Determinants of Thai Airways passenger trust: A structural equation model analysis

Abstract

The authors undertook a study to investigate how customer relationship management (CRM), perceived service quality (PSQ), perceived risk (PER), and passenger expectations (PE) affected Thai Airways passenger trust (PT). The research instrument developed for the survey consisted of a questionnaire which used a seven-level agreement scale for the seven-part, 39 survey items. The study conducted both a confirmatory factor analysis (CFA) and a structural equation model (SEM) to analyze the 565 Thai Airways survey respondents’ answers. A latent variable path analysis was performed using the LISREL 9.1 software program, with the model found to be consistent with empirical data. The causal factors in the model had both a positive and negative influence on the Thai Airways passenger trust, which can be explained 51% of the variance (R2) in passenger trust (PT). The variables ranked in importance included perceived service quality (PSQ), customer relationship management (CRM), passenger expectations (PE), and perceived risk (PER), which had total values of 0.89, 0.76, 0.61 and -0.36, respectively. Corresponding author: Suchat Lainamngern Email addresses for the corresponding author: suchat.numngern@gmail.com First submission received: 1st September 2018 Revised submission received: 5th October 2018 Accepted: 6th December 2018 1.0. Introduction On March 29, 1960, Thai Airways International Public Company Limited was established by the Thai government, as a joint venture (JV) between Thailand’s domestic air carrier, Thai Airways Company (TAC) and Scandinavian Airlines System (SAS) (Thai Airways Annual Report, 2017). Initially, the company was registered as a limited company with TAC holding a 70% share, while SAS held a 30% share. On March 30, 1977, the JV came to an end when SAS transferred all of its shares to TAC, after which the airline raised further capital by selling its shares to Thailand’s Ministry of Finance. On April 1, 1988, the domestic commercial air travel operations were merged with TAC, with the Ministry of Finance becoming the major shareholder. This was followed by the carrier becoming listed on the Stock Exchange of Thailand (SET) on July 19, 1991, through the conversion of its retained earnings into capital. Today, the national carrier is serving over 80 worldwide destinations. Along with the expansion and public listing of the Kingdom’s national carrier Thai Airways, came the explosive growth in international tourism. According to statistics from the Airports of Thailand (AOT), AOT handled 129.2 million passengers in 2017, an increase of 121.7 million in 2016 (The International Trade Administration, 2018). Additionally, there were 823,575 aircraft movements (takeoffs and landings) in 2017, an increase from 790,194 in 2016. Air cargo movements also showed a significant increase, rising to 1.60 million tons in 2017 from 1.45 million tons in 2016. Commercial aviation, therefore, is a crucial sector for a nation's economy, with international aviation closely related to the expansion of tourism, of which 55% is done by air (United Nations, 2018). In 2016, International tourist arrivals (overnight visitors) reached 1.235 billion individuals, while international Journal of Business and Retail Management Research (JBRMR), Vol. 13 Issue 3 April 2019 www.jbrmr.com A Journal of the Academy of Business and Retail Management (ABRM) 44 tourism receipts reached US$1.2 trillion in the same year. Also, according to the United Nations (2018), international tourism generated an additional $216 billion in exports through international air passenger transport services (rendered to non-residents), bringing the total value of tourism exports to US$1.4 trillion, or US$4 billion a day on average. This represents 7% of the world’s exports of goods and services and 30% of services exports alone. However, even in spite of these spectacular numbers, in the Thai Airways Annual Report (2017), it was stated that starting in 2014, Thai Airways faced various problems including decreased competitiveness, unprofitable routes outnumbering profitable ones, a wide range of aircraft types resulting in higher maintenance cost than the industry average, inefficient overall cost management, and inappropriate human resource management (HRM) and development. Moreover, the intense and fastchanging competitive condition of the airline business in the region caused the airline continued losses and the inability to recover. Furthermore, low-cost carrier (LCC) competition has been tough year after year, with legacy national carriers such as Thai Airways, Malaysian Airways, and now even Singapore Airways finding profitability and market share ever more difficult to obtain (Srisook and Panjakajornsak, 2017). In 2017, LCC airlines consistently grew at a faster pace compared to the world’s average growth, which in 2017 carried an estimated 1.2 billion passengers. Also, in Southeast Asia, passenger traffic grew by approximately 10% in 2017, where six of the region's ten countries recorded double-digit growth. Additionally, Southeast Asian airlines now have 1,600 airplanes on order, in addition to an active fleet of close to 2,000 airplanes, with LCCs currently accounting for approximately 70% of Thailand's domestic seat capacity. In Thailand, the total domestic market has more than doubled over the past five years, driven by a combination of economic growth, an expanding middle class and rapid LCC expansion from approximately 11 million passenger seats in 2012, to 33 million in 2017 (Centre for Aviation, 2018). As we can see, Thai Airways has significant challenges to overcome, both internally and externally. However, given the importance of the national carrier, the authors undertook a study to investigate how the variables related to customer relationship management (CRM), perceived service quality (PSQ), perceived risk (PER), and passenger expectations (PE) affected Thai Airways passenger trust (PT). It is hoped that from this research, a more sustainable and competitive solution will be found in boosting and retaining the airline’s passenger trust. 2.0. Literature Review 2.1. Customer relationship management (CRM) Customer relationship management is a competitive strategy that addresses the needs of consumers and integrates the way they interact with customers within the organization. CRM is also a streamlined business process that delivers value to customers, employees, and stakeholders (Brown, 2000). The core concept of CRM focuses on maintaining an existing customer base, by building relationships with customers in various ways. This is consistent with Venetia and Ghauri (2004) which concluded that service quality contributes to the maintenance of long-term relationships with customers. Furthermore, Kumudha and Bhunia (2016), examined the Indian civil aviation sector and stated that PE refers to the preconceived ideas of a passenger about a product or service. Customer expectation is influenced by a customer's sensitivity to the product or service and can be fashioned by previous experience, advertising, hearsay, awareness of competitors, and brand image. Zineldin (2005) evaluated CRM in the Swedish banking sector and stated that a crucial element in CRM is the quality realization, and the creation of value added is quality measurement and control, with the key factors in building a strong competitive position are through CRM, product/service quality, and differentiation. Therefore, after a review of the relevant literature and theory related to customer relationship management (CRM), the following four observed variables were included in the research. These included service quality (x1), customer-focused strategy (x2), product image (x3), and customer relationship management (x4). Finally, the following two hypotheses were conceptualized for the research: Journal of Business and Retail Management Research (JBRMR), Vol. 13 Issue 3 April 2019 www.jbrmr.com A Journal of the Academy of Business and Retail Management (ABRM) 45 H1: Customer relationship management (CRM) has a direct positive influence on passenger expectation (PE). H2: Customer relationship management (CRM) has a direct positive influence on passenger trust (PT). 2.2. Perceived service quality (PSQ) Early conceptualization of service quality was formed by Grönroos (1983, 1984), in which service quality was defined as the ‘what’ and ‘how’ of consumers receiving a service. Numerous subsequent authors have discussed perceived service quality, including Hutchins (1985, p.165), Zeithaml, Parasuraman and Berry (1990, p.16), and Juran and Gryna (1998), and have indicated that PSQ is a comparison between customer expectations in a product or service and their real perception. If the customer or customer sees that the product or service is the best and meets the expectations, it can be considered that the product or service is of good quality. In 1985, Parasuraman, Zeithaml, and Berry (1985) also published a conceptual model of service quality, which three years later was named ‘SERVQUAL.' The service quality model (Parasuraman, 1998; Parasuraman, Zeithaml, and Berry, 1988) indicated that service quality could be measured through five functional quality dimensions, including reliability, assurance, tangibility, empathy, and responsiveness (RATER). Grönroos (1984), classified service quality into two groups, including expected service and perceived service. This included technical quality, in which functional quality is seen to be a very important dimension of a perceived service. There is also the element of ‘functional quality’ which is the ‘how’ component, where ‘technical quality’ is the ‘what’ (Kang, 2006). This is consistent with Kotler (2000, p.200), which defined service as a person or organization's act or performance that is offered to another party that is not tangible, which does not result in something being owned. Furthermore, the OECD (2006) defined quality as the totality of ch