factors affecting customer loyalty towards airlines industry in...

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INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS

COPY RIGHT © 2014 Institute of Interdisciplinary Business Research 12

OCTOBER 2014

VOL 6, NO 6

Factors Affecting Customer Loyalty Towards

Airlines Industry in Malaysia: An Exploratory Analysis

1Mohd RemieMohd Johan*

2Dr Noor Anida Zaria Mohd Noor

3Nurhidayah Bahar

4Liu Mei Yan

5Low Hwei Ping

1,2,3,4,5

Faculty of Business and Information Science, UCSI University, Malaysia

Corresponding Author *

MohdRemieMohd Johan Faculty of Business and Information Science UCSI University

No.1 JalanMenaraGading, UCSI Heights 56000 Cheras, Kuala Lumpur, Malaysia

Abstract

Airline companies are making efforts to build long-term relationships with their customers and

strategically maintain their airline loyalty. The retention of valuable customers is an essential

prerequisite for the industry to achieve a sustainable competitive advantage. To gain further

understandings, this research studied the four main factors that affecting customer loyalty in the

airline industry: customer satisfaction, perceived value, perceived quality and the corporate image

of the airline companies. Perceived quality had the strong positive relationship with customer

loyalty, and it was the most significant variable that affected customer loyalty. Satisfaction,

perceived value and corporate image had moderate positive relationship on customer loyalty.

Suggestions and implications for airline companies have been introduced. Airlines industry

meeting customers’ needs and wants by reducing the gaps between customer expectation and

customer perception to gain sustainable competitive advantage among their competitors.

Keywords: Customer Loyalty, Customer Satisfaction, Perceived Value, Perceived Quality,

Corporate Image

INTRODUCTION

The purpose of this research is to improve the understanding of customer loyalty towards airlines

industry. The decision making process for a customer in choosing an airlines can be affected by

many variables such as perceived value, corporate image of airlines, customer satisfactions and

perceived quality. While having to manage all those challenges, airlines are always facing strong

competition. One way to strengthen an airline firm’s competitive position is to retain customers

as loyal users of their airlines. Loyal customers not only increase the value of business, but also

enable to maintain costs lower than those associated with attracting new customers. Customer

loyalty has become a key factor for success in the service industry. In such a highly competitive

market, service providers in many industries have discovered the importance of customer

retention.

Identified as one of the more intangible service industries (Clemes et al., 2008), airline industry

plays an important role in the global economy (Tiernan et al., 2008) but none of them are in the

hand of airlines control. The recent world economic downturn in 2008/2009 has had a hit on the

market of business travel and also aviation industry. As a result, the aviation industry worldwide,

experiences an increasing popularity of the low cost airlines. This popularity is magnified with

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the adoption of deregulation practices in the airline industry by many countries (Clemes et al.,

2008; Saha and Theingi, 2009).

There are numerous international airlines that take visitors and travelers to Malaysia from all

major parts of the globe. Despite the many operators of airlines, the airline industry in Malaysia

is monopolized by two main operators -- Passenger airline and Cargo airlines. There is a fierce

competition among the airline service providers who are always looking to extend their services

and are always challenging their own limits. The main passenger airlines in Malaysia are Air

Asia, Eaglexpress, Berjaya Air which is owned by Berjaya Group, Malaysia Airline System

Berhad (MAS), Firefly which is owned by MAS, Layang-Layang Aerospace which is a regional-

chartered airline based in Sabah that provide air services to Layang-Layang Island, and Malindo

Air which is a planned airline between Malaysia’s National Aerospace and Defense Industries

(NADI) and Lion Air of Indonesia. Cargo airlines that operate in Malaysia are Athena Air

Services, MASkargo, Transmile Air Services and Neptune Air.

Problem Statement

In a highly competitive environment, customer loyalty has become an increasingly effective

means for securing a firm’s profitability, Reichheld&Sasser, 1990; Reinartz& Kumar, 2002. In

the airline industry, profitability of airline companies has always been challenged by a number of

external factors.

According to Doganis (2006), running airlines profitable has always been a great challenge. In

addition to intense competition diminishing airlines’ profits, airlines are exposed to market

volatility, legal regulations restricting operations, and a disadvantageous cost structure with high

fixed costs (Delfmann et al., 2005; Shaw, 2007).

New competitors are being encouraged to enter the market due to the ongoing deregulation and

liberalization of airline industry over time. Low-cost carriers such as AirAsia are slowly taking

over the cost leadership in the aviation industry in Malaysia. Whereas, traditional network

carriers such as MAS typically pursue a service differentiation strategy, are struggling to make

profit or facing bankruptcy. Recent 2014 crisis on MAS gives a negative impact on their

reputation and image. The disappearance of Malaysia Airlines Flight MH370 will add to the

growing financial problems at the country’s state-run carrier, which is already mired in steep

losses, (Joanneet al., 2014).

In the meantime, airline services are focusing more towards their marketing strategies to retain

their profitable customers in this highly competitive landscape by offering more sales discounts

and promotions. Although they have lent themselves to a relationship marketing approach, many

of the customer-related efforts of airlines center around loyalty programs that aim to increase

short-term sales instead of focusing on long-term quality relationships between the airline and its

customers (Bejou& Palmer, 1998).

The logic of such a short-term perspective is questionable when considering the number of

challenges facing the airline industry, including intense competition; the fact that the demand for

air transport has decreased during the past few years due to a global economic decline (Fodness&

Murray, 2007).

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Research Objectives

To explore the relationship between satisfaction and customer loyalty in airline industry in

Malaysia

Todiscover the relationship between perceived value and customer loyalty in airline industry

in Malaysia

To identify the relationship between perceived quality and customer loyalty in airline industry

in Malaysia

To discover the relationship between corporate image and customer loyalty in airline industry

in Malaysia

Research Questions

What is the relationship between the factors of satisfaction towards customer loyalty in airline

industry in Malaysia?

What is the relationship between the factors of perceived value towards customer loyalty in

airline industry in Malaysia?

What is the relationship between the factors of perceived quality towards customer loyalty in


What is the relationship between the factors of corporate image towards customer loyalty in


Theoretical Framework

Figure 1: Customer Loyalty Model - AdreassenandLindestad(1998)

According to Figure 1, which is adapted from research conducted by Adreassenand

Lindestad(1998) customer loyalty was the dependent variable. Satisfaction, perceived value,

perceived quality and corporate image were the independent variable. The main idea behind this

study is to identify the impact of each variable on customer loyalty and what kind of relationship

that they had and which variable was the most significant factor on customer loyalty.

Perceived Value

Corporate Image

Satisfaction

Perceived

Quality

Customer

Loyalty

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Research Hypothesis

H₁: There is a significant relationship between satisfaction and customer loyalty in airline

industry in Malaysia.

H₂: There is a significant relationship between perceived value and customer loyalty in airline


H₃: There is a significant relationship between perceived quality and customer loyalty in airline


H₄: There is a significant relationship between corporate image and customer loyalty in airline


LITERATURE REVIEW

Customer Loyalty

The globalization of competition, saturation of markets and development of information

technology have enhanced customer awareness and created a situation where long-term success is

no longer achieved through optimized product price and qualities. Nowadays, without the

awareness of consumer behavior and correct understanding of it, it is impossible for companies to

take appropriate measures to meet their customers’ needs and wants. How to build good

relationship with customers becomes more and more important. Customer loyalty is often

recognized as being a strategic objective for firms and it is a critical aspect for firms. At a very

general level, customer loyalty is the feeling of the attachment or affection for a company’s

people, products or services (Jones and Sasser, 1995). The most comprehensive definition of

customer loyalty is from Oliver (1999). He stated that customer loyalty is a deeply held

commitment to rebuy or re-patronize a preferred products or services consistently in the future.

Loyalty of a firm’s customers has been recognized as the dominant factor in a business

organization’s success and sustainability.

Customer Loyalty towards Airline Industry in Malaysia Since airline companies are very concerned about customer loyalty, they need to review and

reexamine their strategies not only to sustain customer loyalty but also to remain competitive.

Natalisa and Subroto (2003) suggested that domestic airline operators need to honor promises

made in their promotional and external communication materials. Due to the dynamic

environment and increasing demand of better service from the customer, it is a must for airline to

provide excellent service and focus on continuing improvement, so that they can remain the

uniqueness of their services and create more competitive advantages than the competitors.

Continuous training activities should also be provided to frontline operators, in addition to

developing various kinds of loyalty programs to ensure continued customer loyalty. Chin (2002)

stated that an attractive frequent flier program could actually contribute to increased loyalty from

the repeat business of an increased number of customers. In addition, Dick and Basu (1994)

suggested that reliability and confidence might encourage loyalty to the service provider.

Customer loyalty is very important for the survival of service provider companies.

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Satisfaction Achieving customer satisfaction has long been identified as the key to customer loyalty

(Anderson and Sullivan, 1993), and it is thus no surprise that service providers seek to manage

and increase satisfaction (Bolton, 1998). Customer satisfaction is the key factor determining how

successful the organization will be in customer relationships (Reichheld et al., 1996), therefore, it

is very important to measure those factors. Airlines have been one of the leading industries in the

development of relationship marketing strategies (Bejou and Palmer, 1998). Satisfaction is a key

factor in formation of customer’s desires for future purchase (Mittal & Kamakura, 2001). It is an

overall attitude that is based on customer experience. Kotler and Armstrong (1996) define

customer satisfaction as “a person’s feeling of pleasure or disappointment resulting from

comparing a product or service’s perceived performance in relation to his or her expectation

(Kotler, 2003). Therefore, satisfaction is closely related to consumers’ expectation and

experience. Real customer satisfaction, therefore, represents the difference between what

customers actually expect to get and the actual service performance exceeding such expectations.

Customer satisfaction depends on a variety of factors, including perceived service quality,

customer’s mood, emotions, social interactions and other experience-specific subjective (Rust

and Oliver, 1994).

Perceived Value Customer perceived-value is defined as the perception about quality, social psychology, benefit

and money (Bishop, 1984; Velimirović, et al., 2011). Dodds and Monroe (1985) mentioned that

perceived value is an important factor in consumer’s purchasing decision process and consumers

will buy a product with high perceived value. Dodds and Monroe (1985) and Zeithaml (1988)

contended that consumers will evaluate what they give and what they get in their subjective

perception when they are buying a product or service. According to Utility Theory, the

probability of purchase intention will increase when customers acquire more benefits than they

pay for a product (Dickson and Sawyer, 1990). There is also positive association found between

consumer perceived value and customer loyalty (Yang & Peterson, 2004; Sirdeshmukh et al.

2002).

Perceived Quality Perceived quality is simply the overall customer’s assessment of the standard process of

receiving customer services (Hellier, et al, 2003). Some experts believe that the perceived quality

is the extent of compliance rate between perceived performance and customer expectations

(Athiyaman, 1997; Bejou, et al, 1996). Some other researchers take the perceived quality as the

result of satisfaction (Anderson and Sullivan, 1993). Store brand image can be impressed

positively by perceived quality (Zins, 2001; Selnes, 1993). Consumeralso often judges the quality

of a product or service on the basis of a variety of informational cues that they associate with the

product. Some of these cues are intrinsic to the products, whereas others are extrinsic. Perceived

quality has direct impact on customer purchase decision and brand loyalty, especially during the

time customers have less or no information of the products that they are going to purchase

(Aaker, 1991; Armstrong and Kotler, 2003).

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Corporate Image Corporate image is defined as the perception of an organization in the customers’ minds,

referring to the brand and the kind of associations that customers obtain from a brand, goods,

service and/or organization (Nguyen & Leblanc, 2002). The concept of the corporate image came

to existence during 1950s and 1960s, but scholars have focused the center of their research on

corporate brands in recent years (Balmer and Greyser, 2006). Walters (1978) suggested that while

corporate image covers a substantial amount of factors, as far as consumers are concerned, the

most essential aspects may be summarized into organizational image, functional image and

merchandize image. Nguyen and LeBlanc (2002) believe that factors that constitute corporate

image might have originated from customers’ awareness of corporations as physical entities and

their behaviors, including corporation name, tradition, management philosophy, diversification of

products and so forth.Park et al. (2006) found that airline image has a significant direct effect on

airline customers’ future behavioral intentions. Investigating antecedents of customer loyalty in

the commercial airline industry, Zins (2001) identified corporate image to have the strongest

influence on customer loyalty. Andreassen and Lindestad (1998) investigated the influence of

corporate image on perceived quality, customer satisfaction, and loyalty in the Norwegian

package tour industry and found corporate image to have an impact on all three constructs.

METHODOLOGY

Research Design Research design is a work plan that ensures the evidence obtained to allow the researchers to

answer each of the research questions as clearly as possible (DeVaus, 1991). In this research,the

variables included satisfaction, perceived value, perceived quality and corporate image.Under the

quantitative research approach, researchers selected descriptive study as the research purpose.

Descriptive study was undertaken to find out and describe the characteristics of variables of

interest in a situation (Sekaran &Bougie, 2011). Therefore, in this research,the goal of descriptive

study offered the researchers a profile about the personal information when choosing airlines

services in Malaysia.

Population and Sampling Method

The population of the current survey is comprised of those who have actually experience airline

services offered by the aviation industry, specifically air travelers. The study of loyalty towards

an airline will be based on individual manner. In this study, there were 400 questionnaires

distributed to 400 respondence. Sampling technique of non-probability sampling was chosen in

the sample's collection.

Data Analysis

In this study, researchers used descriptive statistics to better understanding about demographic

profile of respondents and test the level of respondent's understanding towards satisfaction,

perceived value, perceived quality, corporate image and customer loyalty.

Reliability In this study,the researchers used SPSS to run reliability test on the study variables which

involved satisfaction, perceived value, perceived quality, corporate image and customer loyalty.

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FINDINGS

Reliability Test

Variables Cronbach’s Alpha Number of Items

Satisfaction 0.783 4

Perceived Value 0.775 4

Perceived Quality 0.858 4

Corporate Image 0.724 4

Customer Loyalty 0.711 4

Table 1: Cronbach’sAlpha

As shown in Table 4.1, all the variables of the research were accepted as the Cronbach’s Alpha

for each of the variables was above 0.700. There is a pleasant internal consistency among the

items with in the questionnaire as long as its value exceeds 0.700 which fulfill the guidelines

adopted from Sekaran and Bougie(2011). In other words, there liability of the data collected from

those items to measure the variables in this research were acceptable.

Demographic Profile

Nationality Frequency (n) Percentage (%)

Asia 274 92.6

Africa 16 5.4

Europe 1 0.3

America 4 1.4

Oceania 1 0.3

Total 296 100

Table 2: Nationality

According to table 4.2.3, most of respondents were from Asia, which gain 92.6%. Respondents

from Africa gained the second highest percentage which is 5.4% (16 respondents), and it

followed by respondents from America, which is 1.4% (4 respondents). The rest from Europe and

Oceania gained 0.3% for each.

Coefficients

Model

Unstandardized

Coefficients

Standardized

Coefficients

t Sig. B Std. Error Beta

(Constant) .049 .564 .087 .931

Satisfaction .182 .042 .191 4.342 .000

Perceived Value .228 .039 .247 5.898 .000

Perceived Quality .403 .037 .438 10.784 .000

Corporate Image .165 .046 .152 3.602 .000

Table 3: Coefficients

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Hypothesis

H₁: There is a significant relationship between satisfaction and customer loyalty in airline

industry among international students in Malaysia.

According to the result of correlation between satisfaction and customer loyalty, r value=0.653,

which means there is a moderate positive relationship between the set wovariables. Besides, in

multiple regression analysis, the p-value=0.000, which is less than 0.05, indicate that the

correlation is relevant and the set wo variables are linearly related. So H₁ is accepted,which

means there is a significant relationship between satisfaction and customer loyalty in airline

industry among international students in Malaysia. However, satisfaction is not the most

significant factor that affects customer loyalty. According to multiple regression analysis,

researchers found out that satisfaction was the 3rd

significant variable on customer loyalty.

H₂: There is a significant relationship between perceived value and customer loyalty in airline


According to the result of correlation between perceived value and customer loyalty, r

value=0.644, which means there is a moderate positive relationship between the set wo variables.

Besides,the p-value=0.000, which is less than 0.05, indicate that the correlation is relevant and

these two variables are linearly related. So H₂is accepted,which means there is a significant

relationship between perceived value and customer loyalty in airline industry among international

students in Malaysia. However, perceived value is not the most significant factor that affects

customer loyalty. According to multiple regression analysis, researchers found out that perceived

value was the 2nd

significant variable on customer loyalty

H₃: There is a significant relationship between perceived quality and customer loyalty in airline


According to the result of correlation between perceived quality and customer loyalty, r

value=0.736, which means there is a strong positive relationship between these two variables.

Besides, thep-value=0.000, which is less than 0.05, indicate that the correlation is relevant and

these two variables are linearly related. So H₃ is accepted, which means there is a significant

relationship between perceived quality and customer loyalty in airline industry among

international students in Malaysia. According to multiple regression analysis, Further more, it

also showed the perceived quality is the most significant factor that affected customer loyalty.

H₄: There is a significant relationship between corporate image and customer loyalty in airline


According to the result of correlation between corporate image and customer loyalty, r

value=0.620, which means there is a moderate positive relationship between these two variables.

Besides, the p-value=0.000, which is less than 0.05, indicate that the correlation is relevant and

these two variables are linearly related. So H₄ is accepted,which means there is a significant

relationship between corporate image and customer loyalty in airline industry among

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international students in Malaysia. According to multiple regression analysis, researchers find out

that corporate image was the 4th

significant variable on customer loyalty.

Conclusion

As the knowledge of the researcher, there has not been much research conducted to examine the

customer loyalty model adopted from Andreassenband Lindestad (1998) for airline industry. If

the research finds out that there is a significant relationship, this means that we will know factors

have impact on airline customer loyalty. Thus, airline industries will be more aware of the

different kinds of factors that will help to achieve customer loyalty. Customer's loyalty is

important to any airline in term of enhancing their profit. Without customers it's impossible for

the air industry to enhance or grow. Theoretically, this study, the researcher hopes that a linkage

will show between customer satisfaction, perceived value, perceived quality and corporate image

with customer loyalty.

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