segmentation analysis of domestic airline passenger markets

Segmentation Analysis of Domestic Airline Passenger Markets

Edward R. Bruning Kent State University

and

Mary L. Kovacic Kent State University

arid

Larry E. Oberdick Kent State University

INTRODUCTION

Individual customers have been found to differ in terms of demographic, psychographic, and attitudinal factors related to products they consume. With respect to airline passenger travel, it is advisable to view the traveling public as a series of semi-distinct markets, each possessing preference sets distinguishable from all others.

To this date, few academic efforts have been expended to study the bases upon which airline markets are segmented. Thornton (1981) discussed the fact that airline markets differ and with emphasis upon governmental de- control, it is judicious for airline analysts to isolate sub-markets more dis- tinctly in order to maximize profitability. According to Davis and Dillard (1982), "The professional buyer of service appears dissatisfied with the changes brought about by the (Airline Deregulation) Act. By ignoring the preferences and attitudes of the business traveler, the major sub-market for most carriers, management insures that profits remain at a suboptimal level.

�9 1985, Academy of Marketing Science, Journal of the Academy of Marketing Science Winter, 1985, Vol. 13, No. 1, 17-31

0092-0703/85/1301-0017 $2.00

17

18 SEGMENTATION ANALYSIS OF DOMESTIC AIRLINE PASSENGER MARKETS

Jones and Crocke, in several published works, identified and statistically evaluated several flight factors relevant to both certified and commuter air travelers. Their emphasis was upon identifying whether any significant dif- ference existed in the values assigned to the factors for the two types of travelers. Based on a sample of 721 travelers, the authors identified significant differences among certified and commuter passengers regarding the level of fares, service quality, scheduling of flights, and pre- and post-flight services.

Daley and LaForge (1982), in a similar study, sought to identify the service characteristics desired by travelers when several transportation al- ternatives were available. The authors surveyed 89 faculty and staff members from a university community, regarding the mode of choice and the relevant factors which influenced the decision for short- to medium-distance trips. Overwhelmingly, commuter air carriers and the individual automobile were preferred over bus and limousine service by the respondents. The factor most influential in explaining the existence of this preference was the degree of convenience.

A number of factors have been identified that would serve as bases for market segmentation; none of the works have tested the degree to which markets are indeed unique. This paper addresses this issue by providing a statistical analysis of various airline sub-markets. The study is focused upon the experiences and preferences of passengers in the process of consuming airline service attributes. A number of environmental, demographic, and personality factors were evaluated in order to shed light upon particular reasons travelers offer for choosing a particular form of air carriage. The primary questions addressed in this study are whether specific factors such as convenience, economy, safety, purpose of flight, risk preference, life style, dogmatism, education level, and household income served as bases for segmenting major, national, and regional/commuter air carriers into distinct markets.

METHODOLOGY

Sample

The analysis focused upon respondents from the population of air travelers within the United States. A total of 845 questionnaires were distributed at four midwestern airports, and one eastern air terminal, over a three- month period. A total of 591 were completed and returned for a response rate of approximately 70 percent. The specific airports employed in the

BRUNNING, KOVACIC AND OBERDICK 19

study were selected on the basis of accessibility and representativeness. 2 Since many airport administrations impose bans on solicitations in terminal areas, the researchers were limited in choice to those airports which did not enforce such bans. It was necessary, due to budget constraints, to limit the sample to passengers moving through air terminals in the mid-west and eastern U.S. regions. In order to assure the sample was drawn from a broad cross-section of the air travel population, selected for inclusion in the study were airports which offered major, national, and regional/commuter air carrier service. 3

The sample was stratified by day of the week and by time of day, in order to assure a representative sampling of business and pleasure travelers and travelers flying for emergency reasons. Questionnaires were distributed to respondents at airport terminals in three- to five-hour intervals during morn- ing, afternoon, and evening periods in order to evaluate peak and off-peak traveler behavior. Finally, passengers were sampled on as many competitive flights as possible, so the precise basis for passengers discriminating among the several forms of air carriers was evaluated. 4 In total, approximately two- thirds of the respondents (402) traveled with an air carrier which competed with at least one other carrier originating and terminating at the same airports within a two-hour time period.

With specific airports, days, times, and flights predetermined, an inter- viewer was assigned to the gate area of each pre-selected flight. Question- naires were then distributed on a random basis to passengers at each gate prior to departure. A self-addressed, stamped envelope was provided, along with the survey instrument, for return to the research staff. Each respondent was asked to complete and return the questionnaire at his/her convenience.

Instrument

The questionnaire was comprised of three parts. Part I sought information which pertained to the respondent's past air travel experiences, in addition to information related to the upcoming flight. Specifically, the questionnaire included items in the first section which inquired as to the respondent's frequency of air travel, degree of air carrier brand loyalty, type of air fare purchased for the coming trip, origin and destination points, and primary purpose of the trip.

Part II questioned the respondent regarding his/her attitudes about certain environmental factors associated with the flight. The researchers sought to identify the respondent's views on air safety, air travel economy, and con-


venience factors associated with major, national, and regional/commuter carriers.

Part III assessed several psychological attributes specific to each respondent. A series of forty questions were posed regarding the respondent's (1) preference for accepting risk, (2) degree to which work was important to him/her, and (3) degree to which the respondent was dogmatic in his/her views. The market segmentation literature has suggested these psychological variables are important in explaining comsumer demand. Logically, one would expect each factor to be instrumental in explaining the demand for various forms of air carriage as well, although the degree and direction of association is not easily ascertained a priori. A passenger who exhibits a strong aversion to accepting risk, however, may opt for a large, established airline as opposed to a newly formed regional/commuter carrier whose on- time and safety performance is subject to more variability. Similarly, a passenger who is more oriented to leisure and play, rather than to work, may select a large, established airline over a regional/commuter when both carriers offer service between the same points at the same time. A passenger may choose a regional/commuter airline as opposed to a major or national carrier because of lower fares.

The information extracted from Part IV of the questionnaire established demographic profiles for various types of air travelers. Each respondent was asked to identify his/her age, sex, education, race, occupation, and household income.

Measures

From the questions which comprised the survey instrument, several environmental, personality, and demographic measures were constructed and subsequently employed in the analysis. The various measures are defined as follows:

Environmental Measures. The environmental variables related to the respondent's view of various factors associated with the flight. The respondent's answers to questions in Part II served as the basis for constructing the environmental measures. Appendix I identifies the particular items used in establishing the scales for safety, service, convenience, economy, and brand loyalty variables. The items were factor analyzed prior to constructing the measures. The coefficient alphas are included in Appendix I to provide an assessment of the degree of internal reliability associated with each measure.


Personality Measures. Three personality measures (risk assessment, life style, and dogmatism) were developed from the responses to questions included in Part III of the survey instrument. As before with the environmental measures, factor analysis was employed in order to identify the items to use in constructing the three personality variables. (See Appendix I.)

Demographic Measures. The responses to the questions dealing with the respondent's age, education level, and household income served as the demographic variables employed in segmenting the airline markets. The sex, race, and occupation variables were nominal-level data and, therefore, inappropriate for use with discriminant analysis.

Procedure

The method selected for identifying and segmenting airline passenger markets was discriminant analysis. In this approach, the type of air carrier served as the dependent or criterion variable, while the environmental, personality, and demographic measures functioned as predictor variables in classifying the respondents into one of the three market segments.

The logic of discriminant analysis centers on identifying at least one discriminant function that separates the sample members into at least two distinct groups. With respect to the present analysis, each predictor was identified and ranked by standardized coefficients, according to the relative importance of each in contributing to group discrimination. The inclusion of variables into the discriminant function was based on the F-value associated with each predictor. Only variables with F-values significant at the .05 level or below were included in the linear discriminant function. Each respondent was then classified into one of the market segments, and the percentage of correct classifications was documented. The significance of the discriminating function was determined according to the value associated with Wilkes lambda. The strength of the discriminant function in differentiating among the market segments was reflected by the value of the canonical correlation coefficient.

RESULTS AND DISCUSSION

The initial results of the analysis indicated major and national air carrier markets were not significantly dissimilar, which therefore suggested that the analysis should be repeated with only two market segments: major/ national, and regional/commuter carriers. The results from the second analysis identified a single discriminant function which served to segment respondents into one of two market segments.


TABLE 1

LINEAR DISCRIMINANT FUNCTION

Major/National vs. Regional/Commuter

Discriminant Function*

= 2.38 - .12 (Life Style) + .54 (Convenience

- .27 (Economy) - .20 (Safety)

Eigen Value: .20

Canonical Correlation:

Wilkes Lambda: .84

Chi-Square: 52.0

Significance: .003

.41

*Predictor variables included in the discriminant function are significant at the.05 level.


Table 1 identifies the linear discriminant function that performed the market segmentation. In total, three environmental variables and one personality variable were utilized in the discriminant analysis. The convenience measure was, by far, the most influential of all the predictor variables. The positive sign associated with its coefficient indicated that convenience associated with the flight was more important for respondents traveling on major/national carriers, than for those flying regional/commuter carriers. The two remaining environmental variables, economy and safety, were of greater importance for the regional/commuter, than for the major/national passenger respondents. This result was reflected by the existence of negative signs of the coefficients associated with the economy and safety variables.

Only one personality variable was significant enough to enter the discriminant function. Life-style was the sole personality measure that served as a discriminating variable among the two markets. The negative coefficient associated with the life-style measure in the discriminant function indicated that regional/commuter passenger respondents expressed a greater work orientation than those traveling major/national carriers.

None of the demographic variables entered into the discriminant function. Neither age, education, nor household income were statistically significant in segmenting passenger respondents into one of the two markets.

The classification matrix presented in Table 2 identifies the degree to which the discriminant function was successful in segmenting the two markets. Respondents who traveled with regional/commuter carriers were classified correctly 56 percent of the time, while the discriminant function was successful in classifying respondents flying major/national carriers in approximately 90 percent of the cases. Overall, the function accurately segmented passenger respondents in 67.4 percent of the cases which suggests the model, as specified, was moderately successful in performing market segmentation.

TABLE 2

CLASSIFICATION MATRIX

Actual Group

Commuters

Non-Commuters

Percent Correctly Classified

Predicted Group Membership

Commuters Non-Commuters

56.2% 43.8%

10.4% 89.6%

67.4%


CONCLUSION

As competition in airline markets intensifies, it becomes imperative that carriers strive to identify demand factors associated with their service of- ferings. Marketing programs should be developed with the thought that the uniqueness within each segment must be exploited. Passengers who prefer convenience over other characteristics of the flight must be convinced that convenience is indeed a factor that management values. More importantly, the service that is provided must conform to the image which the marketing program is attempting to create.

The results of the analysis suggest several factors important for segmenting airline markets. Three environmental factors (convenience, economy, and safety), and one personality factor (life style), served moderately well as discriminating variables. Respondents who flew certificated (major/ national) carriers indicated that convenience is of greatest importance. In developing marketing strategies, it appears advantageous for the certificated carriers to promote the convenience factor. Respondents appear to choose certificated over commuters, in competitive situations where ticketing, baggage handling, and baggage claim activities are ranked as highly important. This phenomenon is consistent with observed performance. Commuters tend to provide the minimum level of baggage service, often on an erratic and unpredictable schedule. Due to such experiences, passengers tend to prefer the services of the more established certificated carriers, even though fares are higher than those offered by competing commuter air carriers.

When economy and safety associated with the flight were the most valued attributes, respondents tended to prefer commuters. Fares are often lower for commuters since overhead expenses are significantly lower. Further- more, commuters operate more fuel-efficient aircraft, and provide fewer services before, during, and after the flight so variable expenses also are lower per unit of service.

The strategic implications are that commuters should promote the economy aspect when competing in markets with certificated carriers. Many commuters have chosen to play the role of price follower by matching the price of certificated competitors. The evidence presented in this study suggests such practices by commuters may result in suboptimal exploitation of an important competitive advantage.

The findings, with respect to the safety factor, are more difficult to interpret. Although respondents who flew commuter air carriers felt safer than those who traveled by certificated carriers, the actual safety record for commuters is significantly worse than for certificated major/national car-


riers. Perhaps a defense mechanism is operating that allows commuter passengers to hold to this attitude. This may be an important promotional element on which commuter marketing programs could capitalize.

The sole personality variable of life style identified commuter passengers as being more work-oriented than certificated major/national passengers. This finding is consistent since a great proportion of commuter passengers undertake air travel which is related to their occupation. Our evidence suggests that marketing plans for the commuter should be designed to cater, predominately, to the needs and desires of the business traveler who tends to be sensitive to the ticket price of the flight.


N = 402

1.

2.

3.

4.

5.

6.

7.

8.

9.

Risk Assessment

APPENDIX i

ROTATED FACTOR MATRIX FOR AIRLINE TRAVELER PSYCHOLOGICAL SCALES

Risk Assessment Life Style Dogmatism = .70 ~ = .53 a = .64

I almost always accept a dare.

I like to be with people who are unpredictable.**

.53" -.05 -.09

Rarely, if ever, do I do any- thing reckless.

.42" -.i0 -.12

Changes in routine disturb me.

.47" .03 -.05

I would be willing to give up some financial security to be able to change from one job to another if something interest- ing came along.**

.19 .01 .27

I would never pass up something that sounded like fun just because it sounded a little bit hazardous.**

.I0 .15 .03

I have a reserved and cautious attitude toward life.

.65" .01 -.01

Frequently, I like to take a chance on something that isn't sure--such as gambling.**

.37 .ii .07

It upsets me to get into a sit- uation without knowing what I can expect from it.

.40- .O9 -.16

i0. I don't like situations that are uncertain.

.i0 .02 .12

.13 -.08 .13

*Items with acceptable factor loadings **Items for which scales have been inverted


i.

2.

3.

4.

5.

6.

7.

8.

9.

10.

Life Style

I work because I have to and

for that reason only.**

I consider most entertainment to be a waste of time.

When I have a choice between work and enjoying myself, I usually work.

Life is no fun unless it is lived in a carefree manner.**

My goal is to do at least a little bit more than anyone else has done before.

I like to go "out on the town" as often as I can.**

Sometimes people say I neglect

other important aspects of my life because I work so hard.

I try to work just hard enough to get by.**

I would rather do an easy joh than one involving obstacles which must be overcome.**

I don't mind working while others are having fun.

Risk Assessment

.03

- .06

.04

.33

- .09

.15

.04

.i0

- .01

.04

Life Style

.47*

.20

.65*

.ii

.30

.13

.58*

.31

.31

.46*

Dogmatism

-.ii

.03

.15

-.14

.07

-.09

.03

.13

-.12

-.01


1~

2.

3.

4.

5.

6.

7.

8.

9.

i0.

Risk Assessment

Dogmatism

I am not very insistent in an argument.** - .05

- .03

- .03

I do everything in my power not to have to admit defeat�9

I try to convince others to accept my political principles�9

If public opinion is against me, I usually decide that I am wrong.** -.07

When someone presents me with a strong argument, I usually try to settle on some middle ground.** -.09

-.06 I don't have a forceful or dominating personality.**

If faced by a good argument, I am usually willing to change my position even on important issues.** -.03

People find it difficult to convince me that I am wrong on a point no matter how hard they try. -.12

I would get into a long discussion rather than admit that I am wrong. - .09

When someone opposes me on an issue, I usually find myself

taking an even stronger stand than I did at first. - .13

Life Style

.14

.07

.08

.03

- . 06

.13

-.06

.02

- .04

.17

Dogmatism

.12

.41"

.41"

-.01

.I0

.12

.23

.54-

.67"

�9 44*


i.

3.

4.

i.

2.

3.

i.

2.

3.

ROTATED FACTOR MATRIX FOR AIRLINE TRAVELER ENVIRONMENTAL SCALES

Convenience Convenience Safety Economy = .73 e= .68 ~= .78

I choose to travel by airline because my time is very valu- able to me. .62* - .01

.i0 I feel that the services I receive during the flight are good. .52*

I feel that the pre-flight services (i.e., baggage handling, ticket processing, etc.) are good.

-.06

- .ii

Normally, I fly with one particular airline company.

Safety

I believe that airline travel is safer than other forms of travel for trips over 200 miles. -.05 .63* -.16

I believe that airline travel is safer than other forms of travel for trips under 200 miles. .02 .58* -.01

I feel that propeller driven aircraft are less safe than large jet aircraft. .Ii .49* .03

Economy

From my experience, I have found that the larger the airline company the lower the actual cost of travel has been. -.i0 -.23 .71"

I generally call several airlines or travel agents to get price quotes and routing before I decide on a paricular airline. -.01 .12 .59*

The price I pay for my ticket is more important to me than the service [ receive prior to and during the flight. .09 -.09 .52"

.55* .06 -.01

.41" .13 -.03


REFERENCES

Daley, James M. and La Forge, Raymond W. "An Analysis of Intercity Commuter Travel Behavior." Proceedings, Transportation Research Forum, Vol. XXIII, No. 1, 1982, pp. 412-418.

Davis, Grant M. and Dillard, John E. "The Professional Traveler and the Airline Deregulation Act of 1978: An Appraisal." Proceedings, Transportation Research Forum, Vol. XXIII, No. 1, 1982, pp. 419-426.

Jones, J. Richard and Cocke, Sheila. "A Performance Evaluation of Commuter Airlines: The Passenger's View." Proceedings, Transportation Research Forum, Vol. XXII, No. 1, 1981, pp. 248-256.

Thornton, Robert L. "Channel Structural Changes and Passenger Air Deregulation." Pro- ceedings, Transportation Research Forum, Vol. XXII, No. 1, (November, 1981), pp. 285- 293.

FOOTNOTES

~For a concise review of the current status of market segmentation, see: Wind, Yoram. "Issues and Advances in Segmentation Research," Journal of Marketing Research, Vol. XV (August 1978), pp. 317-337.

2The following airports were included in the study: (1) Cleveland-Hopkins, (2) Akron- Canton, (3) Washington National, (4) Columbus Airport, and (5) St. Louis International.

3A major carrier is one of the following carriers: American, Braniff, Continental, Delta, Eastern, Northwest, Pan American, Republic, Trans World, United, U.S. Air, and Western. A National Carrier is one of the following: Air California, Air Florida, Airlift, Alaska, Aloha, Capitol, Flying Tiger, Frontier, Hawaiian, Ozark, Pacific Southwest, Piedmont, Southwest, Texas International, Transamerica, Wien, and World. Regional Carriers are, in general, newly certificated carriers serving medium- and small-city pairs. Commuters are a class of carriers providing regularly scheduled service solely with 60- or fewer-seat aircraft, or cargo service with 18,000 pounds-or-less pay load, and are exempt from certification requirements.

~Since airline deregulation legislation was passed by the Congress in 1978, a significant number of regional/commuter carriers have formed anew, and have entered into competition in short- and medium-haul routes with major and national carriers. See: Bruning, Edward, R. and Larry E. Oberdick. "Market Structure and Economic Performance in the Commuter Airline Industry." Transportation Journal, Vol. 21, No. 3, Spring 1982, pp. 76-87.

ABOUT THE AUTHORS

EDWARD R. BRUNING, Ph.D., is Assistant Professor of Marketing and Transportation at Kent State University. Several of his works have appeared in the Transportation Journal, Transport Research Forum, Journal of Eco- nomics and Transport Policy, and Transportation Issues. Dr. Bruning's research interests concern economic and regulatory analysis of the various transportation industries. His present efforts center on the effects of regulatory reform for the motor carrier and airline industries.


MARY L. KOVACIC, MBA, recently completed her Master's degree in Business Administration (Marketing Research and Transportation) at Kent State University, where she also earned a Bachelor's degree in Business Administration (Marketing). She has had experience as a graduate research assistant in the areas of Marketing and Transportation. Ms. Kovacic is presently employed as a Marketing Research Analyst at Leaseway Trans- portation Corp., in Beachwood, Ohio.

LARRY E. OBERDICK, BBA, is a graduate of Kent State University's Transportation and Logistics program. He is currently employed with Ozark Airlines at the corporate office in St. Louis, Missouri. Mr. Oberdick is currently serving as Supervisor, Customer Service Training.

segmentation analysis of domestic airline passenger markets

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