Case Study 3 Valley Airways

Tony Jack, research analyst for Valley Airways, was asked by the director of research to make recommendations regarding the best approach for monitoring the quality of service provided by the airline. Valley Airways is a national air carrier that has a comprehensive route structure consisting of long-haul, coast-to-coast routes and direct, nonstop routes between short-haul metropolitan areas. Current competitors include Midway and Alaska Airlines. Valley Airlines is poised to surpass the billion-dollar revenue level required to be designated as a major airline. This change in status brings a new set of competitors. To prepare for this move up in competitive status, Jack was asked to review the options available for monitoring the quality of Valley Airways service and the service of its competitors. Such monitoring would involve better understanding the nature of service quality and the ways in which quality can be tracked for airlines.

After some investigation, Jack discovered two basic approaches to measuring quality of airline service that can produce similar ranking results. His report must outline the important aspects to consider in measuring quality as well as the critical points of difference and similarity between the two approaches to measuring quality.

Some Background on Quality

In today's competitive airline industry, it's crucial that an airline does all it can do to attract andretain customers. One of the best ways to dothis is by offering quality service to consumers. Perceptions of service quality vary from person to person, but an enduring element of service quality is the consistent achievement of customer satisfaction. For customers to perceive an airline as offering quality service, they must be satisfied, and that usually means receiving a service outcome that is equal to or greater than what they expected.

An airline consumer usually is concerned most with issues of schedule, destination, and price when choosing an airline. Given that most airlines have competition in each of these areas, other factors that relate to quality become important to the customer when making a choice between airlines. Both subjective aspects of quality (that is, food, pleasant employees, and so forth) and objective aspects (that is, on-time performance, safety, lost baggage, and so forth) have real meaning to consumers. These secondary factors may not be as critical as schedule, destination, and price, but they affect quality judgments of the customer.

There are many possible combinations of subjective and objective aspects that could influence acustomer's perception of quality at different times. Fortunately, since 1988, consumers of airlineservices have had access to objective information from the Department of Transportation regarding service performance in some basic categories. Unfortunately, the average consumer is most likely unaware of or uninterested in these data on performance; instead, consumers rely on personal experience and subjective opinion to judge quality of service. Periodic surveys of subjective consumer opinion regarding airline service experience are available through several sources. These

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efforts rely on contact with a sample of consumers who may or may not have informed opinions regarding the quality of airline service for all airlines being compared.

A Consumer Survey Approach

In his research, Jack discovered a recent study conducted to identify favorite airlines of frequent fliers. This study is typical of the survey-based, infrequent (usually only annually), subjective efforts conducted to assess airline quality. A New York firm, Research & Forecasts, Inc., published results of a consumer survey of frequent fliers that used several criteria to rate domestic and international airlines. Criteria included comfort, service, reliability, food quality, cost, delays, routes served, safety, and frequent-flier plans. The questionnaire was sent to 25,000 frequent fliers.

The 4,462 people who responded were characterized as predominantly male (59 percent) professional managers (66 percent) whose average age was 45 and who traveled an average of at least 43 nights a year for both business and pleasure. This group indicated that the most important factors in choosing an airline were 1) route structure (46 percent), 2) price (42 percent), 3) reliability (41 percent), 4) service (33 percent), 5) safety (33 percent), 6) frequent-flier plans (33 percent), and 7) food (12 percent). When asked to rate twenty different airlines, respondents provided the rankings in the following Table 1.

Table 1 Ranking of Major Airlines: Consumer Survey Approach

1. American
2. United
3. Delta
4. TWA
5. SwissAir
6. Singapore
7. British Airways
8. Continental
9. Air France
10. Pan Am

11. Lufthanasa 12. USAir

13. KLM

14. America West 15. JAL

16. Alaska

17. Qantas

18. Midway 19. Southwest 20. SAS

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A Weighted Average Approach

Jack also discovered a newer, more objective approach to measuring airline quality in a study recently published by the National Institute for Aviation Research at the Wichita State University in Wichita, Kansas. The Airline Quality Rating (AQR) is a weighted average of 19 factors that have relevance when judging the quality of airline services (see Table 2). The AQR is based on data that are readily obtainable (most of the data are updated monthly) from published sources for each major airline operating in the United States. Regularly published data on such factors as consumer complaints, on-time performance, accidents, number of aircraft, and financial performance are available from the Department of Transportation, the National Transportation Safety Board, Moody's Bond Record, industry trade publications, and annual reports of individualairlines.

Table 2 Factors Included in the Airline Quality Rating (AQR)a

Factor

Weight

1. Average age of fleet
2. Number of aircraft
3. On-time performance
4. Load factor
5. Pilot deviations
6. Number of accidents
7. Frequent-flier awards
8. Flight problemsb
9. Denied boardingsb
10. Mishandled baggageb
11. Faresb
12. Customer serviceb
13. Refunds
14. Ticketing/boardingb
15. Advertisingb

25.85 14.54 18.63 26.98 28.03 28.38 27.35 28.05 28.03 27.92 27.60 27.20 27.32 -7.08 -6.82

16. Creditb

17. Otherb

1. Financial stability
2. Average seat-mile cost

25.94

27.34 26.52 24.49

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1. The 19-item rating has a reliabilitycoefficient (Cronbach's Alpha) of 0.87.
2. Data for these factors come from consumer complaints registered with the Department of Transportation.

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To establish the 19 weighted factors, an opinion survey was conducted with a group of 65 experts in the aviation field. These experts included representatives of most major airlines, air travel experts, Federal Aviation Administration (FAA) representatives, academic researchers, airline manufacturing and support firms, and individual consumers. Each expert was asked to rate the importance that each individual factor might have to a consumer of airline services using a scale of 0 (no importance) to 10 (great importance). The average importance ratings for each of the 19 factors were then used as the weights for those factors in the AQR. Table 2 shows the factors included in the Airline Quality Rating, the weight associated with each factor, and whether thefactor has a positive or negative impact on quality from the consumer's perspective. Using theAirline Quality Rating formula and recent data, produce AQR scores and rankings for the 10 major U.S. airlines shown in Table 3.

Table 3 Airline Rankings

Rank Airline

AQR Score

1 American

10.328 10.254 10.209 10.119 10.054 10.003 20.063 20.346 20.377 20.439

2 Southwest

3 Delta

4 United

5 USAir

6 Pan Am

7 Northwest

8 Continental

9 America West

10 TWA

What Course to Chart?

Jack has discovered what appear to be two different approaches to measuring quality of airlines. One relies on direct consumer opinion and is mostly subjective in its approach to quality and the elements considered. The other relies on performance data that are available through public sources and appear to be more objective.

Both approaches incorporate pertinent elements that could be used by consumers to judge the quality of an airline. Jack's recommendation must consider the comprehensiveness and usefulnessof these approaches for Valley Airways as it moves into a more competitive environment. What course of action should he recommend?

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Questions

1. What are the positive and negative aspects of each approach that Jack should consider before recommending a course of action for PacificOcean Airways?