The impact of service quality and air fare on customer satisfaction using low cost airlines in vietnam

MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY - HUYNH THI THU HUONG THE IMPACT OF SERVICE QUALITY ANDAIR FARE ON CUSTOMER SATISFACTION USING LOW COST AIRLINES IN VIETNAM THESIS OF MASTER OF BUSINESS ADMINISTRATION Ho Chi Minh City – 2012 MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY - Huynh Thi Thu Huong THE IMPACT OF SERVICE QUALITY AND AIR FARE ON CUSTOMER SATISFACTION USING LOW COST AIRLINES IN VIETNAM Subject: Master of Business Administration THESIS OF MASTER OF BUSINESS ADMINISTRATION SUPERVISOR: Dr TRAN HA MINH QUAN Ho Chi Minh City – 2012 I ACKNOWLEDGEMENTS I would sincerely like to thank the Professors in the University of Economics Ho Chi Minh City, who taught and trained me in the MBA course I also would like to thank the Board of Management of Economics University who gave me the opportunity to learn new things in the business administration I am very honored to be a member of this course In particular, I would like to express deep gratitude to Dr Tran Ha Minh Quan who has guided me enthusiastically, offered opinions and supported me through this thesis My warmest thanks to all the Instructors for providing and sharing invaluable knowledge on measurement and evaluation in education for me as well as other students Finally, I like to thank my parents who gave me love, care and tolerance from childhood to adulthood My thanks too, to my friends and classmates for encouraging me constantly to complete this thesis Huynh Thi Thu Huong Ho Chi Minh City, November 22 nd 2012 II COMMITMENT My name is Huynh Thi Thu Huong I would like to commit that this thesis, “The impact of service quality and air fare on customer satisfaction using low cost airlines in Vietnam”, was conducted based on my real and independent research The enclosed data was collected from passengers waiting in the departure lounge of Tan Son Nhat domestic airport, Vietnam by the author The data was handled and conducted by the author Huynh Thi Thu Huong Ho Chi Minh City, November 22 nd 2012 TABLE OF CONTENTS ACKNOWLEDGEMENT COMMITMENT TABLE OF CONTENTS LIST OF TABLES LIST OF FIGURES ABSTRACT Chapter INTRODUCTION 1.1 Vietnam’s low cost airlines background 1.2 Vietnam’s low cost airlines product and service 1.3 Research Motivation 1.4 Research Objectives 1.5 Research Scopes 1.6 Structure of Research Chapter LITERATURE REVIEW, THEORETICAL FRAMEWORK AND HYPOTHESES 2.1 Service Quality 2.1.1 The SERVQUAL Instrument 2.1.2 Applying SERVQUAL in the Low cost airlines in Vietnam 2.2 Customer Satisfaction 2.3 Theoretical Framework and Hypotheses 2.3.1 Theoretical Framework 2.3.2Research Hypotheses Chapter RESEARCH METHODOLOGY 3.1 Research Methodology 3.2 Sampling Design 3.3 Data Collection Procedures 3.4 Data Analyze Procedure 3.4.1 Reliability Analysis 31 3.4.2 Descriptive Statistics 32 3.4.3 Factor Analysis (FA) 32 3.4.4Multiple Linear Regression Analysis 33 Chapter ANALYSIS RESULT 34 4.1 Respondents Demographics 34 4.2 Reliability and Validity of SERQUAL Scales 35 4.3 Dimensions of Service Quality in Low Cost Airlines in Vietnam 37 4.4 Correlation testing 42 4.5 Hypothesis Testing and Discussions 47 4.6 Summary 51 Chapter CONCLUSIONS AND RECOMMENDATIONS 52 5.1 Summary of Findings 52 5.2 Practical Implications 52 5.3 Contributions of the Study 56 5.4 Limitations and Future Research 56 REFERENCES 57 APPENDIX 60 APPENDIX 62 APPENDIX 67 APPENDIX 70 LIST OF TABLES Table Product features of low-cost carrier and full service carrier in Vietnam.08 Table 2.1 Theoretical Framework 26 Table 2.2: The Summary of Research Hypotheses 27 Table 3.1: The Sources of Measurement Scale 30 Table 3.2: Rules of Thumb about Cranach’s Alpha Coefficient Size 32 Table 4.1: Demographic Characteristics of the Study 35 Table 4.2: Cranach’s Alpha Measures of Variables in the Study 37 Table 4.3 KMO and Bartlett's Test of Five Independent Variables 39 Table 4.4: Rotated Component Matrix of Independent Variables 40 Table 4.5 KMO and Bartlett's Test and Component Matrix 42 Table 4.6 Correlation of Variables 43 s Table 4.7 ANOVA for Construct 44 Table 4.8 Model Summary of the Construct 45 Table 4.9a Coefficients of the Construct 46 Table 4.9b Coefficients of the Construct 46 Table 4.10 Overall Perceived Service Quality 48 ABSTRACT In the any market, competition is an inevitable factor Similarly it happens with the airline industry, especially in Vietnam’s low cost airlines market Low airfare ticket is not a unique factor to compare but customer service is also very important Low cost airlines are also trying to understand their customers, to measure their passengers’ satisfaction because passengers’ satisfaction may guarantee good customer loyalty for their future business This study will provide a better understanding of how passenger satisfies with Vietnam’ low cost airlines about customer service and air fare Based on the result of this study, airline managers may understand their level of service and improve it During this study, the author measures service quality dimensions and air fare impact on customer satisfaction via SEVRQUAL tool of (Parasuraman et al., 1988) With a sample of 150 passengers who had travelled on Vietnam’s low cost airlines flights within month is surveyed at Tan Son Nhat airport included Jetstar Pacific Airlines and Vietjet Airlines passengers to test six hypothesized relationships among the construct of impacted of service quality and air fare on customer satisfaction The study also finds that the important dimensions of service quality tested here is: tangibles”, “reliability”, “responsiveness”, “assurance”, “empathy” and “air fare” The study used Statistic Package for Social Science (SPSS) to analyze data through Exploratory Factor Analysis (EFA) and regression analysis tools The results indicated that all dimensions have strong positive effect on customer satisfaction Keywords: SERQUAL, Service Quality, Customer Satisfaction, Low Cost Airlines, Vietnam CHAPTER INTRODUCTION 1.1 Vietnam’s low cost airline background: This study examines in the context of low cost carrier (LCC) operating in Vietnam There are two LCC operating in Vietnam, ( Jetstar Pacific Airlines since 2005 and Vietjet Air since 2011) Vietnam’s airline market is a market with a population of 88 million, shared by airlines (included Vietnam Airlines, Jetstar Pacific, Vietjet Air, Air Mekong, Vasco) almost operating domestic and short-haul routes but Vietnam Airlines is a flag carrier of Vietnam with both domestic and international routes In the situation of Vietnam changing from agriculture to a service market, we are opening the door to welcome foreign investments from all over the world, standard of living higher, moreover indoor and outdoor tourist market developing… as a result, the demand of air transportation increasing significantly It creates a potential airline market in Vietnam Nevertheless, airline industry has been continuous operating on extremely thin margins (IATA, 2011; Tiernan et al., 2008/1) with high operational costs (Airline Trends and Ancillary Revenue Report, 2010) Thus, the volume is crucial for the industry to stay profitable; the differences in prices for one flight can be huge Furthermore, the actual product of the airline industry (airline seat) is extremely perishable Once the aircraft takes off, the opportunity to sell a seat is lost Also the Vietnam’s Government control in the air fare via fare cap can cause the situation more problems There are many difficulties that airlines face so it is necessary to find a solution for Vietnam’s airlines The solution must solve the current problem: “How to trade off between the passenger’s demand and airline profit to keep the business on right way and development.” Following the world trend, Vietnam applied the low cost airline model in Vietnam market since May 2005, the first was Jetstar Pacific Airline which came from the full service airlines- Pacific Airlines Jetstar Pacific Airlines is a joint venture company between Vietnam Airlines, Qantas group from Australia and some individuals LCC model in Vietnam have the similar pricing and cost structures to the European and North American LCC (Goh, 2005) including some specifications: the same aircraft type, fast turn-around times, point - to - point services from main base, offering low fare in exchange for no extra services as compared to traditional airline offering free in-flight meals, beverages and in-flight entertainment but passengers can purchase these items separately if they choose to Passengers are encouraged to use online ticket booking and electronic ticket, no more paper ticket being used in cutting cost Innovative marketing strategies such as direct selling, call centers, eticketing, e-payments and bank and supermarket networks… Currently, there are two low cost airlines in Vietnam, Jetstar Pacific Airlines and Vietjet Air: Jetstar Pacific Airlines had a big start, becoming Vietnam’s first LCC in 2005, when the carrier (formerly known as Pacific Airlines) was rebranded and adopted the low-cost model following investment from Qantas, operating four domestic routes and 15 daily round trip frequencies, based on schedules from Jetstar’s website Jestar Pacific has been focusing on fleet renewal rather than expansion but is planning to resume expansion in 2013, ending a hiatus of four years in which growth was paused due partially to internal uncertainty The carrier began a more promising new period earlier this year after a 70% stake was transferred to Vietnam Airlines, (which previously had been looking at launching its own LCC subsidiary); Qantas owns the remaining 30% stake in Jetstar Pacific Jetstar Pacific for now is only planning to add two frequencies for the remainder of this year (both of which will take effect in latter half of Oct-2012), giving the LCC 67 APPENDIX CRONBACH ALPHA ANALYSIS Table 4.2: Cronbach’s Alpha Measures of Variables in the Study Appendix 2.1: Cronbach Alpha analysis of Tangibles Factor Reliability Statistics Item-Total Statistics Tangible01 Tangible02 Tangible03 Appendix 2.2: Cronbach Alpha analysis of Responsiveness Factor Reliability Statistics Item-Total Statistics 68 Responsiveness1 Responsiveness2 Responsiveness3 Appendix 2.3: Cronbach Alpha analysis of Reliability Factor Reliability Statistics Item-Total Statistics Reliability1 Reliability2 Reliability3 Reliability4 Appendix 2.4: Cronbach Alpha analysis of Assurance Factor Reliability Statistics Cronbach's Alpha N of Items 789 69 Item-Total Statistics Assurance1 Assurance2 Assurance3 Assurance4 pendix 2.5: Cronbach Alpha analysis of Empathy Factor Reliability Statistics Cronbach's Alpha N of Items 893 Item-Total Statistics Empathy1 Empathy2 Empathy3 70 Appendix 2.6: Cronbach Alpha analysis of Satisfaction Factor Reliability Statistics Cronbach's Alpha N of Items 821 Item-Total Statistics Satisfaction1 Satisfaction2 Satisfaction3 Appendix 2.6: Cronbach Alpha analysis of Satisfaction Factor (Before deleted RES04, EMP04) Variables Tangibles: Alpha = 718 TAN01 TAN02 TAN03 Responsiveness: RES01 RES02 71 RES03 RES04 Reliability: Alpha =.764 REL01 REL02 REL03 REL03 Assurance: Alpha =.789 ASR01 ASR02 ASR03 ASR04 Empathy: Alpha = 815 EMP01 EMP02 EMP03 EMP03 Air Fare: Alpha =.715 FAR01 FAR02 FAR03 Satisfaction: SAT01 SAT02 SAT03 72 APPENDIX EXPLORATORY FACTOR ANALYSIS (EFA) Appendix 3.1: EFA for exploring the service quality dimensions KMO and Bartlett's Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy Bartlett's Test of Sphericity Appendix 3.2: The EFA implementation of dependent variable (Customer Satisfaction) KMO and Bartlett's Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy Bartlett's Test of Sphericity Total Variance Explained Compone Extraction Method: Principal Component Analysis 73 a Component Matrix Component Satisfaction1 912 Satisfaction3 866 Satisfaction2 780 Extraction Method: Principal Component Analysis a components extracted Assurance3 Assurance1 Assurance2 Assurance4 Empathy3 Empathy1 Empathy2 Reliability1 Reliability2 Reliability3 Reliability4 Responsiveness1 Responsiveness3 Responsiveness2 Fare3 Fare1 Fare2 Tangible02 Tangible03 Tangible01 a Rotated Component Matrix Extraction Method: Principal Component Analysis Rotation Method: Varimax with Kaiser Normalization a Rotation converged in iterations 74 APPENDIX MULTIPLE LINEAR REGRESSION ANALYSIS (MLR) Appendix 4.1: The effect of the independent variables (service quality dimensions) on the dependent variable (overall perceived service quality) Correlations TAN Pearson Correlation Sig (2-tailed) N RES Pearson Correlation Sig (2-tailed) N REL Pearson Correlation Sig (2-tailed) N ASR Pearson Correlation Sig (2-tailed) N EMP Pearson Correlation Sig (2-tailed) N FAR Pearson Correlation Sig (2-tailed) N SAT Pearson Correlation Sig (2-tailed) N ** Correlation is significant at the 0.01 level (2-tailed) 75 Variables Entered/Removed b Mod l a All r b Depe Model a Predictors: (Constant), M_FAR, M_REL, M_RES, M_ASR, M_EMP, M_TAN b Dependent Variable: Overall Perceived Service Quality ANOVA b Model Regression Residual Total a Predictors: (Constant), M_FAR, M_REL, M_RES, M_ASR, M_EMP, M_TAN b Dependent Variable: M_SAT 76 Coefficients Model (Constant) M_TAN M_RES M_REL M_ASR M_EMP M_FAR a Dependent Variable: M_SAT a 77 78 79 80 Appendix 4.2: The effect of the independent variable(service quality dimensions and air fare) on the dependent variable (customer satisfaction) Model a Predictors: (Constant), Overa b Dependent Variable: SATISF Model Regression Residual Total a Predictors: (Constant), Overall Perceived Service Quality b Dependent Variable: SATISFACTION Model (Constant) OPSQ a Dependent Variable: SATISFACTION ...MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY - Huynh Thi Thu Huong THE IMPACT OF SERVICE QUALITY AND AIR FARE ON CUSTOMER SATISFACTION USING LOW COST AIRLINES. .. examine the relationship between the components of service quality, air fare and customer satisfaction in Vietnam? ??s LCC  To examine the impact of service quality and air fare on customer satisfaction. .. one of the key factor leading to success in the airline industry In the hard section of price competition between the two Vietnam low cost airlines, the most important part would not be the quality