Expectations vs Experience: Managing the Adverse Effects of Service Failures on Customer Satisfaction in the Airline Industry

Abstract:Airlines constantly seek to attenuate the negative impacts of operational service failures, namely arrival delays, mishandled baggage, and involuntary denied boarding, on customer satisfaction. Our study examines the roles of two management decisions—advertising expenses and flight personnel salaries—in shaping customer satisfaction via ex-ante expectations and the actual service experience, respectively. Drawing from expectancy disconfirmation theory (EDT) and the airline service quality literature, we investigate the effectiveness of these two expenses in moderating the impact of service failures on customer satisfaction. We test our hypotheses with a panel dataset created by merging data on 15,979 online airline ratings, operational service failures, and financial and traffic performance from three data sources for the 2010–19 period. We find that both arrival delays and involuntary denied boarding negatively affect customer satisfaction. In addition we find that while advertising positively impacts customer satisfaction, it strengthens the negative effect of involuntary denied boarding on customer satisfaction. However, increasing flight personnel salaries helps mitigate this negative effect through a positive and empathic service experience. These findings underscore the importance of managing passenger expectations about the service and enhancing the inflight experience as to ameliorate the negative effects of operational failures on customer satisfaction.