management's perceptions of customer expectations, i.e. even if
consumer needs are known, appropriate specifications of service may not always be set,
possibly because of lack of resources, organisational constraints, or an absence of
management commitment to a service culture and service quality. (3) The service that is
delivered is different from management's specifications for service, i.e. guidelines may be
set, but high quality may not be certain due to (for example) variations in performance of
contact personnel: employees not being able or willing to perform at a desired level. (4)
What is said about the service in external communications is different from the service
that is delivered. External communications such as advertising and promotion can
influence consumers' expectations and perceptions of the delivered service and so it is
important not to promise more than can be delivered.(Barbara R. Lewis, Vincent W.
Mitchell, 1990) The most important gap to consider is that perceived by the consumer,
the difference between expectations and perceptions of actual service. Specifically, for
each item a difference score Q (representing perceived quality along item) was defined as
Q = P – E. (Parasuman. A., Zeithaml. V., L. Berry., 1988)
Their distinctive contribution caught up measuring each perceived performance (P) and
customer expectations (E). One key to increasing quality was to
maximise the distinction between these 2 measures, (P-E) - in brief, to exceed customer
expectations. (Grapentine, Terry, 1999)

       Figure 3: Measuring Service effectiveness using SERQUAL Model (source:
ResearchGate) (Kumar et. Al,2019)
                                             24
According to A. Parasuraman there are five dimensions that fit to customer service
expectation and perception of delivery:

   Tangibles is referred to physical facilities, in airline industry it is seats, products sold at
   the airport or onboard, appearance of cabin crew, ground staff interior of the aircraft
   and onboard entertainment.
   Reliability is passengers reliability to on-time departure and arrival, similar service
   delivery every time.
   Responsiveness is the dimension that includes efficiency of passenger guidance such
   as handling of requests, smooth seating, safety instructions, complaints and inquiries
   being considered and handled etc.
   Assurance is the trustworthiness of the cabin crew and pilot, knowledge of them to
   answer the questions and reply to inquiries, and level of politeness through flight
   crew.
   Empathy this dimension is related to passenger’s expectation and cabin crews service
   delivery. It focuses on the attention the passenger gets on board and pre-flight.
   (Barbara R. Lewis, Vincent W. Mitchell, 1990)

1.9.2 Frequent Flyer Program

One of the programs that airlines have introduced were the frequent- flyer program
(FFP). Starting in 1979 this program has been offered as a marketing tool for many
airlines. (Milecards, 2013) It has been introduced by airlines to increase the sales by
increasing number of customers flying with a particular airline and with their alliance
airline. Frequent flyer program works by offering to collect points or miles by flying, and
rewarding the customer with flight upgrades, flights, special discounts on flights, using a
complimentary lounge, all based on the level of the membership. All the points are
collected depending on the length of the flight, price of the ticket, fare class. Each airline’s
program has certain conditions and limitations. Some airlines are in partnership with
hotels, restaurants, car hire companies and credit cards which allows the customer to
earn or redeem their points with them. (Finder, 2018)
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1.10 Financial Performance of the Industry

According to International Air Transport Association yearly economic performance of the
airline industry has been growing since last few years, making it $861 billion in global
spend on the air transport making it 1% of the world GDP in 2018.

Figure 4: Worldwide airline industry (source: “Economic performance of the airline
industry”. December 2017)

As the figure 4 shows the number of passengers in 2017 has reached 4,081 million as they
benefit from the advantages of global growth and airfares. Passengers travelling by air is
increasing with growth of 6.0% in 2018, having city pairs double and cutting air transport
costs in half over the past 20 years. (IATA, 2017) The Aircraft fleet is expected to increase
by 1000 making it 30,000 aircrafts by the end of 2018. Adding that by the end of 2018
there will be around 4.4 million available seats. The number of scheduled flights is
forecast to increase as well having an average of 73 aircrafts departing each minute.
(IATA, 2017)

                                             26
With this in mind, there are costs that passenger airlines have those divided into:
aircraft operating costs (expenses associated with flying the aircraft), aircraft servicing
costs (handling the aircraft on the ground, including landing fees), traffic service
costs(processing passengers, baggage and cargo at airport), passenger service
costs(meals, flight attendants, onboard services), reservation and sales costs (airline
reservation, ticket offices, travel agency commissions) and other costs include advertising
and publicity expenses, general and administrative expenses. (ICAO, 2017)

1.11 SKYTRAX

SKYTRAX are international air transport rating organisation. They have been established in
1989 and were effectively delivering their knowledge and professionalism ever since. In
1999 they introduced SKYTRAX five-star Certified Airline and Certified Airport Star Rating.
SKYTRAX uses a quality scale from 1-star through to exclusive 5-star airline award. Ratings
are based on evaluation of between 500 to 800 products and services across all
worldwide hub airports, across all on boards cabins of all aircraft types. The evaluation
includes all products and services for airport and onboard environments, using a
collective objectified standard rating system. (Skytrax, 2018) All the ratings are displayed
on their official website and are recognised as a base for a global guideline of airline and
airport standards around the world.

       5- star Airline Rating being the highest of quality, delivering high standards of the
‘home base’ operating Airport and Onboard Products and services along with delivering
persistent Staff Service delivery not only on aircrafts but also across Airports. There are
only 9 airlines currently with a 5-star rating all of them included furthermore in the
research part of this work. 4- star airline Ratings are given to an overall good delivery of
service quality. The ranking represents good product and service standards of the ‘home
base’ Airports and Onboard service quality. There are 43 airlines recognised with a 4-star
Airline rating. There will be further discussions on some of the airlines in the research part
of this thesis. 3-Star Airline Rating is awarded to airlines that have a fair goods and

                                              27
services quality delivery. The airlines and their hub airport that have ‘average’ acceptable
performance in products or front-line Staff service. There are of total 51 airlines
worldwide earning 3- star rating. 2-Star Airline Rating usually granted to Airlines with
lower total Quality performance. 1-Star Airline Rating presents poor product and service
quality delivery onboard and at home-base Airport.

1.11.1 World Airline Awards

As well as 5-Star Rating SKYTRAX introduced World Airline Awards. This Award was
introduced in 1999 in order to give customer service bigger, global meaning in the Airline
industry. Notably, this Award is often called as “The Oscars of the aviation industry” has
earned its global respect as the only biggest passenger survey and for its complete
transparency and clarity of the process. It has given Airports and Airlines a drive to
increase their customer service quality as well as being internationally recognised. This
globally respected Award is held yearly and is completely independent from any
sponsorship or payments from within the airline industry. There are 320 airlines covered
in the survey, and all the costs of the survey is covered entirely by SKYTRAX.
(Skytrax,2018)

       With this in mind, there will be a review of some of the Award winner airlines that
have earned the spot in Top 100 best Airlines. Qatar airways has been earning highest
ratings for past 6 consecutive years, being named World’s Best Airline of 2017, 2015,
2012 and being second for years 2016, 2014 and 2013. As well as it has Awards for
World’s Best Business Class, Best First-Class Airline Lounge and Best Airline in the Middle
East. (SKYTRAX, 2018) Similarly, Singapore Airlines has been an all-time favourite in the
awards placing among the best rated airlines. Winning a second place as the World’s Best
Airline 2017, Best Airline in Asia, Best Business Class Airline Seat and Best Premium
Economy Onboard Catering. (SKYTRAX, 2018)

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2 Methodology

While the theoretical part primarily focused on giving a foundation for the following
research part, this section of the thesis will focus on the methods and approaches that
have been used to collect the data for accomplishing the purpose of the study. This part
consists of research approach, research methodology and data analysis.

2.1 Research Approach

In order to achieve the result that is essential to answer the research questions, both
quantitative and qualitative approach has been developed. Quantitative data can be
produced by a variety of research methods, as the main data collection methods were
customer reviews, rating list and official statistic documents from website. The researcher
used quantitative data, as it is more reliable and objective. (Denscombe, M. 1998)

2.2 Fuller’s Triangle Method
The basic principle of pairwise comparison is to identify relationships between two
preferred criteria. One of the methods for preference expression is Fuller’s Triangle which
is often referred to as Fuller’s pairwise comparison method. In its simplest version the
method determines the number of preferences for each criterion with relation to all
other criteria. In the triangular matrix a decision maker determines whether he prefers
the criterion showed in the row or the one in the column. According to Kavan, Fuller’s
triangle method has an advantage from other decision-making methods since it focuses
on comparing only two criteria between each other. (Kavan, M., 2002) Using this method
makes the decision making simpler and more objective. Paired comparison method or
Fuller’s triangle is more useful when:

               The researcher has a limited data,
               There are many possible solutions,
               The researcher has ambiguous priorities and in case of competing
               priorities. (Mildtools, 2015)

                                               29
There are several easy steps in order to create Paired Comparison Analysis: firstly,
we create a table with our criteria listed on both row and column headings. Secondly,
block out cells of the table that where you would be comparing the criteria with itself.
The main idea behind this analysis is to compare every criterion one time with other
criteria. Usually it has to be positioned as diagonal from the top left to the bottom right
(reminding a triangle). Afterwards the rest of the cells where the comparison between
the criterion repeat are not used for comparison as it has no reason to be compared
again. Thirdly, we pair every criterion in the row to one of the options in the column
deciding on the bigger importance of the weight, repeating it for every criterion. Writings
down the number of the criteria given in the cell. Finally, adding up all the values and
determining the final score, calculating the weight for every criterion by using a formula
(assuming the preference is j) j/preference total.

2.3 Research Method

The aim of this research was to know whether funding by government or by private
sector has an effect on high cost airlines customer service level. The topic of relation
between funding and customer service cannot merely be explained by single theory due
to its volatile nature. There are a lot of other factors affecting level of their service
depending not only on funding. Explaining the airline industry service and factors
affecting it based only on one airline would not be sufficient to back up the main
hypothesis, as well as analysing each airline would turn this thesis into a book.
Considering such factors, the comparison of Top twenty airlines according to an official
SKYTRAX was the most optimal choice, as it will help the reader understand the main
idea. (SKYTRAX, 2017)

        For this research method of Multiple-criteria decision making (evaluation of
options) according to the Fuller’s triangle was used as a scientific method. (Rezaei Jafar,
2015) As the numeric base of the research the author used the official ratings from the
SKYTRAX website. The website collects real traveller reviews on every criterion, then

                                               30
summing up the previous and giving each airline star rating highest being 5 starts.
(Skytrax, 218)

       The writer of this work used Microsoft Excel as a platform to create a table that
applies paired comparison analysis for weighted criteria evaluation. In the case there is a
multiple number of various criteria, it is better to compare only two options at the same
time. The options must be chosen based on their significance to a decision maker, I.e. it
must be easy to determine which option of out the two is more important. Otherwise the
entire comparison process becomes unnecessarily complicated. One of the methods for
evaluating such comparisons is the so-called Fuller's triangle. In this method, individual
criteria are marked with respective values (1, 2, n…) and the triangle consists of two lines
in which each pair of compared criteria occurs only once.
       For each compared pair, the decision maker highlights the number of criterion
which they consider to be more important. Therefore, for each Cj criterion the number of
circled j values stands for the number of its preferences, which is marked as j. (Penzina, R.
and Ramik, J. 2014)

                 Table 1: Paired comparison analysis matrix (source: own research, 2018)
                                                                            preferences
          C1          c2       c3         c4        Preferences weight      +1                 weight
c1        X                2          1         1             2    0.33                 3          0.3
c2        X           X               2         2             3    0.50                 4          0.4
c3        X           X        X                4             0    0.00                 1          0.1
c4        X           X        X          X                   1    0.17                 2          0.2
                                                              6                        10

       For the table the author has taken four criteria for Fuller’s Triangle method, them
being: food and beverages, staff service, on board entertainment, and seat comfort.
Further every criterion has been assigned with a letter (C1, C2…). Afterwards each
criterion has been chosen the number of choices that have been made for every criterion.
In the matrix that was used for this research the author has chosen the importance of one
criteria over the other. When comparing first two criteria c1 (food and beverages) and c2
Staff service it was obvious for the choice going for c2 (staff service) as the main idea of

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