CUSTOMER SATISFACTION AND LOYALTY IN THE AIRLINE

International Case Study Conference, Putra World Trade Centre, Malaysia 18-19 August 2014 ICSC 2014

CUSTOMER SATISFACTION AND LOYALTY IN

THE

AIRLINE

INDUSTRY:

A CASE STUDY OF MALAYSIA AIRLINES (MAS) AND

AIRASIA

Suriani Sukri

Fazlynda Abdullah

Waeibrorheem Waemustafa

School of Business Innovaion and Technopreneurship,

Universiti Malaysia Perlis, surianisukri@unimap.edu.my (Correspondence)

School of Business Innovation and Technopreneurship, Universiti Malaysia Perlis

Othman Yeop Abdullah Graduate School of Business, Universiti Utara Malaysia

ABSTRACT

This case study has been conducted for the purpose of examining the differences of

customer satisfaction and customer loyalty between Malaysia Airlines (full service airline)

and AirAsia (low cost airline) in Malaysia. 152 usable questionnaires were obtained from

respondent at two major airline terminals in Kuala Lumpur. The descriptive data analysis

and statistical findings revealed that three dimensions were found to be critical in relation to

customer satisfaction and customer loyalty between Malaysia Airlines (full service airline)

and AirAsia (low cost airline) in Malaysia. The factors are service quality, price and

servicescapes. Generally, respondents gave different levels of satisfaction with service

quality provided by A i rA s i a but AirAsia was perceived better than Malaysia

Airlines pricewise. On the other hand, Malaysia Airlines was perceived better in service

quality. Meanwhile, both airline consumers accept the servicescapes of both airlines. The

paper highlights some of its theoretical and managerial implications of the development of

airline industry.

Keywords: Customer Satisfaction, Loyalty, Service Quality, Price, Servicescapes, Airline

Industry

INTRODUCTION

Customer satisfaction is important because many researchers have shown that customer

satisfaction has a positive effect on an organization‘s profitability. Due to this, the

consequences of customer satisfaction and dissatisfaction must be considered properly for up

gradation or whatever to achieve optimum productivity. There is also a positive correlation

between customer satisfaction, loyalty and retention. Therefore, customer satisfaction, loyalty

and retention are all very important for an organization to be successful (Harkiranpal Singh,

2006).

International Case Study Conference, Putra World Trade Centre, Malaysia 18-19 August 2014 ICSC 2014

Usha Lenka et al. (2009) suggested that better human, technical and tangible aspects of

service quality increase customer satisfaction. Customer satisfaction enhances customer

loyalty. Human aspects are more important than technical and tangible aspects of service

quality that influence customer satisfaction eventually promote and enhance customer

loyalty.

According to Hansemark and Albinsson (2004), satisfaction is an overall customer

attitude towards a service provider, or an emotional reaction to the difference between what

customers anticipate and what they receive, regarding the fulfilment of some need, goal or

desire. Customer loyalty, on the other hand, according to Anderson and Jacobsen (2000)

is actually the result of an organization creating a benefit for a customer so that they

will maintain or increase their purchases from the organization.

Meanwhile, customer satisfaction surveys are typically the single largest tool of marketing

research spending, and in many services companies, this is the only systematic market

intelligence data gathered (Anderson et al., 2008; Morgan, Anderson, and Mittal, 2004).

Customer satisfaction is important to achieve the service satisfaction. The customers’

participation and suggestion give its impact on firm revenues.

The world airline industry has gone through a roller coaster ride in the last decade. Among

factors contributing to the situations are increasing fuel price, escalating security insurance,

rapid deregulation of the industry, as well as natural disaster, ranging from the outbreak of

diseases to eruptions of volcanoes that hinder the air travel growth (Kee Mung, Wong and

Ghazali, Musa. 2011).

Currently, the domestic airline industry in Malaysia is going through an interesting

phase with heads on competition between Malaysia Airlines and AirAsia. According to

O‘Connell and Williams (2005), Malaysia Airline has been classified as a full service airline

meanwhile AirAsia has been classified as a low cost airline.

Malaysia Airlines services on its international and domestic routes across 100 destinations

worldwide. Skytarx awarded Malaysia Airline as one of the six airlines that have 5-star

rating. Meanwhile, AirAsia is the first low cost airline in this region. It operates on its

international and domestic routes across 75 destinations in 21 countries. The Skytarx World

International Case Study Conference, Putra World Trade Centre, Malaysia 18-19 August 2014 ICSC 2014

Airline Award, voted AirAsia as one among the three best regional airlines in low cost airline

category.

Price is one of the factors that is competitive between these two airlines. AirAsia has

been aggressively promoting itself with the tagline of

‘

Now Everyone Can Fly’. This has

challenged the branding position of the long known Malaysia Airlines. Both airlines serve

different customer base and offer different service experience. However, this may not

necessarily be true in the cases of domestic flights and some short distant international

flights, where the service differentiation is rather minimal. Nevertheless, it is expected that

the customer satisfaction level for both airlines is different as the customers’ perception on

full service airlines and low cost airlines are different (O‘Connell and Williams, 2005).

As stated earlier, the pricing strategy is the main way to differentiate between the two

airlines in Malaysia. However, most airlines are aware that cost cutting may not be the only

factor that contributes to an effective strategy. It is also important to differentiate themselves

from their competitors by providing quality services that improve customers’ satisfaction.

Based on previous studies, the airline industry has demonstrated that it is possible to achieve

a clear differentiation through service brands (McDonald et al., 2001). Lim Seng Poh and

M. Ghazali (2011) examined the branding satisfaction in the airline industry. However, till

date service satisfaction in airline industries is not achieved to its zenith. It’s an ever

expanding phenomenon for theory and practical evaluations.

One of the interesting definitions of satisfactions is everyone knows what a satisfaction is,

until asked to give a definition. Then, it seems, nobody knows it (Oliver, 1997). The

organization needs to decide whether the consumer is satisfied with their performance or to

deliver the maximum level of perceived service quality.

As we know, customers often react strongly to service failure, so it is critical that

organizational recovery efforts be equally strong and effective. When service failure occurs,

the organization‘s response to reinforce loyalty or to exacerbate the situation and drive the

customer to a competing firm (Amy K. Smith, Ruth N. Bolton and Wagner, J., 1999).

Firstly, having a good feedback from consumers, the organization needs to have a good

quality of their service. Feedback from consumers can help the organizations to do some

International Case Study Conference, Putra World Trade Centre, Malaysia 18-19 August 2014 ICSC 2014

improvement in their service and make a correct decision to make the consumer satisfaction.

However, some feedback from consumers can give a negative effect to the organization.

They may use the “word of the mouth” to their close friends and relatives. Some of them do

not take a serious view of it while giving the feedback. They criticize the organizational

service because they want to make the bad reputation to the organizations.

Moreover, the service quality has either a direct influence on the behavioural intensions of

customers or indirect influence on such intension, mediated through customer satisfaction.

In the airline industry, the organizations need to take a serious view about the quality. With

good quality, they can make the best first impression in the minds of the consumer. They

can promote their service by using the media to attract more consumers. Besides that, some

of the organizations make only the claims, but no action. They advertise their services but do

not follow what they have promised. They bring the service failure to their organizations.

Indeed, there are different aspects of consumer satisfaction in the domestic airline. Fornell

(1992) highlights several key benefits of high customer satisfaction for the firm; increased

loyalty to current customer, reduce price elasticity, insulation of current customer from

competitive efforts and enhance reputations. The organization also needs to focus on service

layout or location to achieve the service satisfaction so that, the organizations need to

accomplish and take action for achieving the highest customer satisfaction.

The present study of Malaysia Airlines and AirAsia airline services address this limitation

with three constructs namely, behavioural intentions, service quality and satisfaction. The

study choose to examine the relationship among these constructs in the Malaysia Airline and

AirAsia airline because service quality and customer satisfactions have become increasingly

important in the airline industry in this region in recent years. This study also examines the

importance of service quality, pricing strategy and the servicescapes in the airline service,

whether these factors have an effect on the customer satisfaction and customer loyalty.

International Case Study Conference, Putra World Trade Centre, Malaysia 18-19 August 2014 ICSC 2014

AIRLINE INDUSTRY IN MALAYSIA

Airline Industry in Malaysia is operated by Malaysia Airlines (MAS) and several small

companies. MAS serves in domestic flights and international flights sectors. Air

transportation is an efficient means of transportation- quickly, but at a high cost. Sabah and

Sarawak have many domestic airports. This is because many settlements are located in remote

areas of mountainous townships. Landform factors also discourage land transport to be

developed. Air transport can contribute to the economy. The travel time can be shortened and

connecting rural areas in Sabah and Sarawak. Air transportation also can promote

international trade and promote the tourism industry indirectly.

Airline Industry in Malaysia is also operated by a number of low cost air services such as

AirAsia, Pelangi Air and Water Sabah. AirAsia offers passenger transport services cheaper

than MAS with the tagline "Now Everyone Can Fly". This ad-campaign was well received

and made AirAsia to increase frequency of flights. For example, from the airport Labuan,

from the frequency of two flights per week increased to daily flights. This is a positive

development of the country's aviation system.

AirAsia Airline, offer the lowest fare in the m a r k e t first, later the prices rise as departure

dates draw closer and the seats are sold likewise. The general policy would seem to be to

sell a number of seats at the lowest fare and then increase the price. The price rises are

increased above the normal level or fewer seats are offered at each price bracket or

combinations of both; these strategies of sales on a particular flight are deemed for seats being

taken up too quickly.

LITERATURE REVIEW

Traditionally, service quality has been conceptualized as the difference between

customer expectations regarding the services to be received and perceptions of services

received (Grönroos, 2001; Parasuraman, Zeithaml and Berry, 1988). In several studies

made beforehand, the quality of service has been referred as the extent to which services

meet customer needs or expectations (Lewis and Mitchell, 1990; Dotchin and Oakland,

1994). It is also conceptualized as a reflection of the overall consumption of inferiority or

superiority of services (Zeithaml, Berry and Parasuraman, 1990). Service quality has a

International Case Study Conference, Putra World Trade Centre, Malaysia 18-19 August 2014 ICSC 2014

significant impact on business performance, lower cost, customer satisfaction and loyalty,

and profitability in an organization. (Leonard and Sasser, 1982; Cronin and Taylor, 1992;

Gammie, 1992; Hallowell, 1996; Chang and Chen, 1998; Gummesson, 1998; Lasser et al.,

2000; Silvestro and Cross, 2000; Newman, 2001; Sureshchander et al., 2002; Guru, 2003

etc.). In the aviation industry, service quality related to customer satisfaction and profits

have higher relation. (Heskett et al., 1994).

Service quality is very important to the organization because customers can make some

comparison between good or bad service providers because the service quality and delivery

are obvious (Park, Roberson, and Wu, (2004). Therefore, it was important for an airline

organization to develop the service focusing on customers by making some effort to

understand the customer‘s expectation. Often researchers use SERVQUAL to measure the

service quality, especially the airline industry. This had been approved on Fick and Ritchie,

(1991); Sultan and Simpson, (2000) in their research that the airlines still need to improve

on the other aspects of Tangibles, Assurance, Reliability and Empathy. The SERVQUAL

instrument has been used by several researches to measure airline service quality.

Meanwhile, in Gour C. Saha, Theingi (2009) studies, they identified other multi-

dimensional constructs of airline service quality. Zagat, in his study related to an aviation

firm which provided airline services on the basis of five criteria; overall performance,

comfort, service, food and web site (Rhodes, 2006). To cite one more ex ample is

that the US Department of Transportation (DOT) also utilizes a multidimensional

conception of service quality in its regular reports on airline service quality, which provide

data on the following operational measures: flight delays, mishandled baggage, oversold

flights and consumer complaints.

Customer satisfaction is a well known and established concept in several areas like

marketing, consumer research, ergonomics, welfare-economics, and economics.

(Mohammad Muzahid Akbar and Noorjahan Parvez (2009) although satisfaction has been

defined as the difference between expectation and performance, but there are differences

between quality and satisfaction., Parasuraman et al. (1991) said that satisfaction is a

decision made after experience while quality is not the same. On the other hand, in

satisfaction literature, “expectation for goods” is a likely condition, whereas in service

quality, “expectations for goods” is a mandatory condition. Bitner & Zeithaml (2003) stated

that satisfaction is the customers’ evaluation of a product or service in terms of whether that

International Case Study Conference, Putra World Trade Centre, Malaysia 18-19 August 2014 ICSC 2014

product or service has met their needs and expectations. According to Boselie, Hesselink,

and Wiele (2002) satisfaction is a positive, affective state resulting from the appraisal

of all aspects of a party‘s working relationship with another. In order to achieve customer

satisfaction, La Barbera and Mazursky (1983) said that organizations must be able to satisfy

their customers’ needs and wants. Customers’ needs state the felt deprivations of a customer

(Kotler, 2000).

Indeed, customer satisfaction can be measured by using a customer satisfaction rating (CSR)

is often obtained through a questionnaire called customer satisfaction survey (CSS). This

method, however, suffers from the drawback of customers likely being emotionally

influenced while filling out these questionnaires (Murali Chemuturi, 2011). Moreover,

Westbrook (1980) suggested that future research, propose a multi - item scale for measuring

customer satisfaction, lowering measurement errors and improving the scale reliability at

the same time. Ashish Bhave, (2002) stated that it can be assessed by using various

methods such as Periodic Contract Reviews, Market research, Telephonic Interviews,

Personal Visits, Warranty Records, Informal Discussions and Satisfaction Surveys. It

depends on the customer base and available resource to choose the most effective method in

measuring the customers’ satisfaction.

Scanning over a decade, there has been a heightened emphasis on service quality and

customer satisfaction in business and academia alike. Sureshchandar et al, (2003)

identified that strong relationships exist between service quality and customer satisfaction

while emphasizing that these two are conceptually distinct constructs from the customers’

point of view. Spreng and Mackoy (1996) also showed that service quality leads to

customer satisfaction while working on the model developed by Oliver (1997). In a recent

study conducted by Ribbink et.al (2004) revealed that this relationship also exists in the

e-commerce industry.

As identified by the researchers that customer loyalty as a construct is comprised of both

customers’ attitudes and behaviours. Customers’ attitudinal component represents notions

like repurchase intention or purchasing additional products or services from the same

company, the willingness of recommending the company to others, demonstration of such

commitment to the company by exhibiting a resistance to switching to another competitor

(Cronin & Taylor, 1992; Narayandas, 1996; Prus & Brandt, 1995), and willingness to

International Case Study Conference, Putra World Trade Centre, Malaysia 18-19 August 2014 ICSC 2014

pay a price premium (Zeithaml, Berry, & Parasuraman, 1996). On the other hand, the

behavioural component of customer loyalty represents acts such as repeat purchase of

products or services that include purchasing more and different products or services from

the same company, recommending the company to others, and reflecting a long-term choice

probability for the brand etc., (Feick, Lee, & Lee, 2001). It can be concluded that customer

loyalty expresses an intended behaviour related to the product or service or service or to the

company. Pearson (1996) has defined customer loyalty as the mindset of the customers

who hold favourable attitudes toward a company, commit to repurchase the company‘s

product/service, and recommend the product/service to others. In various studies the

relationship between service quality and customer preference, loyalty had been examined

(Boulding, Kalra, Stalin, & Zeithaml, 1993 and Cronin & Taylor, 1992). In their study

Cronin and Taylor (1992) focused solely on repurchase intentions, whereas Boulding et al.

(1993) focused on the elements of repurchasing as well as the willingness to recommend.

In the study by Cronin and Taylor service quality did not appear to have a significant

(positive) effect to repurchase intentions (in contrast to the significant positive impact of

satisfaction on repurchase intention), whereas Boulding et al. (1993) found positive

relationships between service quality and repurchase intentions and willingness to

recommend.

Several authors have found a positive correlation between customer satisfaction and loyalty

(Anderson & Sullivan, 1993; Bolton & Drew, 1991; Fornell, 1992). Numerous studies in the

service sector have also empirically validated the link between satisfaction and behavioural

intensions, such as customer retention and word of mouth (Anderson & Sullivan, 1993:

Bansal & Taylor, 1999; Cronin & Taylor, 2000). Hart and Johnson (1999) have added

that one of the conditions of true customer loyalty is total satisfaction. According to

Coyne (1989), there are two critical thresholds that affect the relationship between

satisfaction and loyalty. On the high end, when satisfaction reaches a certain level, loyalty

increases dramatically at the same time, when satisfaction fell to a certain point, loyalty falls

as dramatically (Oliva, Oliver & MacMillan, 1992).

Many studies have analysed low-cost businesses, highlighting the keys to lower costs

(Alamdari and Fagan, 2005; Doganis, 2006; Franke, 2004), and the role played by

entrepreneurship (Cassia et al., 2006). Revenue analysis is an important element that has

been less studied. Indeed, the generation of revenues is one distinctive aspect differentiating

International Case Study Conference, Putra World Trade Centre, Malaysia 18-19 August 2014 ICSC 2014

low-cost from full-cost airline policies. Piga and Filippi (2002) have analysed the pricing

policies of the low-cost business model in comparison with the pricing strategies of the

full-cost airlines. Coherent choices seem to be essential in pricing policies as well. For

instance, the widespread use of the Internet for the sale of tickets tends to decrease

price dispersion. This phenomenon may in part be attributed to the efficiency of electronic

markets, as defined by Smith et al., (2000).

Price is one factor that has been in competition with these two airlines. AirAsia has

aggressively promoted itself with the slogan "Now Everyone Can Fly". This was a

challenging position known term branding of Malaysia Airlines. Both airlines serving

different customer base and offer the experience of different services. However, this is not

necessarily true in the case of domestic flights and international flights are much shorter, the

difference is rather minimal services. However, it is expected that the level of customer

satisfaction for both airlines are different regarding the perceptions of customers’ with

respect to full service airlines and low cost airline (O'Connell and Williams, 2005).

Price is the weapon of choice for many low-cost airlines in competition for market share.

The regional pricing strategy of low cost airlines is to issue free tickets to boost the market

and compete in the ticket price. It has been assumed to be an effective strategy to influence

customer buying decisions (Lim Seng Poh and Mohd Ghazali Mohayidin, 2011).

Keith J Mason, (2011) investigated that the low cost carriers have both growth and

penetrated in these market, especially garnering the consumer perception on the low fares

offered. By extensive advertising and effective use of public relations, this perception has

been developed into a proven strategy. For example, in the recent Keith J Mason

(2011) research, it is not surprising if there is great media coverage of these

carriers, which in turn generates more interest in the services because Ryan air has

offered fares as low as one penny(plus taxes).Both Ryan air and EasyJet have been very

effective in using media coverage of their legal wrangles with traditional carriers such

as British Airways and Lufthansa to promote their services and lower fares.

Most consumers are checking the price and more likely to purchase straight away because

they are confident that no lower price will appear later. The consumer also needs to buy two

way ticket if they want a return ticket because the airline only sell tickets for one-way ticket.

International Case Study Conference, Putra World Trade Centre, Malaysia 18-19 August 2014 ICSC 2014

The advantage of this for passengers is that they can book short stay trips without having to

pay flexible return ticket prices.

Service layout requirements are somewhat different from manufacturing, but the same

terminology is used. In both services and manufacturing, we find the fixed- position layout,

process layout, and product, or in this case, service-based layout. In service layout there are

two elements which are servicecapes and e-servicecapes. Servicecapes include all physical

elements in venues of service providers such as lighting, signage, textures, materials,

upholstery, colour, music, fragrances, and temperature of the environment contributed

to create the servicescape (Namasivayam and Lin, 2008). Meanwhile, e-servicecapes are

the website which facilitates the customers’ purchase experiences. Both elements have an

important effect on customers’ mood states and helps consumer‘s booking and buying.

E-commerce shares ultimately many service characteristics irrespective of offering products

or services (Williams and Dargel, 2004). The atmosphere on a website facilitates customers’

purchase experiences and is likely to influence customer feelings toward an organization

(Mummalaneni, 2005). When sales or service encounters occur through the website, the e-

servicescape may become particularly critical because it is the key factor representing

the organization to customers (Rafaeli & Pratt, 2005). The internet allows customers a

convenient way to explore a broader range of products and product attributes, and

provides customers with chances to compare features of a product/service and prices on

multiple websites (Williams & Dargel, 2004).

A study of virtual servicescape was conducted to examine the impacts of aesthetics and

professionalism on customer feelings of pleasantness, satisfaction, and approach toward

service interaction of a service organization (Vilnai-Yavets & Rafaeli, 2006). It was found

that aesthetic aspects were influential on customers’ feelings of pleasantness, satisfaction,

and approach toward service interactions, as well as professionalism which influences

customer satisfaction. Williams and Dargel (2004) discussed intangible benefits of

interactions with the Website as offerings of the cyberspace, such as saved time,

convenience, and a reduced risk of customer dissatisfaction due to adequately provided

information. The researchers also discussed how the internet minimizes the risk of

customers’ post purchase dissatisfaction, since it enables customers to enhance their own

search and evaluation capabilities.

International Case Study Conference, Putra World Trade Centre, Malaysia 18-19 August 2014 ICSC 2014

Moreover, it allows them to achieve this search and evaluation beyond traditional

distribution channels and physical environments, designed and planned to manipulate

internal cognitive and emotional responses (Williams and Dargel, 2004).

DESIGN AND RESEARCH METHOD

Population

Kuala Lumpur was selected as the study place for its suitability in relation to the limited

resource and time. This capital city is one of the metropolises of Malaysia. It has a number

of airlines, as well as the confluence of all levels of social strata in Malaysia. It was

expected that customers were interested to use the airline service rather than other

transportations that might take longer time to reach the destinations. To access the

respondents of this study, the questionnaires were distributed to the respondents by hand

personally. Confidentiality was assured by encouraging the respondent to return back the

questionnaire directly. The questionnaires were distributed to all categories of customer

that were met in the KLIA and LCCT. As soon as the respondents had completed the

questionnaires, they were collected personally. The data were collected from customers who

were using the airline service. The complete set of data was collected over a period of seven

weeks.

Research Design

In order to conduct this study an exploratory approach was initially designed to obtain

information on issues related to customer satisfaction and loyalty. Soon after identifying the

variables related to customer satisfaction and customer loyalty factors, the study adopted

descriptive study design, since the study was focused on fact-finding methodology. Hence

the descriptive study design was finalized.

Sampling

The respondents of the sample were the customers of Malaysia Airline and AirAsia users.

Those were the customers that had been experienced in using the both Malaysia Airline and

AirAsia or either one of them. A convenience sampling was done for the sampling

International Case Study Conference, Putra World Trade Centre, Malaysia 18-19 August 2014 ICSC 2014

purposes, as this method of sampling was considered as an easier, faster, and most efficient

way to collect the information that were needed.

Questionnaire Design

For services quality, a questionnaire was used to collect data for analysis and the items of

the questionnaire were adapted from M. M. Bozorgi (2006). Another questionnaire elicited

information about customer satisfaction, customer loyalty, price and servicescapes and the

factors such as: ease of use o f the online booking, security and safety, airport service,

normative beliefs and attitude. A three page questionnaire was used as the research

instrument. Zikmund (2000) described that the questionnaire designed might keep the

respondents’ identity as secrecy. Especially in this study also the respondents were not asked

to write their names on the questionnaire. In this study, a Likert type scale was used where

the respondents could check the statements regarding their attitudes and intention on how

strongly they agree or disagree. An open-ended questionnaire, a structure questionnaire and

focus group sessions were used to explore the different factors to relate ease of use of the

online booking, security and safety, airport service, normative beliefs and attitude that

influence customers’ intention towards airline service.

Data Collection

A total of 200 questionnaires were distributed among randomly selected respondents. 100

each questionnaire were separately distributed for the two airlines at the selected sites

KLIA and LCCT vide 100 questionnaires for Malaysia Airlines (MAS) users and 100

questionnaires for AirAsia users respectively. However, only 76 questionnaires for

Malaysia Airlines and 83 questionnaires for AirAsia Airline were returned by the

respondent of which only 76 of total questionnaires distributed among AirAsia users were

satisfactorily completed and tested for correctness of data. Statistical Packages for Social

Sciences (SPSS) software was used for statistical analysis of collected data.

CASE STUDY FINDINGS

After the data were collected, the data analysis was done. In this research only the complete

data were analysed to ensure the accuracy of the analysis. The data were analysed

statistically with SPSS Version 11. The data were analysed with statistical tools such as the

International Case Study Conference, Putra World Trade Centre, Malaysia 18-19 August 2014 ICSC 2014

frequency or the distribution of the respondents, reliability analysis and factor analysis,

descriptive analysis and regressions to get the best results of this research.

Demographic characteristics of respondents

Out of 152 respondents, there were more female than male respondent. For Malaysia

Airlines the results show that 56.6% of the respondents were females and the remaining

43.4% were males. Meanwhile, AirAsia results show that 59.2 % of the respondents were

females and the remaining 40.8% were males. Higher response rates from female had been

observed on several recent studies in Malaysia such as Ahmad and Juhdi (2008), Sulaiman

et al. (2008), and Zailani et al., (2008). In this study too the same aspect was recorded

and noted.

Table 1: Demographic characteristics of respondents

Variable

Categories

Frequency

Percentages %

MAS

AirAsia

MAS

AirAsia

Gender

Male

Female

43.4

56.6

40.8

59.2

Age

17 – 26

27 – 36

37 – 46

Above 47 years old

60.5

19.7

15.8

3.9

64.5

23.7

9.2

2.6

Ethnicity

Malay

Chinese

Indian

Others

40.8

50.0

3.9

5.3

38.2

53.9

3.9

Income level

Below RM 500

RM 501 – RM1500

RM1501 – RM2500

Above RM2501

14.5

34.2

38.2

13.2

18.4

39.5

30.3

11.8

The majority of respondents who used both airlines were aged 17-26 years old, 60.5% for

MAS and 64.5% for AirAsia. Meanwhile, 19.7 (15) and 23.7 (18) were aged between

27–36 years old and 12% (12) and 9,2% (7) were between age 37–46 years old for MAS

and AirAsia Airline. The minority of respondents who used both airlines were above 47

years old, 3.9% (3) for MAS and 2.6% (2) for AirAsia. In short, most travelers in both

International Case Study Conference, Putra World Trade Centre, Malaysia 18-19 August 2014 ICSC 2014

airlines were young and well educated which supports other research findings such as

Atalik (2009), Juwaheer (2004), Saha and Theingi (2009), Tiernan et al. (2008), and Wen

and Yeh (2010). Based on a recent research by K.M Wong and G. Musa (2011) the

majority of respondents were Chinese and this was followed by Malay and I ndian. Total

races for both airlines were Chinese with 50% for MAS and 53.9 for AirAsia. Meanwhile,

40.8% (31) and 38.2 % (29) were Malay, same percentages 3.9 % (3) were Indian and lastly

5.3% (4) and 3.9% (3) were other. As for the income level, for MAS the greater number

of respondents were drawing RM1501–RM2501 (38.2%) while the same that of

A i r A s i a was RM501–RM1500 (39.5%). In MAS, there were 34.2% (26) respondents

were drawing from RM501–RM1500 whereas the AirAsia respondents income level

were 30.3% (23) and they were from RM1501–RM2500 income group. A lower

percentage 14.5% (11) and 18.4% (14) were drawing below RM500 respectively among

MAS and AirAsia users. The lowest numbers of the respondents were 13.2% (10) for

MAS and 11.8% (9) for AirAsia who were drawing a monthly income above RM 2501.

Reliability Analysis

The results shown in Table 2 were the Cronbach Alpha for corresponding items of each

dependent variable, namely Service Quality, Price, Servicescapes, Customer Satisfaction

and Customer Loyalty. The Cronbach‘s coefficient alpha values for all factor in MAS that

ranged from 0.708 to 0.933. Meanwhile, the Cronbach‘s coefficient alpha values for all

factors in AirAsia Airline that ranged from 0.779 to 0.904.

International Case Study Conference, Putra World Trade Centre, Malaysia 18-19 August 2014 ICSC 2014

Variable

Number of

Items

Cronbach Alpha

INDEPENDENT VARIABLE

Service Quality

0.933

0.890

Malaysia Airlines

AirAsia Airline

Price

0.881

0.779

Malaysia Airlines

AirAsia Airline

Services capes

0.708

0.904

Malaysia Airlines

AirAsia Airline

DEPENDENT VARIABLE

Customers Satisfaction and Customer

Loyalty

0.842

0.833

Malaysia Airlines

AirAsia Airline

Table 2: Results of Reliability Test

Both ranges indicated good inter-item consistency for each factor. Essentially,

this means that respondents who tended to select high scores for one item also tended to

select high scores for the others; similarly, respondents who selected low scores for one

item tended to select low scores for the other variable. Thus, knowing the score for one

variable item would enable one to predict with some accuracy of the possible scores for

the other two variable items. If alpha value had been low, this ability to predict scores

from one item would not be possible.

Sekaran (1992) explained that the reliability of quantification is established by testing the

consistency and stability of data collected. Consistency of data shows the degree of an

item independently measured of a concept. Reliability analysis was used to measure the

goodness of data. This is to ensure that all items used in each variable are free from error

and thus, providing consistent results. Cronbach‘s alpha values were the assurance for that.

According to statistical manuals alpha values above 0.8 is considered to be good, whereas

range of 0.70 is considered to be acceptable.

International Case Study Conference, Putra World Trade Centre, Malaysia 18-19 August 2014 ICSC 2014

As shown in Table 2, the researcher obtained an alpha value 0.933 and 0.890 for the

independent variable service quality for MAS and AirAsia Airline respectively. It means

that all twenty six (26) items asked to the respondents about the service quality, could be

considered having a high reliability value. For the independent variable price satisfaction,

alpha value of 0.811 (MAS) and 0.799 (AirAsia), implies that all eight (8) items asked

about the price satisfaction considered to have a high reliability value. For the

independent variable servicescapes, the alpha values were 0.708 (MAS) and 0.904

(AirAsia) respectively. That means all nineteen (19) items r e s p o n d e d b y the

respondents about the servicescapes relationship considered to have a high reliability

value. Lastly, for the dependent variable, Customers Satisfaction and Customer Loyalty,

there were six (6) items that were asked to the respondents. The alpha value for that were

0.842 (MAS) and 0.833 (AirAsia) respectively. The overall alpha values were considered

as acceptable ones. Hence the data and tool were held high reliable.

Descriptive Analysis of All Variables

The fundamental descriptive statistics, which include the mean and standard

deviation for the independent and dependent variables were tabulated in Table 3.

Table 3: Descriptive Analysis

Factors

Mean

Standard Deviation

AIRLINE

MAS

AIR

ASIA

MAS

AIR

ASIA

Services Quality

3.8551

3.5749

0.52039

0.44866

Price

3.1574

3.4457

0.69652

0.64431

Servicescapes

3.9889

3.5935

0.54087

0.53850

Customers Satisfaction And Customer

Loyalty

3.9846

3.6864

0.55255

0.60612

Table 3 shows that the means of all variables fall 3.1574 to 3.9889 for MAS meanwhile

3.4457 to 3.6864 for AirAsia. The mean and standard deviation for independent variable

measures which are Service Quality, Price Satisfaction and Servicescapes for MAS

were 3.8551, 3.1574, and 3.9889. While for AirAsia the mean and standard deviation for

independent variables were 3.5749, 3.4457 and 3.5935. For dependent variables, Customers

Satisfaction and Customer Loyalty had means of 3.9846 (MAS), 3.6864 (AirAsia) and

standard deviation of MAS (0.55255) and AirAsia (0.60612). This implies that MAS is

International Case Study Conference, Putra World Trade Centre, Malaysia 18-19 August 2014 ICSC 2014

superior in term of service quality compared to AirAsia. The study also shows that AirAsia

is better in term of price as a low cost carrier compared to its MAS counterpart. However,

MAS is perceived as better airline in term of other services such as servicescapes unlike

AirAsia which emphasis more on in reducing cost. The overall result of customers

satisfaction and customer loyalty indicate that MAS’s customer is more satisfied and loyal

compared to AirAsia.

Assumption of multi co-linearity

Note the VIF number under the box titled co-linearity statistics. VIF stands for variance

inflation factor. The rule-of-thumb is that the number should be less than 10. If it is

greater than 10, that means the independent variables are highly correlated with one

another. As a result, remove that variable with the large VIF from the

analysis and

perform a new regression.

Table 4: Multi co-linearity assumption

Co-linearity Statistics

Airline

MAS

AirAsia

Model

Tolerance

VIF

Tolerance

VIF

Service Quality

0.748

1.337

0.307

3.261

Price

0.948

1.055

0.753

1.327

Servicescapes

0.767

1.304

0.322

3.103

For both airlines, there was no multi collinearity with all independent variables (all the

values were less than 10).

International Case Study Conference, Putra World Trade Centre, Malaysia 18-19 August 2014 ICSC 2014

Regression Analysis

Table 5: Results of Regression Analysis

Variables

Beta

T-Ratio

Sig. t

MAS

AIR

ASIA

MAS

AIR

ASIA

MAS

AIR

ASIA

Services Quality

0.282

0.533

2.885

3.817

0.326

0.000***

Price

0.138

0.135

1.586

1.519

0.005

***

0.133

Services Capes

0.500

0.170

5.177

1.245

0.117

0.217

MAS

AIR ASIA

R square

0.484

0.570

Durbin- Watson

1.681

2.517

22.530

31.836

Sig. F

0.000

Condition index

22.794

35.937

Table 6: The significant of the coefficient estimate in the model (MAS and AirAsia)

Variable

Relationship between independent variable and dependent

variable

Service

Quality

(+)

Service quality

Customer satisfaction and loyalty

Price

Strategy

(+)

Price strategy

Customer satisfaction and loyalty

Servicescapes

(+)

Servicescapes

Customer satisfaction and loyalty

In the case of Malaysia Airline service quality, price and servicescapes could only be

explained 48.4% (R square = 0.484) variation of customer satisfaction and customer

loyalty.

Meanwhile, services quality, price and servicescapes could only be explained 57% (R

square = 0.570) variation of customer satisfaction and customer loyalty. Durbin Watson

values fell within the acceptable range with the values 1.681 (MAS) and 2.517

International Case Study Conference, Putra World Trade Centre, Malaysia 18-19 August 2014 ICSC 2014

(AirAsia), therefore there were no auto correlation problem with the data. This study were

normally distributed and F-value was found to be significant at 1% significance level (sig.

F = 0.000). This concludes that the regression model used in this study was adequate or in

other words, the model was fit. Based on the regression analysis done to determine the

customer satisfaction and customer loyalty in the airline industry, the result indicates that

the coefficient of service quality was positively correlated but no significant effect on

Malaysia Airlines (sig. t = 0.326) and has a significant effect on AirAsia Airline (sig. t =0

.000) on customer satisfaction and loyalty. This could be explained by the service

provided by both airlines. Implied, the consumers would not use Malaysia Airline service,

if they had bad service, because the price was expensive. Meanwhile, consumer would

stay to use the AirAsia airline even though the MAS service better than AirAsia airline

because AirAsia airline have most effective service quality than MAS. In other words,

Malaysian Airlines was perceived better in tangibles, core service, reputation, and

staffing of

employees, but not effective (Wong and Musa, 2011).

The Hypothesis H

and H

which stated there was a significant relationship between

service quality, customers‘ satisfaction and customer loyalty in MAS was substantiate

while AirAsia was not substantiate.

For MAS, the regression analysis result also indicates that the relationship between price as

independent variable and customer satisfaction and customer loyalty as t h e dependent

variable was positively correlated and had a significant effect (sig. t = 0.005). Pricing

strategy was the major way to differentiate between the two airlines in Malaysia.

Therefore hypothesis H

that price has an impact on customer satisfaction and customer

loyalty was supported. Meanwhile, AirAsia regression analysis indicated that price did not

have significant effect to (sig. t =0.133) customer satisfaction and customer loyalty.

Therefore hypothesis H

that price had an impact on customer satisfaction and customer

loyalty was not supported. McDonald et al., (2001) stated that most airlines are aware that

cost cutting may not be the only factor that contributes to an effective strategy. It is also

important to differentiate themselves from their competitors by providing quality services

that improve customers’ satisfaction. Based on previous studies, the airline industry has

demonstrated that it is possible to achieve a clear differentiation through service brands.

This shows that the customers still used airlines not because of the price offered. A

International Case Study Conference, Putra World Trade Centre, Malaysia 18-19 August 2014 ICSC 2014

higher perception means were obtained for AirAsia compared to MAS on price. This result

is consistent with the study done by Wong and Musa (2011).

The result stated that the coefficient estimate of servicescapes positively correlated and

no significant effect on both airlines (sig. t = 0 .117 and 0 .217) with customer

satisfaction and customer loyalty. Servicescapes do not play a role in influencing

customer to leave or continued to use both airlines. Therefore hypothesis H

and H

had no

impact on customer satisfaction and customer loyalty.

DISCUSSSION

Hypothesis H

examined the relationship between customers’ perceived service quality

and customer satisfaction and customer loyalty in AirAsia Airline and this hypothesis was

accepted. Meanwhile, hypothesis H

examined the relationship between customers’

perceived service quality and customer satisfaction and customer loyalty in Malaysia

Airlines and these hypotheses was not accepted. According to O‘Connell and Williams

(2005) and Pitt and Brown (2001) research, higher expectation was expected on Malaysia

Airlines on the core service, reputation, and staffing of employees as what had been

expected in the classification as a full service airline. The lower level of expectation was

the expectation on AirAsia on the core service, reputation, and staffing of employees

as what had been expected in the classification as a low cost carrier service airline but for

AirAsia had good efficiency service quality than Malaysia Airlines.

The price strategy relationship with customer satisfaction and customers’ loyalty in Malaysia

Airlines was significant so the consumers looked forward to use this tool if the price was

satisfatory whereas the price relationship with customer satisfaction and customers’ loyalty

in AirAsia was not significant. Hypothesis H

examined prices has relationship with

customer satisfaction and customer loyalty and it was accepted, but the hypothesis H

was not accepted. This shows consumer used AirAsia because of its lower prices while

consumers avoided using Malaysia Airlines because of their expensive price. Malaysia

Airlines had the intention of driving AirAsia out from the industry and to obtain market

dominance (McGee, 1958 and Gundlach, 1995). Priced its product below variable cost and

tried to recoup the losses once AirAsia exits the market. However, respondents had their

ways of higher expectations for the price compared between AirAsia and Malaysia Airlines.

International Case Study Conference, Putra World Trade Centre, Malaysia 18-19 August 2014 ICSC 2014

Previous studies on low cost airline shows that the price is seen as a key marketing strategy

in capturing the attention of the market (O'Connell and Williams, 2005; Saha and Theingi,

2009; Tiernan et al, 2008; Wen and Yeh, 2010). Also the study by Pitt and Brown (2001)

suggests that low cost airlines are expected to have lower fares than full service airlines due

to the design of cheaper products. The study on the perception of high prices is similar to the

findings of Wen and Yeh (2010). Jetstar Asia Airways is a low cost airline has

positioned itself as a leader in price and achieves greater satisfaction in this dimension.

Widespread perception about Malaysia Airlines and AirAsia when acknowledged is that it

represents a low cost (O'Connell and Williams, 2005).

Hypotheses H

and H

examined the relationship between servicescapes and customer

satisfaction and customer loyalty were not accepted. This is because most of Malaysian

consumers managed to go to the seller place if they want to use the service. They don‘t

have any option to choose servicescapes they want. For example, to take the case of

AirAsia, they do not provide comfortable seats in flights, but still the consumers using this

airline. A servicescape is crucial in service organizations because customer usually

encounters servicescapes prior to his/her interactions with a service provider (Namasivayam

and Mattila, 2007). In their study, Namasivayam and Mattila investigated whether

servicescapes have an important effect on customers’ mood states. Same as Malaysia

Airlines, they don‘t have a high possibility of booking and buying a ticket through the

internet, but the customers are still able to do booking and buying tickets manually. Sales or

service encounters occur through the website, the e-servicescapes may become particularly

critical because it is the key factor representing the organization to customers (Rafaeli &

Pratt, 2005). The internet allows customers a convenient way to explore a broader range of

products and product attributes, and provides customers with chances to compare features of

a product/service and prices on multiple websites (Williams & Dargel, 2004).

The result of the present study showed that it was important for the both airlines to be aware

of the service quality and price that have influence on customer satisfaction and customer

loyalty. Both airlines need to make advertising to promote their product and attract

consumer with their strength. Kumar et al., (2009) indicated that sales can be improved

through proper marketing strategies or proper marketing resources allocation (Wen and

Yeh, 2010). But Parasuraman et al., (1985) warned that an organization should not over-

promise its customers as it may result in higher expectation, thus making satisfaction more

International Case Study Conference, Putra World Trade Centre, Malaysia 18-19 August 2014 ICSC 2014

difficult to achieve. Both airlines should maintain their service quality and price concepts

that received the highest perception. Management innovations such as customers’ self

selection of pricing levels, dynamic demand scheduling, and wireless services on air may

further enhance airline’s competitiveness as highlighted in recent airlines studies by

Atalik (2009) and Kumar et al., (2009).

The present study has its limitations too, because the results depend on sampling method

which only drew sample only from Malaysia and respondents were Malaysian. There are

international services which consist the respondents non Malaysian and foreigners. Indeed,

the present study only focused on two main terminals in Kuala Lumpur whereas there

are other airline terminals such as Penang International airport. Moreover, time constraint

was another limitation of the present study.

CONCLUSION

In conclusion, this study had succeeded in exploring the service satisfaction using two of

the best airlines in the world (Malaysian Airlines and AirAsia). Future study could usefully

further refine the measurement items of these dimensions using other airlines as case studies.

Despite overall dissatisfaction recorded by the passengers of both airlines, the information

of the detailed service satisfaction dimension scores could be used by both airlines in

their efforts to develop new services, improve management, servicecapes and operations

as well as the price offered.

Concerning the recommendations for future research, the researcher likes to suggest that all

the limitation of the present study, as stated above should be overcome. Future study may

want to develop a better model and expand their population. Indeed, future research will

have to include the consumers who use other peripheral airports in Malaysia including those

in Sabah and Sarawak.

International Case Study Conference, Putra World Trade Centre, Malaysia 18-19 August 2014 ICSC 2014

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