Consumer Loyalty in the Airline Industry - Professor David Wessels 2006 The Wharton School of the University of Pennsylvania 3620 Locust Walk ...
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Sample Solution Consumer Loyalty in the Airline Industry
Consumer Loyalty in the Airline Industry
Professor David Wessels ©2006
The Wharton School of the University of Pennsylvania
3620 Locust Walk, Philadelphia PA 19104Sample Solution Consumer Loyalty in the Airline Industry
Presentation Overview
• With the advent of the internet, consumers now have a wide choice of
air carriers. Since airlines have trouble distinguishing themselves, the
business has become commoditized, and profits are difficult to obtain.
• Travel websites such as Orbitz, display the prices and schedules
Information of nearly every airline providing service between two cities.
search Almost half of all leisure travelers survey do not limit their search
to a specific airline.
• For most differentiating items, the majority of surveyed travelers
Evaluation of can not distinguish between the network carriers and low cost
alternatives carriers. Business travelers will pay a premium, but the premium
is extremely small.
Purchase • With choice plentiful, and differentiation difficult, the most travelers
decision purchase solely on price. However, airlines still control the final
purchase, and could alter the final decision.
Professor David Wessels
The Wharton School of the University of Pennsylvania 2Sample Solution Consumer Loyalty in the Airline Industry
Survey Demographics
• Before we start, some important characteristics about the travel survey
conducted by our students…
Survey Characteristics
• The survey was
% Male 60%
distributed to
colleagues of Characteristics
% Under the
age of 35
81%
incoming MBA % With college
95%
or higher degree
students.
% Living in the
39%
Southeast
• There were 1,406
% Leisure
respondents. travelers
67%
0% 20% 40% 60% 80% 100%
% of Respondants
Professor David Wessels
The Wharton School of the University of Pennsylvania 3Sample Solution Consumer Loyalty in the Airline Industry
The Consumer’s Information Search
Total Awareness Consideration Choice
Set Set Set Set Decision
• For a given city • Traditionally, • Nearly half of • However, even
pair in the the awareness leisure travelers though the
United States, set was limited surveyed said consideration set
most network to carriers flying they would not has expanded
carriers and in and out of limit their greatly, most
some low cost home airport. search. fliers continue to
carriers will • Travel websites do business with
provide service. expanded the their preferred
awareness set to airline (perhaps
the total set. due to price
matching).
Professor David Wessels
The Wharton School of the University of Pennsylvania 4Sample Solution Consumer Loyalty in the Airline Industry
Most Consumers Aware of All Choices…
• More than 1/3 of surveyed Media Sources Used when Booking Travel
travelers consulted a travel
100%
website, such as Orbitz. 17%
9%
Other
• Travel websites rank all 75%
Airline
45%
available flights by price*. 41%
Website
50%
• Traditionally, consumers
25%
used agents who would not 35% 41%
Travel
Website
reveal the total set of
0%
available options. Business Leisure
Source: Goizueta travel survey
* Some airlines, such as Southwest do not
participate with travel websites.
Professor David Wessels
The Wharton School of the University of Pennsylvania 5Sample Solution Consumer Loyalty in the Airline Industry
Will Consider Any Airline…
• Only 1/4 of business Number of Airlines Considered on Last Ticket
travelers and 1/5 of leisure Purchased by Survey Respondents
travelers limited their 50%
44%
search to their preferred
Percent of Respondents
39%
40%
airline. 33%
31%
30% 26%
Business
• In fact, nearly 1/3 of
19% Leisure
20%
business travelers and 1/2
of leisure travelers did not 10%
4% 4%
limit their consideration
0%
set at all. 1 2-3 4-5 No Limit
Airlines Considered
Professor David Wessels
The Wharton School of the University of Pennsylvania 6Sample Solution Consumer Loyalty in the Airline Industry
But Usually Default to a Preferred Airline
• Even though many consumers
Percentage of Flights
do not limit their search, they on an Airline for which Consumer
had a Frequent Flier Membership
still limit their choice.
400
• The majority of travelers limit 350
300
at least 80% of their travel to
Respondents
250
Leisure
airlines for which they have a
200 Business
frequent flier membership. 150
100
• Why do they sometimes
50
deviate? Most likely price
0
and/or route availability (no 0-20% 20-39% 49-60% 60-79% 80-99% 100%
data currently exists).
Professor David Wessels
The Wharton School of the University of Pennsylvania 7Sample Solution Consumer Loyalty in the Airline Industry
Presentation Overview
• With the advent of the internet, consumers now have a wide choice of
air carriers. Since airlines have trouble distinguishing themselves, the
business has become commoditized, and profits are difficult to obtain.
• Travel websites such as Orbitz, display the prices and schedules
Information of nearly every airline providing service between two cities.
search Almost half of all leisure travelers survey do not limit their search
to a specific airline.
• For most differentiating items, the majority of surveyed travelers
Evaluation of can not distinguish between the network carriers and low cost
alternatives carriers. Business travelers will pay a premium, but the premium
is extremely small.
Purchase • With choice plentiful, and differentiation difficult, the most travelers
decision purchase solely on price. However, airlines still control the final
purchase, and could alter the final decision.
Professor David Wessels
The Wharton School of the University of Pennsylvania 8Sample Solution Consumer Loyalty in the Airline Industry
The Key Attribute: Price
Top 10 Factors in Selecting an Airline
• Prior to 2001, air travelers
identified scheduling Price
convenience and loyalty Safety
programs as the most Scheduling convenience
important factors in choosing Non-stop flights
Reservation convenience
an airline.
Baggage-handling
Business
• Today, leisure travelers rate On-time arrival Leisure
price even more important Connecting flight convenience
than safety and loyalty Customer service
programs are no longer a top Check-in convenience
priority. 3 3.5 4 4.5 5
Im portance Rating out of 5
Professor David Wessels
The Wharton School of the University of Pennsylvania 9Sample Solution Consumer Loyalty in the Airline Industry
Attributes Which Matter Less
Bottom 10 Factors in Selecting an Airline
• Even for business travelers,
Professionalism of airline personnel 3.5
the ability to upgrade, the Ability to change or cancel plans
w ithout penalty 3.2
quality of meals, and the
Efficiency of airline security checks 3.4
availability of first class Airport Location 3.6
does not matter. Seat size or legroom on plane 3.1 Business
Leisure
• Airlines have responded to Loyalty program 3.0
less popular attributes by Ability to upgrade 2.3
Quality of meals
removing meals and 2.2
Availability of business class or first
making upgrades difficult. class 1.7
0 1 2 3 4 5
Im portance Rating out of 5
Professor David Wessels
The Wharton School of the University of Pennsylvania 10Sample Solution Consumer Loyalty in the Airline Industry
Majors Exceed LCCs on Most Attributes…
• The major airlines have invested billions in infrastructure and staff in
order to create the perception of a full-service, catered experience.
• Consumers do perceive majors to be better.
Consumer Perceptions of
Discount versus Full Service Airline Services
Loyalty programs
First class
Percent of Respondents
Non-stop flights
Meal quality I can't tell the
Travel times difference
Airport location
Check-in convenience
Legroom
Discount
Professionalism
Customer service airline is
Safety better
On-time arrival
Reservations Major airline
Baggage handling is better
Security checks
Price
-150% -100% -50% 0% 50% 100%
Professor David Wessels
The Wharton School of the University of Pennsylvania 11Sample Solution Consumer Loyalty in the Airline Industry
But Most Consumers Can’t See Any Difference
% of Respondants Who Can't Distinguish
Between Low Cost and Network Carriers
• For the majority of
surveyed consumers, low Professionalism of airline personnel 55%
cost carriers have Likelihood of an on-time arrival 55%
Seat size or legroom on plane 54%
– the same professional Customer service 52%
personnel as network Location of airport 49%
carriers Convenience of check-in 49%
Quality of meals 46%
– are just as likely to land on
Convenience of arrival/departure times 45%
time Availability of business class or first class 38%
– have the same legroom Availability of non-stop flights 33%
Frequent flyer program 30%
– and same level of customer Ticket price 15%
service as network carriers 0% 25% 50% 75% 100%
Professor David Wessels
The Wharton School of the University of Pennsylvania 12Sample Solution Consumer Loyalty in the Airline Industry
Attribute “Prices” for Business Travelers
• Full service carriers have identified frequent business travelers as their primary
target market because of their willingness to pay a higher fare for last minute
bookings and more brand loyalty over leisure travelers.
• However, even Announced Premium Size for Selected Services
Business Travelers Only
business travelers are
becoming less 12% 10.0%
10%
willing to pay for
Premium
8% 6.7% 6.2%
5.2% 5.1%
upgraded services. 6% 4.7% 4.4% 4.1%
4% 2.3%
• 12% of respondents’ 2%
0%
companies require
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Professor David Wessels
The Wharton School of the University of Pennsylvania 13Sample Solution Consumer Loyalty in the Airline Industry
Presentation Overview
• With the advent of the internet, consumers now have a wide choice of
air carriers. Since airlines have trouble distinguishing themselves, the
business has become commoditized, and profits are difficult to obtain.
• Travel websites such as Orbitz, display the prices and schedules
Information of nearly every airline providing service between two cities.
search Almost half of all leisure travelers survey do not limit their search
to a specific airline.
• For most differentiating items, the majority of surveyed travelers
Evaluation of can not distinguish between the network carriers and low cost
alternatives carriers. Business travelers will pay a premium, but the premium
is extremely small.
Purchase • With choice plentiful, and differentiation difficult, the most travelers
decision purchase solely on price. However, airlines still control the final
purchase, and could alter the final decision.
Professor David Wessels
The Wharton School of the University of Pennsylvania 14Sample Solution Consumer Loyalty in the Airline Industry
The Purchase Decision: Leisure Traveler
Preferred Ticket Purchase Method for
• Although travel websites are Leisure Travelers
Travel
often referenced, most w ebsite
25% Travel
ticketing is still done directly agent
with the airline. 16%
• Thus, the airline has an Other
3%
opportunity to alter the
Airline
consumers decision through phone rep
16%
careful marketing (to Airline
w ebsite Airline ticket
generate small premiums for 37% counter
3%
certain services).
Professor David Wessels
The Wharton School of the University of Pennsylvania 15Sample Solution Consumer Loyalty in the Airline Industry
The Purchase Decision: Business Traveler
Preferred Ticket Purchase Method for
Business Travelers
• The business market is still
controlled by travel agents. Travel Travel
w ebsite agent
Therefore, some pricing power 17% 40%
can be generated by “controlling
the channel.”
• Travel agents should still be
offered incentives to “sell” Airline Other
w ebsite
higher priced fares when 26%
5%
Airline
Airline ticket
possible. counter
phone rep
9%
3%
Professor David Wessels
The Wharton School of the University of Pennsylvania 16Sample Solution Consumer Loyalty in the Airline Industry
Conclusion
• The internet has expanded the awareness and choice sets for the
average consumer.
• The internet reveals only price, schedule, and number of stops, so most
consumers rank choices based on these factors only. Other factors are
either unimportant, or are impossible to distinguish amongst airlines.
• To survive, network carriers must lower costs to within 5% (the
average premium willing to be paid for services) or find alternative
ways to distinguish their airlines.
Professor David Wessels
The Wharton School of the University of Pennsylvania 17You can also read
