Willingness to Pay for Airline Service Quality

Abstract

This paper looks at estimated valuations of some service‐quality attributes in an airline choice context using stated preferences methods. The analysis is based on information obtained in the most important route connecting the Canary Islands with the Iberian Peninsula: Gran Canaria–Madrid, and tries to contribute to the body of knowledge in this area, given the relatively few studies of the monetary valuations of air travel regarding level‐of‐service attributes. A feature of this analysis is the examination of variations in values according to different characteristics of the service, such as price, penalties for changes in the ticket, legroom, food, etc.; the currently experienced level of the attribute, and various socio‐economic factors that affect the characteristics of the trip and passengers. In addition, the important issue of added value regarding different attributes is addressed, obtaining the willingness‐to‐pay for different improvements of service quality. A further analysis is made about how taste heterogeneity (market segments) affects these values. Results from the stated preference experiment and the market value of some comparable service are also compared. Finally, the paper brings together evidence from other studies and compares them with the findings obtained herein.

Acknowledgements

The comments and suggestions of two referees and David Banister are appreciated. This paper draws on some results from a case study prepared for the Commission of the European Union (Research Project No. MOVIECAM‐MAC/22/C8). The authors acknowledge support under the INTERREG IIIB programme (Atlantic Area). They also want to express their gratitude to the director of Gran Canaria Airport for helpful comments and for permission to carry out the surveys in the passengers’ terminal of the airport.

Notes

1. Market segmentation is studied by analysing the results according to different types of tickets class, such as business or first class and coach, and the principal purpose of the journey: work and leisure.

2. Wittink and Cattin (1989) argue that a lack of realism may easily appear in terms of new or innovative alternatives. Sometimes this situation is also present when alternatives, attributes and/or attribute levels, used to describe the alternatives, are considered unrealistic in base of a past respondent’s experiences.

3. The present case used a computer‐aided personal interview environment for data collection; SP experiment was then tailored to each respondent for some attributes included in the experiment. The authors have also customized the attribute levels of their own SP experiment shown to respondents by adapting some attribute level to previous choices made regarding class fare. However, this strategy has been used to make the choice task more realistic to the individual respondent. It is out of the scope of this paper to study the role of attribute processing strategies (APS) in order to establish the level of importance of specific attributes. This new topic has been studied by Toubia et al. (2004) and Rose and Hensher (2004).

4. In fact, airlines do not usually allow passengers to change ticket conditions without penalty except for business class passengers or for those passengers of coach class who have purchased a full fare or only moderately discounted coach tickets.

5. Most airlines usually offer industry‐standard seat pitches of 31–32 inches. However, two of the largest US airlines started a campaign increasing seat pitch (i.e. legroom) across their aircraft fleet during 2000: United’s ‘Premium Economy’ programme and American’s ‘More Room throughout Coach’ programme.

6. In fact, the full factorial design involves 486 different scenarios (2 × 3⁵).

7. The SP experiment was implemented using a special code of the computer‐aided program WINMINT, which allows one to adapt the SP choice game to a respondent’s situation as well as to select randomly the ten scenarios in each choice set. Figure 1 presents a typical screen shown to travellers when they were surveyed.

8. However, note that internet channels are becoming very popular and gaining more adepts. In fact, 21% of interviewees employed this channel to buy tickets; and airlines are being very aggressive in their commercial policy funnelling passengers through this channel because some discounts tickets (web discounts) are only available in airlines’ web pages. Lee and Luengo‐Prado (2004) showed that the use of internet channels such as Orbitz, Expedia or Travelocity have increased price transparency afforded by the emergence of internet travel sites, so it would be expected that any fare premia that existed could be diminished over time.

9. For more recent developments, see Ortúzar and Willumsen (2001), Greene (2003) or Train (2003).

10. Again this model is preferred to MNL1 and MNL2 according to the log‐likelihood test.

11. Of course, the dissonance between hypothetical and actual WTP for value‐added services depend not only on the demand conditions, but also on the market conditions of the route under analysis. In the present case, three airlines are competing in the route, so it is possible that airlines could not extract the total amount of the WTP.

12. These gourmet menus have been designed by Sergi Arola, one of the most famous chefs of Spain and holder of two Michelin stars. They are based on high standard quality products. Good care has been taken in the selection of cheese, fresh orange juice with seasonal fresh fruit and yoghurt, Colombian coffee, virgin olive oil, good reputation Spanish cavas (champagne), and white and red Riojas (Spanish wine).

13. Not only are there more delays, but also those occurring are longer. Scheduled flight times mask actual growth in delays. To compensate for longer ground and air times, airlines have increased their flight schedules. Being aware of this increasing problem, the European Union regulated for delayed and cancelled flights. There are three levels of compensation: in the event of long delays (2 h or more, depending on the distance of the flight), passengers must in every case be offered free meals and refreshments plus two free telephone calls, telex or fax messages, or emails; if the time of departure is deferred until the next day, passengers must also be offered hotel accommodation and transport between the airport and the place of accommodation; when the delay is 5 h or longer, passengers may opt for reimbursement of the full cost of the ticket together with, when relevant, a return flight to the first point of departure.