Fasten your seatbelt: University faculty member researches the turbulent airline industry

Airplane waiting at gate.

Photo courtesy of Alonso Jiménez Quesada

From overbooked flights to customer satisfaction, new research offers an inside look into one of the country's favorite modes of transportation. 

In 2017, airlines carried a record number of passengers - 741.6 million passengers on domestic flights and 107.7 million passengers on international flights, according to the U.S. Department of Transportation's Bureau of Transportation Statistics. While more people than ever are taking to flying as their main choice of transportation, the airline industry is not without its challenges.

Jeffrey Wong, professor and department chair of the accounting department, has researched the airline industry for 20 years. A mode of transport considered by some to be a commodity, Wong says the airline industry has been an interesting one to follow.

Since 1998, over 30 airline companies have filed for bankruptcy protection via Chapter 11 in the United States. Since 2000, 10 major airlines have merged into five. Recently, Wong's focus has been on the practice of overbooking flights and the examination of customer satisfaction on financial outcomes. He is conducting this research with colleagues Kevin Dow and Belaynesh Teklay from Nottingham University in China and Yun Shen from the University of Reading in the United Kingdom.

Overbooked flights

Stories of passengers being dragged off airplanes populated news feeds throughout 2018. These viral videos and photos, posted to social media by fellow passengers, captured events that horrified the general public, forcing airlines to issue formal media statements and apologies.

So, how could instances like what happened on United Airlines and Delta Airlines occur?

"Per the U.S. Department of Transportation Airline Consumer Rights FAQ, overbooking is a legal practice," Wong said. "There are rules airlines must follow, however. Compensation being one of them."

If time delayed from originating flight departure is less than hour, required compensation is $0. If time delayed is 1-2 hours, required compensation is 200% of the one-way fare (max $675). If time delayed is 2+ hours, required compensation is 400% of the one-way fare (max $1,350). Delays are based on the passenger's original arrival time to their destination. Airlines can, however, offer more money to bumped passengers than required by the Department of Transportation.

Wong said that the number of passengers who are bumped from their seats is relatively small compared with those who voluntarily gave up their seats. From October to December 2017, the 12 largest U.S. airlines had a total of 70,909 passengers voluntarily denied boarding versus 3,148 bumped passengers. This translates to 0.18 per 10,000 passengers involuntarily denied boarding for the 171,086,202 passengers enplaned during October to December 2017. These numbers are much improved over the same period in 2016, when 0.55 per 10,000 passengers were bumped for the 164,817,906 reported enplaned passengers.

"Since the forceful removal of a passenger from United Airlines in April 2017, the practice of overbooking has been brought into the spotlight," Wong said. "United Airlines and Delta Airlines have both increased the amount of money that gate agents can offer passengers to voluntarily give up their seats. Southwest Airlines subsequently announced that it will no longer overbook its flights."

Wong noted that airlines have access to artificial intelligence software to help determine which passengers would be more likely to give up their seat, with the goal of increasing revenues and optimizing compensation costs.

Customer satisfaction

While customer satisfaction is often marketed by airlines, Wong and his colleagues' research shows that airlines, unlike many other industries, can get away with a variety of grievances because they offer a service unlike any other. From the shrinking width of seats and the space in-between the seats to baggage fees for luggage and limited food services on domestic flights, many airlines still tout their customer's satisfaction. The airline industry's definition of customer satisfaction, however, is based on factors not associated with price for service but rather logistics.

“Airlines don’t seem to place a priority on customer service despite the fact that they advertise to the contrary. And yet, some airlines are still profitable.”

"We found that measures of service quality such as on-time arrival, passengers not being involuntarily denied boarding (bumped) and the lack of lost baggage contributed to customer satisfaction," Wong said.

Using structural equation modeling, a technique for evaluating the relationship between multiple variables, Wong and his co-authors tracked many of the airline industry's quality measures, which are publicly available via the Air Travel Consumer Reports. The research reviewed airline accident and incident reports, airline on-time statistics and delay causes, operational metrics, passenger boarding and more.

"Through this research, we have found no link in customer satisfaction and financial performance," Wong said. "Airlines don't seem to place a priority on customer service despite the fact that they advertise to the contrary. And yet, some airlines are still profitable."

What they found was customer satisfaction is not associated with positive financial outcomes. Rather, their research suggests the load factor (capacity utilization) has increased, allowing for airline profitability to skyrocket in some cases.

Flying the not-so-friendly skies

"Our data suggests that airlines are very strategic about what they give passengers and what they don't," Wong said.

The American Customer Satisfaction Index used by Wong and his co-authors in their study has analyzed and recorded customer satisfaction in the airlines industry for over two decades. Data from the ACSI indicates a general erosion of customer satisfaction with the airlines over time.

"In the end, their profitability does not appear to be dependent upon customer service, based on our analysis," Wong said. "Given that the airline industry offers a service with few alternatives, the findings of our research may not be surprising."

For details on Jeff Wong's research, contact jawong@unr.edu.

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