Determinants of customers loyalty at low cost airlines case tiger airways vietnam

#OUM OFEN UNIVERSITY MALAYSIA •OUM OPEN UNIVERSITY MALAYSIA RESEARCH PROJECT (BMBR5103) DETERMINANTS OF CUSTOMER’S LOYALTY A T LOW COSTAIRLINES - CASE TIGER AIRWAYS VIETNAM STUDENT’S FULL NAME TRAN HOANG QUOC KHANH STUDENT ID CGSVN00014999 INTAKE MARCH 2013 ADVISOR’S NAME & TITLE Ass.Prof.,PhD NGUYEN PHAN August 2014 #OUM OFEN UNIVERSITY MALAYSIA Advisor’s assessment Advisor’s signature #OUM OPEN UNIVIRS TV MALAYSIA Table of Contents Chapter - Introduction Introduction: Background: Problem Statement: Research questions: Research objectives: Research scope: .9 Chapter - Literature r e v i e w 11 Models in Services Industry: 11 Perceived Value: 12 Price: 13 Service Quality: .14 Brand Image: 15 Trust: 16 Customer satisiaction: 17 Customer loyalty: 18 Chapter - RESEARCH MODEL AND HYPOTHEISIS 21 Research model: 21 Hypotheses: 21 Chapter - Methodology 23 Research Method: 23 Primary data collection: .24 Reliability and Validity: .26 Chapter - Data analysis and Research results Sample description: 29 Descriptive statistic: 30 Reliability tests: .36 Validity tests: 36 Path Analysis: 50 Chapter - Conclusions andRecommendations 57 Conclusion: 57 #OUM OFEN UNIVERSTY MALAYSIA Suggestions for Tiger Airways: 58 Limitation: 60 REFERENCES 61 Appendix A 63 #OUM iOPEN UNIVERSITYMALAYSIA Acknowledgement I would like to express my sincere gratitude to Ass.Prof.,PhD NGUYEN PHAN instructed, gave me a chance and inspired me to this research for the continuous support o f my study Furthermore I would also like to acknowledge with much appreciation the crucial role o f my classmates and colleagues who helped me with useful information and suggestion to complete this thesis With kindest regards, HCMC #OUM OFEN UNIVERSITY MALAYSIA Abstract Since 2008, the global airline industry has been hit hard by the financial crisis (Goetz and Vowels, 2009) While full service airlines have struggled to be financially viable in this lean global environment low cost carriers have successfully driven down their cost base and continue to lower their prices As a result, consumers start switching to low cost carriers (LCC) for their travelling needs The emergence of LCCs such as Tiger Airways, Jet Star Pacific, Indochina Airline and VietJet Air in Vietnam has changed the value proposition experienced by consumers when searching, purchasing, and travelling on an airline This thesis was conducted in order to evaluate the influence of relevant factors on Customer Loyalty of Tiger Airways in Vietnam, which is a low-cost airline with a considerable number of dissatisfied customers The direct factors and indirect factors influencing loyalty o f customer are defined and be built as an airline customer loyalty model The quantitative method was used as the key method with the assistance of statistical software SPSS To achieve the primary data, customers of Tiger Airways were asked to complete online survey; and their remarks would be the valuable contribution for the research completion Finally, through this research, Tiger Airways may figure out their gaps and also their strong points which help them bring out the suitable actions to win the customer loyalty, an important determinant in today business OUM OFE.N WNV|R5:TY M^LAV5IA Chapter - Introduction I Introduction: Background: The airline industry is one of the most intelligent and serviceable inventions and it provides an advantageous transportation system both domestically and internationally It is particularly convenient for long distance travel because it’s much faster than other means of transportation such as cars, buses, trains or ships However, in the recent years, there has been a huge number of customer dissatisfaction about airlines, following to the growth of low-cost airlines Commonly, the complaints are due to low base-level of services, inconvenient aircraft interiors, check-in times, and cancellations of flight with delay of refund (Traveler 2011) Tiger Airways is one of low-cost airlines worldwide, Tiger Airways appeared in Viet Nam on 27 Jan 2005 with an office opened in Hanoi Its purpose was to provide Vietnamese customers an opportunity for air transport with budget prices Its business model as a LCC has monopolized the flying route from Saigon to Singapore (ASIAT travel tips, 1998-2011) In Vietnam, their direct competitors are: Vietnam Airlines , Singapore Airlines, Garuda Indonesia Jetstar, and Vietjet Air In recent years the company is holding a noticeable number of customer dissatisfaction about its poor customer services, uncomfortable seats, unclean aircraft interiors, excessive extra costs, etc Its customer complaints have impact the company image and revenue The objective of the thesis is to start a research focusing on what impact the customer loyalty of Tiger Airways and how to improve it This thesis also provides suggestions for Tiger Airways to improve its customer loyalty in Vietnam market Problem Statement: #OUM OFEN UNIVERSITY MALAYSIA Due to those reasons above, I decided to choose the topic for my thesis: “DETERMINANTS OF CUSTOMER’S LOYALTY AT LOW COST AIRLINES - CASE TIGER AIRWAYS VIETNAM” Based on the above background, in this study the conceptual framework as made in the image below: Research questions; The world economy is still in the difficult periods, the fuel price is not stable, the competition is tougher Tiger Airway has to face many problems The biggest issue of Tiger Airways Vietnam now is that the number of consumers that uses Tiger Airways more than one time is going down; its customer complaints are #OUM OFEN UNIVERSITY MALAYSIA spreading over websites for Tiger Airways customer reviews Most passengers give low grades and display lots of uncomplimentary opinions about Tiger Airways (Skytraxx 1999-2011 & Product review 2011) After defining the research problem, this thesis is going to follow with research questions: - What factors influence the customer loyalty and customer satisfaction of Tiger Airways in Vietnam? - What are suggestions for Tiger Airways to improve its customer loyalty ? Research objectives: This research will identify the factors which influence the loyalty of the Tiger Airways customers in Vietnam Based on the study results, the research can provide proper suggestions to help the company effectively improve its service quality as well as customer satisfaction Particularly, the research aims to collect as many qualitative results as possible through direct interviews and online survey so as to discover detailed reasons that delight or disappoint customers Face-to-face interviews and online survey were utilized in the survey In conclusion, the aim of the thesis is: • To identify the factors impacts customer satisfaction and customer loyalty in Tiger Airways • To provide suggestions for Tiger Airways to increase its customer loyalty through the research Research scope: This research will focus on the both local and international passengers, who have already used the service of Tiger Airways - All the secondary data related to Tiger Airways will be collected from 2009 - In this research, the survey will be used and it is going to implement only in Tan Son Nhat Airport Because this is the busiest airport in Vietnam, and the #OUM o pen UNiv;r>STv malavsia number of passengers per day is large; therefore it is easier for author to collect survey and it does not cost much - The research will not count every type of ages of customer Author chooses the customers in ages from 18 to 55, because these types of passengers frequently travel and they have enough perception and apprehension after using a service 10 #OUM OFEN UNIVERSITY MALAYSIA Where: PRI: Price BRI: Brand Image TRU: Trust CSA: Customer Satisfaction LYT: Customer Loyalty 5.2.2 Indirect relationship between Service Quality and Customer Loyalty ► BRI — “*■ LYT 0.525 x = Q LT - ► T R U *— + LY T 0,373 x = 0.176 - 0,C99 Q LT 0.227 0.471 0.118 QLI 0482 X 0.206 Total effect of QLT on LYT = 0,118+0,176+0,099 = 0,393 Where: QLT: Service Quality BRI: Brand Image TRU: Trust CSA: Customer Satisfaction LYT: Customer Loyalty Summary of influence of direct and indirect factors De Vaus, 2002 considered the strength of relationship coefficients as the summarized table below: 52 #OUM OFEN UNIVERS TV MALAYSIA C o e ffic ie n ts S tr e n g th 0.00 N o a sso c ia tio n 0 - 0 T riv ia l rela tio n sh ip O.HJ - 0.29 L ow to m o d e te rela tio n sh ip -0 M o d erate to very stro n g - S u b stan tial to v e ry stro n g 0,73 - 0.89 V ery stro n g re la tio n sh ip N early p e rfe c t re la tio n sh ip > 0.90 Interpreting Strength of Path Coefficients Base on comparing with the range of coefficients on the table 4.32, the conclusion of show strong the direct and indirect factors influence Customer Loyalty in this study is illustrated in table below: V a ria b le s C a u sa l In flu en ce E v a lu a tio n PR] 0.32 M o d e te to v e ry stro n g QLT 0.393 M o d e te to v e ry stro n g BRI 0.227 L o w to m o d e te relationship TR.U 0.471 M o d e te to v e ry stro n g CSA 0.205 L o w to m o d e te rela tio n sh ip Evaluate the relationship between influence factors and Customer Loyalty 53 #OUM OFEN UN1VER3TY MALAYSIA Result summary: • BR* = 0,181*PRICE + 0,523*QUAL —*■ The Service quality has the biggest influence on Brand Image while Perceived Value will be eliminated in the equation because the significant value is not acceptable (0,615) • TR* = 0,254*P.VAL + 0,482*PRICE + 0,373*QUAL —* The Price has biggest influence on TRUST, while Perceived Value has the lowest influence • CS* = 0,240*P.VAL + 0,254*PRICE + 0,482*QUAL —*■ The Quality factor has the biggest influence on Customer Satisfaction • LYT = 0,471 *TRU + 0,206*CSA + 0,227*BRI —*■ All the hypotheses H4, H5, H6 are accepted The largest standardized coefficients (0,471) in the Regression equation indicate that the Trust factor has the most influence on Customer loyalty The Brand image factor and Customer satisfaction factor also has smaller influence on Customer loyalty • Total effect of PRI on LYT = 0,32 • Total effect of QLT on LYT = 0,393 • The factor Perceived Value is not influence Customer Loyalty (it’s coefficient j3 = 0,094 and Sig = 0,064) Finally, the research model is revised after conducting the hypotheses tests; the factor Perceived value is eliminated because the results proved that there is no relationship between it and customer loyalty 54 #OUM OFEN UNIVERSITY MALAYSIA Final research model HYPOTHESIS TESTING RESULT Based on the tests of Reliability and Validity, the results of the hypotheses are summarized in the table below Hypotheses Result H la Perceived Value has influence on Brand Image Rejected H lb Perceived Value has influence on Trust Accepted H ie Perceived Value has influence on Customer Accepted Satisfaction H id Perceived Value has influence on Customer Loyalty Rejected H2a Price has influence on Brand Image Accepted H2b Price has influence on Trust Accepted H2c Price has influence on Customer Satisfaction Accepted H2d Price has influence on Customer Loyalty Accepted 55 #OUM OFEN UNIVERSITY MALAYSIA H3a Service Quality has influence on Brand Image Accepted H3b Service Quality has influence on Trust Accepted H3c Service Quality has influence on Customer Accepted Satisfaction H3d Service Quality has influence on Customer Loyalty Accepted H4 Brand Image has influence on Customer Loyalty Accepted H5 Trust has influence on Customer Loyalty Accepted H6 Customer Satisfaction has influence on Customer Accepted Loyalty Hypothesis testing result 56 #OUM iOPEN UNIWÊB3ITYMALAYSIA Chapter - Conclusions and Recommendations This final chapter will represent the conclusions for the whole research Some recommendations will be pointed out based on the results of analysis in previous chapter And finally, this chapter also shows the limitation of research and suggestions for further research Conclusion: The success of an Airline is much depending on customer loyalty It is very important to keep customer stay with company Base on the objective to pointed out key factors which have influence on customer loyalty; this research was conducted by collecting the survey from Tiger Airways passengers And the results of the survey have indicated some findings as below: - The three direct factors Brand Image, Trust and Customer Satisfaction have positive relationship with Customer Loyalty In there, Trust has the most influence on Customer Loyalty This implied that the company can keep customer continue cooperating with them when they win the customer’s Trust The other two factors have less influence on Customer Loyalty when compare to Trust factor, but there is not a big different between the influence of Brand Image and Customer Satisfaction - Two indirect factors Price and Service Quality have indirect influence on Customer Satisfaction through the three factors Brand Image, Trust and Customer Satisfaction But influence of another factor, Perceived Value, on Brand Image is not clear And based on the results of path analysis, Perceived Value also does not have influence on Customer Loyalty Therefore, this factor is removed from the research model - The Price factor has the most influence on Trust factor It is indicated that, customer has a higher Trust on Tiger Airways Cooperation when it supply a more reasonable price policy 57 #OUM OFEN UNIVERSITY MALAYSIA Suggestions for Tiger Airways; Based on the above analysis and findings, with the purpose of improving the Customer Loyalty, the researcher would like to offer recommendations related to each factor affecting Customer Loyalty The results of the survey in this research showed how strong the direct and indirect factors influence Customer Loyalty Thence, the survey also indicated that there are several issues occurring impact to the customer decision on flying with Tiger Airways Some suggestions below may help company operate better to win more and more loyalty of customer: 2.1 Price policy: Ticket price plays an important role in customer decision Therefore, the company should engage to invite customer the more reasonable price than competitors’ In reality, customers have realized that the ticket price of Tiger Airways is more reasonable when compare with other’s (mean of PR5 = 4, 0179) It is a positive signal of Tiger Airways in customer’s mind So, Tiger Airways could keep going with competitive ticket price Reducing costs is one of the key methods in operating business of a low cost carrier (Malighetti et al., 2009; Murphy) and it will make the difference To be able to that, Tiger Airways needs to review all the operated departments to cut off any unnecessary part Thence, the company could reduce the operation cost and therefore the company can build a good competitive price policy In the result which was shown in this thesis, Customers think that food and gifts sold in flight not have a reasonable price (mean of PR3 = 3, 1045) Tiger Airways provides a plentiful list of food and gifts for passenger in flight but the payment for them is a little high 58 #OUM OEEN.WNiyEMTY.M^lMIA To remedy that issue, Tiger Airways could try to look for other suppliers who are able to give better offers 2.2 Service quality: Through survey of this research, passengers expressed their bad mood about Tiger Airways on time performance (mean of QLT5 = 2, 9194) The long delay flights may cause much stress for both passenger and Airline There are varied reasons which cause flights delay, for example: bad weather, technical check, operational change, security activity, V.I.P flights The worst case occurs when the flight is decided to cancel One of the frequent reasons of delay flights is come from technical problem Tiger Airways should consider a better operational schedule and more concentrated in maintenance, because it will help to reduce the delay flights It is not only make passenger feel more comfortable but also help to reduce the expenses for delay flights - Customer Service Nowadays, customer service is the key weapon that a company uses to maintain relationship with customer and to win the competitors (Ahmad Amiz et al., 2010) Although Tiger Airways is operating in low cost airline model but customer service is still very important The company should pay more attention in training staffs to have better service The two major roles in airline customer service are ground staffs and cabin attendants These two departments need to be more and more professional in the whole service progress such as: greeting customers, willing to help when customer need, always smiling and being expert in solving irregular circumstances 2.3 Brand Image: According to the findings in this research, passengers performed that Tiger Airways is not really the first carrier they think about when they have decided to fly (mean of IM2 =2, 9851) It is the fact that Tiger Airways has not built an enough strong Image to attract customers The consequence is that Tiger Airways may lose a lot of potential customers; so it will impact the revenue of carrier Therefore, 59 #OUM OFEN UNIVERSITY MALAYSIA Tiger Airways need to focus more and more in building a strong brand through business operations and marketing strategies Limitation: This final thesis does an investigation about the customer perception and experience on Tiger Airways In the research, a new model was built to define the factors influence Customer Loyalty by using survey method Although the model was tested and given out a positive result, it still has several limitations which should be ameliorated in further researches The author suggests some improvements for those researches as follow: - Added factors: There were three direct factors and three indirect factors influence Customer Loyalty in this research, but they have not represented for most of the aspects which have impact on the loyalty Therefore, it should be added more in future models such as: commitment or customer expectations - Wider survey collection The survey using in this research was conducted only in Tan SonNhat airport, therefore it will not perform the accurate evaluation of customers because each airport has different service policy Besides that, the different cultures in vary regions could affect the remark of customers Hence, it is better if the next research could open widely to other airport where Tiger Airways flies to 60 #OUM OFEN UNIVHRSTY MALAYSIA REFERENCES > Chang, Y.-H., Chen, F.Y (2007), "Relational benefits, switching barriers and loyalty: a study of airline customers in Taiwan", Journal o f Air Transport Management, 13, 104-109 > Chaudhuri, A., Holbrook, M.B (2001), "The chain of effects from brand trust and brand affect to brand performance: the role of brand loyalty, Journal o f Marketing, 65, 81-93 > Cheng, T C E.; 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