performance of one airline may have negative impact on the perception of other airlines within
an alliance by customers (Weber & Sparks, 2004). Also, as Tiernan et al. (2008/2) discovered,
currently all the alliances’ service performance is approximately on the same level.
From the customers’ perspective, airline alliances offer such benefits as increased frequency of
services as well as expanded route network (Weber, 2005). However, the levels of benefits
awareness may vary. Mostly, customers are aware of greater network access as well as ability to
collect frequent flyer points. However, customers seem to be more concerned with the factors
related to passenger convenience (the actual performance of the airline during the flying
experience) as well as basic factors such as security and quality of the aircraft; whereas access to
such benefits as frequent flyer program is less significant (Weber, 2005). Hence, when customers
choose to fly an airline that is a member of the alliance, service quality is a major attraction,
whereas network and frequent flyer miles are less significant factors in the decision-making
(Tiernan et al., 2008/2).
Frequent flyer programs have developed with the expansion of the alliances. The objective of a
frequent flyer program is to maintain customer loyalty as well as provide a more solid revenue
stream (Matrin et al., 2011). Frequent flyer program rewards frequently travelling passengers
with additional benefits such as upgrades in travel class (from economy to business), priority
check-in, ability to collect miles and pay with them for new tickets etc. (Martin et al., 2011).
Texas International Airlines introduced the first frequent flyer program in 1979 (Wikipedia.org,
2012). However, Jones & Sasser (1995) claim that loyalty that is based on frequent flyer
program is false loyalty, and when customers use their miles, they can easily switch to another
carrier in case loyalty is not supported by high levels of customer satisfaction. Until the miles are
used, transition costs may be rather high for a customer. Overall, it can be said that the research
of benefits related to airline alliances has been limited so far, and better understanding of
customers’ perceptions and satisfaction should be studied
2.2.
Customer Segmentation
Customer segmentation has become particularly important after industry deregulation (Teichert
et al., 2008). With a competition coming from low cost carriers, it is important for the airlines to
know their customer preferences and thus better target their marketing campaigns. Also, Jones
and Sasser (1995) state that serving wrong customers may be very expensive, especially in a long
run as they do not bring any profit to the company. Excellent example of clear understanding of
customer segmentation and its connection to profitability is SAS (Carlzon, 1989): when the
company underwent a complete transformation, it discontinued any targeted marketing to leisure
travelers, concentrating all its efforts on business customers only. The company turned profitable
within two years after the transformation efforts begun.
The simplest way to segment the customers is by trip purpose or gender. Differences between
business and leisure customers have been widely discussed and the segmentation has advanced
beyond simple business vs. leisure differentiation (Shaw, 2007). Most airlines serve more or less
equally (depending on route and season) both types of customers. However, some airlines such
as SAS concentrate their efforts purely on business customers, and some operate only on leisure
roots (e.g. Thomas Cook Airlines). This implies that an improved understanding of their needs is
required in a continuous strive to improve service quality as e.g. Weber (2005) argues that
differences in service expectations between travelers with different national background or travel
frequency can be significant. As well, Gilbert & Wong (2003), in their research, have noted
nationality/ethnicity related differentiation, as they found differences in service expectations
between North American, West European, Chinese and Japanese ethnic groups. This type of
differentiation is not discussed in this study.
2.2.1. Business vs. leisure customers
Airlines most commonly divide their customers into business and leisure travelers (Shaw, 2007;
Teichert et al., 2008). Thus, carriers are able to align their product strategy and provide
flexibility that is needed by business travelers, as well as cheap economy tickets for other
passengers, e.g. leisure travelers (Teichert et al., 2008).
The decision-making for business and leisure customers is also much more complicated as it may
seem at first. According to Shaw (2007), business travelers are usually not the ones to make
purchasing decision as the activity in the companies is often performed by a secretary or is
outsourced to a travel agency. Shaw (2007) argues that even in the case when actual customer is
not choosing the ticket, there are certain needs that have to be met to influence the decision. For
example, people prefer easier solutions, and if one option requires calling an airline and another
is online booking, the decision maker will most likely go the easier way: book a ticket online.
Another motivator behind decision-making is greed. Hence, many airlines have executive
secretary clubs, to offer discounts and corporate entertainment in return for loyalty. Furthermore,
to create incentives to everyone in the business travel market, airlines use frequent flyer
programs for individual travelers as well as corporate discounts for companies. As for leisure
customers, the decision maker is a traveler him-/herself (or a group of travelers, such as family
which this makes decision-making a complex process (Shaw, 2007). Another difference is that in
the business segment, people tend to travel a lot – one person making tens of trips per year. In
leisure segment, trips can be rare, some travelers making only one trip in their lifetime. In
addition, in leisure segment wholesale market is still widely present (in a form of tour operators),
and many airlines (especially those that provide purely leisure flights to holiday destinations)
have to consider tour operators as very important group of customers.
Teichert et al. (2008) argue that as clear market segmentation to business and leisure customers
is becoming obsolete, there is a need to discover new customer segments and target the
customers that the airline is willing to serve. The authors suggest that more business customer
segments can be identified based on product and demographic data:
Efficiency / Punctuality – mostly male, such customers fly very often (few times per
week) and are travelling for business reasons. Decision making on ticket purchase is
outsourced.
Comfort – elderly business customers in high-rank positions. Fly several times per month.
Decision making is outsourced.
Price – lower management, no leadership responsibilities. While highly educated (as
previous two segments), they fly few times a year, and decision making is done by travel
agents in order to minimize costs.
Price / Performance – entrepreneurs are largely represented in this segment, as they are
concerned with price, but performance is more important than in Price –segment. This
segment also includes most women compared to other segments and business trainees. It
is youngest segment among all of them.
Catch all / Flexibility – this segment includes managers in important positions, flying few
times per month and outsourcing their decision. This segment is the most complex due to
its highly differentiated preferences.
Such detailed segmentation provides an opportunity to airlines to better understand their
customers and identify their value and preferences. Marketing efforts then can become more
efficient as targeted to adequately chosen group as well as distinct product packages can be
created for different groups (Teichert et al., 2008).
In addition to business and leisure segments, commuting customers have appeared with
increasing globalization and growth of air transportation, which are likely to travel on the same
destination due to personal reasons, work, etc. Not much has been discussed about such
customers in the literature yet.
Business segment, though considered not very price sensitive, has also benefited from low prices
of LLCs, as shown in the survey by Mason (2002) 40% of business travelers are price-elastic.
Furthermore, more passengers in general tend to choose economy tickets (Mason, 2005) and
such price sensitivity destroys carriers’ already low margins. Teichert et al. (2008) say that with
such market changes, full network carriers has started to compete on costs, thus sabotaging
quality. This has inevitably led to dissatisfaction of business segment that is not satisfied with the
quality, and leisure segment receives higher quality levels but is not yet satisfied with the price.
Chang & Yeh (2002) argue that the service quality defines the choice of an airline for both
business and leisure customers. An airline should differentiate its service offering based on
which both business and leisure customers value, and the services must be delivered smoothly