How customer relationship management, perceived risk, perceived service quality, and passenger trust affect a full-service airline’s passenger satisfaction

Abstract

In 2017, global international tourist arrivals set a new record of 1.32 billion individuals. From this, Thailand moved into the 10th spot with 35.4 million visitors, and US$57.5 billion in tourism earnings, which represented 12% of Thailand’s GDP. Therefore, given the critical nature of tourism to Thailand’s economy and the national carrier’s role, the authors sought to investigate how customer relationship management (CRM), perceived risk (PR), perceived service quality, and passenger trust (PT) affected Thai Airways’ passenger satisfaction (PS). The research tool developed for the survey consisted of a questionnaire which used a seven-level, Likert type agreement scale for 34 items in Part 2. The study also conducted both a confirmatory factor analysis (CFA) and a structural equation model (SEM) to analyze the sample of 565 Thai Airways’ passengers. A latent variable path analysis was performed using LISREL 9.1 software, with the models found to be consistent with empirical data. The causal factors in the model had both a positive and negative influence on Thai Airways passenger satisfaction (PS), which can be explained by 14% of the variance (R2). The four variables ranked in importance included customer relationship management (CRM), perceived risk (PR), passenger trust (PT), and perceived service quality (PSQ), which had a total value of 1.00, -0.35, 0.20 and 0.11, 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: 29th October 2018 1.0. Introduction Due to fast-paced economic growth within the Asian ‘tiger economies’, there has been a knock-on effect and surge in air travel demand. Despite unfavorable external shocks such as natural disasters, war, and terrorism (Hogan, 2017), economic turbulence, and fuel price increases, the global air travel industry has grown at a compound annual growth rate [CAGR] over 10 years of 5.5%. In 2017 alone, global revenue per passenger kilometer rose 7.6% over 2016, and international passenger traffic increased 7.9%, capacity rose 6.4%, and load factors climbed to 80.6%. Additionally, according to the United Nations World Tourism Organization [UNWTO], global international tourist arrivals rose to a record of 1.32 billion. From this, Thailand moved into the 10th spot, with 35.4 million visitors, and US$57.5 billion in tourism earnings. This represents 12% of Thailand’s GDP (ASEAN Today, 2018). Data from the Asia-Pacific region also shows Asian carriers even did better, which posted annual demand growth of 9.4% over 2016. This was driven by robust regional economic expansion, and an increase in route options for travelers (IATA, 2017). Asia-Pacific led all the regions in annual growth rate, with capacity rising 7.9%, and load factors climbing to 79.6%. Contributing factors to these stellar numbers has been the rising per-capita income within the region, affordability of air travel, the rise of low-cost carriers (LCCs), open sky agreements, reduction in global fuel prices, and easing of visa restrictions (ASEAN Today, 2018; Charoensuthipan, 2018; Dupont, 2014; Vuthisopon and Srinuan, 2017). By 2036, Asia will be the world’s largest aviation market as it 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) 161 continues at a growth rate of CAGR of 5.7% (IATA, 2017). Also, according to America’s aircraft manufacturer Boeing, to meet booming demand, 43,000 new aircraft will be needed over the next two decades (Boeing upgrades aircraft forecast, 2018). European arch-rival Airbus has also forecast similar numbers, and has suggested that within the next two decades, the world's passenger fleet would more than double to 48,000 aircraft. Airbus has put the global value of nearly 37,400 new aircraft at US$5.8 trillion by 2037. Within Asia, Thailand has grown to be a popular international tourist destination as well. Located in Southeast Asia, Thailand’s Airports of Thailand (AOT) has reported that in 2017 the Kingdom transited 129.2 million passengers (The International Trade Administration, 2018). Furthermore, there were 823,575 aircraft takeoffs and landings in 2017, an increase from 790,194 in 2016, with air cargo also showing a significant increase, rising to 1.60 million tons in 2017 from 1.45 million tons in 2016. Commercial aviation, therefore, plays a critical role in a nation's economy, with international aviation closely related to the expansion of tourism, of which 55% is done by air (UNWTO, 2018, p.4). Aviation’s importance to the world’s economy can be found in the 2016 international tourist arrivals (overnight visitors) statistics, which reached 1.235 billion individuals and US$1.2 trillion in the same year. Also, according to the UNWTO (2018), international tourism generated an additional US$216 billion in exports through international air passenger transport services, 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. Although numerous full-service carriers (FSCs) and low-cost carriers (LCC) fly to Thailand, the national carrier for Thailand is Thai Airways, which was created by the Thai government in March 1960. Sometime later, on July 19, 1991, the national carrier became listed on the Stock Exchange of Thailand (SET), which today is serving over 80 destinations worldwide (Thai Airways Annual Report, 2017). However, even despite past and projected growth, Thai Airways has faced various and significant problems in recent years. According to the Thai Airways Annual Report (2017), this has included a decrease in competitiveness, unprofitable routes outnumbering profitable ones, a wide range of aircraft types resulting in higher maintenance cost, inefficient overall cost management, and inappropriate human resource management (HRM) and development. Moreover, intense and fast-changing competitive conditions within the airline business has caused the airline continued losses, contributing to an inability to recover. Furthermore, low-cost carrier (LCC) competition has been tough year after year, with FSC national carriers such as Thai Airways, Malaysian Airways, and now even Singapore Airways, finding profitability and market share ever more challenging to obtain (Srisook and Panjakajornsak, 2017). An example of this dilemma, Thai Airways which after a net loss of $445 million in 2014, had their debt skyrocket to US$5.9 billion, the highest among Southeast Asian airlines (DuPont, 2017). However, Thai Airways is not alone, as Duport (2015) has reported that there are less than five profitable LCCs in the region (for 24 airlines), and barely ten FSCs out of around 40. In 2017 global airlines also carried an estimated 1.2 billion passengers, with Southeast Asian passenger traffic growing by approximately 10%. Southeast Asian airlines now have 1,600 airplanes on order (Tani, 2018), 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. Also, in Thailand over the past five years, the domestic market has grown dramatically due to economic growth and an expanding middle class. This has led to 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 Thai Airways being the national carrier, the authors undertook a study to investigate how the variables customer relationship management (CRM), perceived service quality (PSQ), perceived risk (PR), and passenger trust (PT), affected Thai Airways passenger satisfaction (PS). It is hoped that from this research, a more sustainable and competitive solution will be found in boosting and retaining the airline’s passenger satisfaction. 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) 162 2.0. Literature Review 2.1. Customer relationship management (CRM) In a fiercely competitive and economically demanding environment, airlines today are struggling to gain market share and sustain profitability. To do this, the airlines must develop new ways to manage their customer relationships to optimize customer loyalty and revenues, with mobile devices and ubiquitous Internet access having led to a dramatic evolution in the travel customer’s experience, allowing for greater personalization and the expectation of real-time, up-to-date information about every aspect of their trip (TIBCO, 2017). Often a profit center for airlines, CRM platforms are often viewed as nothing more than a frequent flyer program (FFP), with FFPs having been proven to be highly effective, with high cash generation ability (Agrawal, 2013). However, FFPs are now shifting the focus from customer satisfaction to revenue optimization within the airline industry, and the turning of FFPs and their CRM process into profit centers (Agrawal, 2013). A close look at many airlines also shows that although they have created vast amounts of passenger data obtained from their interactions with their passengers, the airlines are far behind in applying 'big data' in designing comprehensive CRM programs and strategies. Often times, they lose control of their data as airlines ‘outsource’ their CRM process to global distribution systems (GDSs) and online travel agencies (OTAs), which have driven a wedge between airlines and their customers (TIBCO, 2017). However, CRM should be viewed as a competitive strategy that addresses the needs of consumers and integrates