The impact of service quality and air fare on customer satisfaction using low cost airlines in vietnam

HUYNH THI THU HUONG THE IMPACT OF SERVICE QUALITY AND AIR FARE ON CUSTOMER SATISFACTION USING LOW COST AIRLINES IN VIETNAM.. Huynh Thi Thu Huong THE IMPACT OF SERVICE QUALITY AND AIR FA

HUYNH THI THU HUONG

THE IMPACT OF SERVICE QUALITY AND AIR FARE ON CUSTOMER SATISFACTION USING

LOW COST AIRLINES IN VIETNAM

THESIS OF MASTER OF BUSINESS ADMINISTRATION

Ho Chi Minh City – 2012

Huynh Thi Thu Huong

THE IMPACT OF SERVICE QUALITY AND AIR FARE ON CUSTOMER SATISFACTION USING

LOW COST AIRLINES IN VIETNAM

Subject: Master of Business Administration

THESIS OF MASTER OF BUSINESS ADMINISTRATION

SUPERVISOR:

Dr TRAN HA MINH QUAN

Ho Chi Minh City – 2012

ACKNOWLEDGEMENTS

I would sincerely like to thank the Professors in the University of Economics

Ho Chi Minh City, who taught and trained me in the MBA course I also would like

to thank the Board of Management of Economics University who gave me the opportunity to learn new things in the business administration I am very honored to

be a member of this course

In particular, I would like to express deep gratitude to Dr Tran Ha Minh Quan who has guided me enthusiastically, offered opinions and supported me through this thesis

My warmest thanks to all the Instructors for providing and sharing invaluable knowledge on measurement and evaluation in education for me as well as other students

Finally, I like to thank my parents who gave me love, care and tolerance from childhood to adulthood My thanks too, to my friends and classmates for encouraging me constantly to complete this thesis

Huynh Thi Thu Huong

Ho Chi Minh City, November 22 nd 2012

COMMITMENT

My name is Huynh Thi Thu Huong I would like to commit that this thesis, “The

impact of service quality and air fare on customer satisfaction using low cost

airlines in Vietnam”, was conducted based on my real and independent research

The enclosed data was collected from passengers waiting in the departure lounge of Tan Son Nhat domestic airport, Vietnam by the author The data was handled and conducted by the author

Huynh Thi Thu Huong

Ho Chi Minh City, November 22 nd 2012

TABLE OF CONTENTS

ACKNOWLEDGEMENT I COMMITMENT II TABLE OF CONTENTS III LIST OF TABLES V LIST OF FIGURES V

ABSTRACT 1

Chapter 1 INTRODUCTION 5

1.1 Vietnam’s low cost airlines background 5

1.2 Vietnam’s low cost airlines product and service 9

1.3 Research Motivation 10

1.4 Research Objectives 11

1.5 Research Scopes 11

1.6 Structure of Research 11

Chapter 2 LITERATURE REVIEW, THEORETICAL FRAMEWORK AND HYPOTHESES 13

2.1 Service Quality 13

2.1.1 The SERVQUAL Instrument 15

2.1.2 Applying SERVQUAL in the Low cost airlines in Vietnam 17

2.2 Customer Satisfaction 22

2.3 Theoretical Framework and Hypotheses 25

2.3.1 Theoretical Framework 25

2.3.2Research Hypotheses 27

Chapter 3 RESEARCH METHODOLOGY 28

3.1 Research Methodology 28

3.2 Sampling Design 28

3.3 Data Collection Procedures 29

3.4 Data Analyze Procedure 31

3.4.1 Reliability Analysis 31

3.4.2 Descriptive Statistics 32

3.4.3 Factor Analysis (FA) 32

3.4.4Multiple Linear Regression Analysis 33

Chapter 4 ANALYSIS RESULT 34

4.1 Respondents Demographics 34

4.2 Reliability and Validity of SERQUAL Scales 35

4.3 Dimensions of Service Quality in Low Cost Airlines in Vietnam 37

4.4 Correlation testing 42

4.5 Hypothesis Testing and Discussions 47

4.6 Summary 51

Chapter 5 CONCLUSIONS AND RECOMMENDATIONS 52

5.1 Summary of Findings 52

5.2 Practical Implications 52

5.3 Contributions of the Study 56

5.4 Limitations and Future Research 56

REFERENCES 57

APPENDIX 1 60

APPENDIX 2 62

APPENDIX 3 67

APPENDIX 4 70

LIST OF TABLES

Table 1 Product features of low-cost carrier and full service carrier in Vietnam.08

Table 2.1 Theoretical Framework 26

Table 2.2: The Summary of Research Hypotheses 27

Table 3.1: The Sources of Measurement Scale 30

Table 3.2: Rules of Thumb about Cranach’s Alpha Coefficient Size 32

Table 4.1: Demographic Characteristics of the Study 35

Table 4.2: Cranach’s Alpha Measures of Variables in the Study 37

Table 4.3 KMO and Bartlett's Test of Five Independent Variables 39

Table 4.4: Rotated Component Matrix of Independent Variables 40

Table 4.5 KMO and Bartlett's Test and Component Matrix 42

Table 4.6 Correlation of Variables 43

Table 4.7 ANOVAs for Construct 44

Table 4.8 Model Summary of the Construct 45

Table 4.9a Coefficients of the Construct 46

Table 4.9b Coefficients of the Construct 46

Table 4.10 Overall Perceived Service Quality 48

ABSTRACT

In the any market, competition is an inevitable factor Similarly it happens with the airline industry, especially in Vietnam’s low cost airlines market Low airfare ticket is not a unique factor to compare but customer service is also very important Low cost airlines are also trying to understand their customers, to measure their passengers’ satisfaction because passengers’ satisfaction may guarantee good customer loyalty for their future business

This study will provide a better understanding of how passenger satisfies with Vietnam’ low cost airlines about customer service and air fare Based on the result of this study, airline managers may understand their level of service and improve it

During this study, the author measures service quality dimensions and air fare impact on customer satisfaction via SEVRQUAL tool of (Parasuraman et al., 1988)

With a sample of 150 passengers who had travelled on Vietnam’s low cost airlines flights within 6 month is surveyed at Tan Son Nhat airport included Jetstar Pacific Airlines and Vietjet Airlines passengers to test six hypothesized relationships among the construct of impacted of service quality and air fare on customer satisfaction

The study also finds that the important dimensions of service quality tested here is: tangibles”, “reliability”, “responsiveness”, “assurance”, “empathy” and “air fare” The study used Statistic Package for Social Science (SPSS) to analyze data through Exploratory Factor Analysis (EFA) and regression analysis tools The results indicated that all dimensions have strong positive effect on customer satisfaction

Keywords: SERQUAL, Service Quality, Customer Satisfaction, Low Cost

Airlines, Vietnam

CHAPTER 1 INTRODUCTION

1.1 Vietnam’s low cost airline background:

This study examines in the context of low cost carrier (LCC) operating in Vietnam There are two LCC operating in Vietnam, ( Jetstar Pacific Airlines since

2005 and Vietjet Air since 2011)

Vietnam’s airline market is a market with a population of 88 million, shared

by 5 airlines (included Vietnam Airlines, Jetstar Pacific, Vietjet Air, Air Mekong, Vasco) almost operating domestic and short-haul routes but Vietnam Airlines is a flag carrier of Vietnam with both domestic and international routes In the situation

of Vietnam changing from agriculture to a service market, we are opening the door

to welcome foreign investments from all over the world, standard of living higher, moreover indoor and outdoor tourist market developing… as a result, the demand of air transportation increasing significantly It creates a potential airline market in Vietnam

Nevertheless, airline industry has been continuous operating on extremely thin margins (IATA, 2011; Tiernan et al., 2008/1) with high operational costs (Airline Trends and Ancillary Revenue Report, 2010) Thus, the volume is crucial for the industry to stay profitable; the differences in prices for one flight can be huge Furthermore, the actual product of the airline industry (airline seat) is extremely perishable Once the aircraft takes off, the opportunity to sell a seat is lost Also the Vietnam’s Government control in the air fare via fare cap can cause the situation more problems

There are many difficulties that airlines face so it is necessary to find a solution for Vietnam’s airlines The solution must solve the current problem: “How

to trade off between the passenger’s demand and airline profit to keep the business

on right way and development.”

Following the world trend, Vietnam applied the low cost airline model in Vietnam market since May 2005, the first was Jetstar Pacific Airline which came from the full service airlines- Pacific Airlines Jetstar Pacific Airlines is a joint venture company between Vietnam Airlines, Qantas group from Australia and some individuals

LCC model in Vietnam have the similar pricing and cost structures to the European and North American LCC (Goh, 2005) including some specifications: the same aircraft type, fast turn-around times, point - to - point services from main base, offering low fare in exchange for no extra services as compared to traditional airline offering free in-flight meals, beverages and in-flight entertainment but passengers can purchase these items separately if they choose to Passengers are encouraged to use online ticket booking and electronic ticket, no more paper ticket being used in cutting cost Innovative marketing strategies such as direct selling, call centers, e-ticketing, e-payments and bank and supermarket networks…

Currently, there are two low cost airlines in Vietnam, Jetstar Pacific Airlines and Vietjet Air:

Jetstar Pacific Airlines had a big start, becoming Vietnam’s first LCC in

2005, when the carrier (formerly known as Pacific Airlines) was rebranded and adopted the low-cost model following investment from Qantas, operating four domestic routes and 15 daily round trip frequencies, based on schedules from Jetstar’s website Jestar Pacific has been focusing on fleet renewal rather than expansion but is planning to resume expansion in 2013, ending a hiatus of four years in which growth was paused due partially to internal uncertainty The carrier began a more promising new period earlier this year after a 70% stake was transferred to Vietnam Airlines, (which previously had been looking at launching its own LCC subsidiary); Qantas owns the remaining 30% stake in Jetstar Pacific Jetstar Pacific for now is only planning to add two frequencies for the remainder of this year (both of which will take effect in latter half of Oct-2012), giving the LCC

five domestic routes and 17 daily roundtrips Jetstar Pacific currently accounts for about 14% of capacity in Vietnam’s domestic market while their new born competitor, VietJet Air accounts for 9%

The second low cost airline in Vietnam is Vietjet Air, Vietjet Aviation Joint Stock Company VietJet launched services in late Dec-2011 but has expanded quickly and by its first year anniversary, it operates 22 daily roundtrip frequencies

on nine domestic routes VietJet currently operates five domestic routes and an average of 10 daily frequencies VietJet currently offers about 25,000 weekly seats but by late Dec-2012 – once all four of its new routes are launched and capacity is increased on most existing routes – it will offer over 55,000 weekly seats in Vietnam’s domestic market This will give VietJet starting the last week of 2012 (24-Dec-2012 to 30-Dec-2012) an estimated 16% share of Vietnam’s domestic market, second only to market leader Vietnam Airlines (CAPA 2012)

Their network is expanding and their target is becoming Vietnam’s largest low-cost carrier, overtaking Jetstar Pacific, by the end of 2012 VietJet is also poised to beat rival Jetstar Pacific in becoming the first Vietnamese LCC to operate international services VietJet, which will expand its domestic network from five to nine destinations in Nov/Dec-2012, is looking at launching its first international route – possibly Ho Chi Minh-Bangkok – in late 2012 or early 2013 But the carrier

is adding capacity on four of its routes on 16-Oct-2012, at which point it will operate 16 daily frequencies On 04-Oct-2012 VietJet announced plans to add another four routes in Nov-2012 and Dec-2012 – Ho Chi Minh to Hue, Phu Quoc and Vinh and Hanoi to Dalat – and expand its total number of daily frequencies to

22 flights

Vietnam LCCs domestic capacity share

(Source: CAPA – Centre for Aviation, VietJet, Jetstar &Innovata)

Government-owned flag carrier Vietnam Airlines is projected to account for approximately 68% of domestic capacity in Vietnam at the end of Dec-2012, down from about 73% currently This decrease of 5% comes despite the fact that Vietnam Airlines is planning to expand domestic capacity by over 15% for the upcoming northern hemisphere winter season (from just under 200,000 weekly seats to about 233,000), Vietnam Airlines already has seen its share of domestic capacity slip by 5% over the last year from about 78% in Oct-2011 to 73% in Oct-2012

Since joining to the low cost airlines in Vietnam, LCC have brought more seat capacities and more opportunities for passengers who can’t afford the full service ticket It also has a positive effect on Vietnam’s tourism market during the economic crisis by offering more low fare tickets for some tourism destinations However, both of Vietnam’s LCC presented a bad picture for profitable business Competition on prices made the situation worse together with fare cap control from the Government, high fuel prices leading to losses and more losses

1.2 Vietnam’s LCC product and service:

As a standard LCC model, the airfare does not include extra services So LLC offer extra services to meet passengers demand through separate pricing from the airfare ticket price The extra products and services include in-flight food and beverages, merchandise, in-flight entertainment, excess baggage allowances, hotel accommodation, tour packages, car rentals, rail/bus tickets sales, travel insurance and charter services … (Datamonitor 2012)

Furthermore, to guarantee for the LCC short turn-around time to meet the on time performance standard, LCC penalize passengers who do not check in on time These passengers are not allowed to board the plane (Barrett 2004) for their late check in as penalty at the airport and are moved on to next available flights

Low fare ticket class allow passengers a 7 kg carry – on luggage Passengers can also purchase more excess baggage during the time of booking their tickets or later should they change their minds Passenger can make changes via all available channels Otherwise at the airport higher baggage costs will be charged, penalty charges also apply in this case

Any change of names, flights, routes allowed depend on each fare classes For some types of fare classes and sale ticket, booking changes will be charged with time restrictions for changes before flight time

LCC fare structure offers the lowest fare prices for flights that are a long time away These fares will increase as the day of the flight departure draws closer Base on this, there is a lot of savings for passengers who planned well ahead for their trips; they can secure their tickets at a reasonable or very low price For passengers who do not plan well, they will be penalized with a full fare ticket at the day of the flight departure for the very same flight ticket

The table 1 below displays the overview of the differences between products and services of full service and low cost airlines business

Table 1 Product features of low-cost carrier and full service carrier in Vietnam

Product Features Lost-cost carrier Full service carrier

global alliances

Source: O’Connell and Williams (2005) and Barrett (2004)

1.3 Research Motivation:

Because of the special price structure of LCC, and the significant business model make passenger confuse and unpleasant for the service Moreover, LCC have joined Vietnam market no longer, it’s a new conception about low cost airlines services For full service airline passengers in period of transferring into low cost would not catch up yet the new service concept so that they still confuse and being unpleasant with the new service like penalty paid or paid for food, entertainment as they have never done before

The author understands the perception that service quality is one of the key

factor leading to success in the airline industry In the hard section of price

competition between the two Vietnam low cost airlines, the most important part

would not be the quality services but the price In this limited study, the author

would measure Vietnam’s LCC in perception of Vietnam LCC passengers and

finding out some recommendations for Vietnam LCC on improving their quality of

service, air fare as well as to satisfy passengers and that can improve profits to the

airlines business Therefore, the viewpoint of customers about service quality and

air fare structure should be considered and defined on how to match with the

different levels of customer satisfaction In order to identify the impact of service

quality and air fare factors on customer satisfaction in LCC in Vietnam, I would

conduct a survey to examine the relationship between service quality, air fare and

customer satisfaction

1.4 Research Objectives:

The objectives of this study are:

 To examine the relationship between the components of service quality,

air fare and customer satisfaction in Vietnam’s LCC

 To examine the impact of service quality and air fare on customer

 Chapter one is an introduction and will discuss about Vietnam’s low cost

airlines’ background, Vietnam’s LCC product and service, motivation, objectives and structure of the research

 Chapter two namely literature review, theoretical framework and

hypotheses It will discuss further about a comprehensive literature and give out some definitions of variables, the hypotheses between variables and build

up framework for the research

 Chapter three namely research methodology, will describe the methodology

of research, sampling design, data collection procedures and data analysis procedures

 Chapter four is the result of the analysis This part will include descriptive

statistics, assessment of measurement model as well as hypothesized model whether it has the good meaning or not

 Chapter five consists of conclusions and recommendations This chapter

will discuss on the summary of findings, the conclusions and implications for management, contributions of the study, limitations and recommendation for future research

In this chapter, showing Vietnam’s low cost airlines It include the LCC model background, product, service offering, and current situation in airline industry in Vietnam Moreover, the problem statement and purpose will also be mentioned at the end of this chapter Following this introduction, the next section of the paper presents a review of the relevant literature, followed by the presentation

of a conceptual model and hypotheses relationships among the constructs of the model

CHAPTER 2 LITERATURE REVIEW, THEORETICAL FRAMEWORK

AND HYPOTHESES

The purpose of literature review is review and analyzes on some old research that relate to the concepts of service quality and customer satisfaction It also provides some definitions of service quality, SERVQUAL, the concept of customer satisfaction Besides that, this chapter finding out the relationship between variables and main reasons lead to the framework and hypotheses of research

The main purpose of this study is to evaluate Vietnam’s low cost airlines service and to identify how much Vietnamese passengers are satisfied or dissatisfied with the current two domestic low cost airlines through customers’ perspectives

2.1 Service Quality:

Normally service quality and passenger satisfaction are always key variables for passengers’ consideration for making a decision over a service of one provider

to another (Park et al., 2004)

Service quality and air fare in the Airlines industry are deemed as competitive marketing strategy factors It includes customer focus, innovation, creative service and striving towards to achieve an excellent service There is a standard for airlines services However it has been modified to adapt with each airlines business model Flight scheduling, ticket prices, in-flight services, airport service, employee’s attitudes, facilities, safety and ticketing procedures are key factors to determine the airline service quality These factors do influences passengers' choice of airline

According to a passenger’s experience, full service airlines are always voted for the better service as compared with low cost airlines Full service passenger is served well with extra services during the flight while passengers of low cost airlines have to pay to be served Passengers understand the level of service included with the airlines they have chosen; full service passenger have to pay higher for their full service ticket and low cost passenger will pay lower for their flight but in the bottom of thinking, they used to support full service airlines for a pleasant serviced flight The quick growth of low cost airlines all over the world currently had proven that they can successfully compete with full service airlines in the price – sensitive leisure and high quality standard market

In recent years, there are many researchers who have researched on service quality but only a few of them have examined customer expectations of service quality in the airline industry (Cunnigham et al., 2002)

Why is quality of service one of the most important factors that gets more attention from the airline industry manager? And why are there so many researchers studying it? So we need to understand the meaning of service quality via some famous researchers to make it clearer Firstly, Parasuraman defined service quality,

as “service quality is determined by the differences between customer’s expectations of services provider’s performance and their evaluation of the services they received” (Parasuraman et al., 1985; 1988) The next definition by Asubonteng (Asubonteng et al., 1996) is “service quality can be defined as the difference between customers” expectations for service performance prior to the service encounter and their perceptions of the service received” Ueltschy (Ueltschy et al., 2004) defines service quality as the consumer’s judgment about the overall excellence or superiority of the service DeMoranville and Bienstock (2003) also define service quality as “a measure to assess service performance, diagnose service problems, manage service delivery and as a basis for employee and corporate

rewards” In summary, all previous literatures offer many valuable definitions of service quality However, in this study, we will focus on the most popular definition

of service quality by (Parasuraman et al, 1985)

All the service quality definitions show us that service quality is the differences between customer’s expectations and service received It is a very important factor to be concerned with passenger experience and the behavioral intentions in service generally and airline service specifically so that there are so many studies examined service quality and also some researchers have studied service quality in airlines industry, some of them have contributed the big value to develop service quality in Airlines industry The first study belong to Kearney (1986), studied service quality from perspective of the airlines consumer in his doctoral thesis delaminated service quality from perspective of industry-based economic and marketing measures In the 70’s the Civil Aeronautics Board ( Douglas & Miller, 1974; Jordan, 1970) developed the initial tools of service quality measurement in the airline industry in the U.S.A, the study were based on economic variables, and pre – deregulation, developed as service quality assessments from the perspective of the airline consumer

Wen Li and Chen (1998) studied the quality evaluation of domestic airline industry using modified Taguchi loss function with different weights and target values By using Taguchi loss function, one can quantify quality and thus compare service quality objectively According to Wen Li and Chen (1998), the process of travelling on a domestic airline can be described as follows: ticket -> check-in -> boarding -> departure -> flying -> arrival -> baggage claim

2.1.1 The SERVQUAL instrument:

There are many researchers who developed a number of measurement tools

in difference field such as:

Garvin (1983) who measures quality by counting the number of internal and external failures Internal failures are observed before a product leaves the factory and external failures are incurred after a unit has been installed Quality is in conformance to the customers and not to the company’s specifications

Gronroos (1984) classifies service quality into technical and functional quality Technical quality refers to what the service providers deliver during the service provision process Functional quality refers to “how the service is provided

by the service employee”

Parasuraman et al (Parasuraman, Berry, & Zeithaml, 1991; Parasuraman, Zeithaml, & Berry, 1985) published a set of services quality dimensions Parasuraman, Berry and Zeithaml are all marketing professors from Texas A&M University Since their services quality dimensions was published in 1985, it became well known and had brought to the authors many scholars The dimensions have since been used in many service firms (Forster, 2001) At the beginning, they consider ten dimensions of service quality to determine the perceived services quality including of reliability, responsiveness, competence, access, courtesy, communication, credibility, security, understanding the customer and tangibles However, over next three years 1988, they narrow the initial ten dimensions of service quality to five dimensions which is called SERVQUAL SERVQUAL (Parasuraman et al., 1988) has gained a wide scale of acceptance and has proven to

be a popular measurement tool with academicians and practitioners as well The SERVQUAL instrument measures service quality by examining the gap between

“expectations” (the service that customers think should be provided) and

“perceptions” (what customers think actually has been provided)

The SERVQUAL instrument has five dimensions: tangibles, reliability, responsiveness, assurance (combining communication, credibility, security, competence and courtesy) and empathy (combining understanding and knowing the

customer with accessibility) These dimensions are defined by the authors as follows:

1 Tangibles: physical facilities, equipment, appearance of personnel

2 Reliability: ability to perform the promised services dependably and accurately

3 Responsiveness: willingness to help customers and provide prompt service

4 Assurance: knowledge and courtesy of employees and their ability to inspire trust and confidence

5 Empathy: caring, individualized attention the firm provides its customers

6 Air fare: the total value of money which has been paid for air transport from point to point

2.1.2 Applying SERVQUAL in low cost airlines in Vietnam:

SERVQUAL model had been widely used in many past studies in difference industry such as banking (Gronrroos, 1984), health care (Norkhazzaina, 2009), restaurants (Dayang & Rozario, 2009), tourism service encounter (Baker & Fesenmaier, 1997), hotel (Mattssoon 1992; Juwaheer & Ross, 2003) and airlines

(Groonroos, 1984)

In the context of this study, the SERVQUAL instrument will be applied to test the service quality and air fare impact on customer satisfaction in Low Cost Airlines industry SERVQUAL instrument measures service quality based on five dimensions namely reliability, assurance, tangibles, empathy, and responsiveness The instrument is based on the premise that customers’ assessments of overall service quality are determined by the “gap” between their level of expectations and their perceptions of actual performance

The instrument has been used by researchers to measure airline service quality such as: Fick and Ritchie (1991), Fick & Ritchie and Gourdin & Kloppenborg were the first to apply the service quality gap model to the airline industry in 1991 Sultan and Simpson (2000) and Young et al (1994) In general, service quality literature recognizes expectations as an instrumental influence in consumer evaluations of service quality (Parasuraman et al., 1985 as cited in Sultan

& Simpson, 2000) (Cunnigham, et al., 2002) had a research under service quality about examining customer expectations of service quality in airline industry Ariffin, et al., (2010) studied service quality and satisfaction for LCCs M.Mehdi Bozorgi, (2006) measured service quality of the airline using SERVQUAL model

Five dimensions of SERVQUAL (Parasuraman et Al, 1988) included tangibles, reliability, responsiveness, assurance, and empathy will be used to test the service quality impact on customer satisfaction in LCC industry in this study Besides that, one more dimension about air fare was developed to measure the impact on customer satisfaction in the airline industry by the context of this study These dimensions are defined as follows:

1 Tangibles: physical facilities, equipment, appearance of personnel

2 Reliability: ability to perform the promised services dependably and accurately

3 Responsiveness: willingness to help customers and provide prompt service

4 Assurance: knowledge and courtesy of employees and their ability to inspire trust and confidence

5 Empathy: caring, individualized attention the firm provides its customers

6 Air Fare: the total value of money which has been paid for air transport from point to point

 Tangibles: the appearance of physical facilities, equipments and personnel

This dimension is referring to airline’s aircraft fleet, in-flight service equipments, airport operation equipments, system support to selling ticket, all airlines staff included selling ticket, airport staff and cabin crew, pilot …

A modern aircraft fleet can guarantee for more safe operations Beside safety issues, a modern aircraft fleet will save on maintenance costs for LCC, new aircrafts require less costly maintenance and will also establish the airline’s good reputation The modern aircraft with comfortable internal furniture together with high technical airport equipments; flexible ticket booking system and convenient check-in process together with well presented uniform staff and cabin crew will ensure a good image for an airline carrier

Base on previous researches and the author experience, the tangible should be focused in on Vietnam’s LCC to build up an airline’s image to the passenger in the new low cost airlines market

Based on research purpose and literature of all theories and articles mentioned above, this is the first hypothesis:

 Hypothesis 1: Tangibles has a positive effect on customer satisfaction

 Reliability: Ability to perform the promised services dependably and accurately

According to (Zeithaml et al., 1990), reliability is one of the most important factors towards services industry because most of the customer would like to expect that service providers are able to perform the promised services dependably and accurately (Zeithaml et al., 1990)

This dimension has a close relationship with passenger satisfaction, special in airlines industry But for the special airlines services, sometimes conducting promised services to passengers is beyond airlines’ ability due to unexpected situations such as delayed or cancelled flights due to technical

reasons, the weather or air traffic This then sometimes breaks the airline’s promise to the passenger about conducting service at the first commitment When the unexpected situations happen, airlines showed their duty of care towards passengers by quickly responding to fix the problems or to compensate the passenger

It is also a factor helping LCC to build up trust from their passengers and being a base for repeat customer services This has a direct impact on satisfaction, so the second hypothesis would be:

 Hypothesis 2: Reliability has a positive effect on passenger satisfaction

 Responsiveness: Willingness to help customers and provide prompt service

Responsiveness is perceived to be the most important dimension (Zeithmal et al., 1990) Therefore, it is important to ensure the employees of service organizations are well trained and be willing to assist the passengers;

to know how to be patient and to be able to convince the passengers to understand the unexpected situations It shows the willingness of the airlines

to be caring towards their passengers and be prepared to correct their mistakes when they could not serve passengers as promised The better the level of employee services, the better the level of quality service the customers perceived Therefore, the third of hypothesis is as follows:

 Hypothesis 3: Responsiveness has a positive effect on passenger satisfaction

 Assurance: Knowledge and courtesy of employees and their ability to inspire trust and confidence

In a standard service as airlines industry, most of passengers expect to have a warm caring or guided correct information or appropriate identification in the certain situation Furthermore, in the airline industry, most of the passengers require safety and security If the staff is confident in their job

with in-depth occupational knowledge, that will inspire truth and confidence

in the guests towards to the firms (Parasuraman et al., 1988) This factor can affect the passengers’ satisfaction Therefore, the fourth of hypothesis is as below:

 Hypothesis 4: Assurance has a positive effect on passenger

satisfaction

 Empathy: Caring, individualized attention the firm provides its customers

This dimension is used to measure service quality based on the ability of the management of LCCs organizations to understand the customer needs and requirements from airlines It shows that airlines pay attention to the passenger’s profit and how they understand about passengers’ needs Then, the fifth of hypothesis is:

 Hypothesis 5: Empathy has a positive effect passenger satisfaction

 Air fare: the total value of money which has been paid for air transport from

point to point

Price is the amount of money that you have to pay for an item or service (Oxford dictionary, 2005) From the passengers’ view, price plays an important role in assessing and measuring the benefits and quality of products or services that have been paid The simple concept is “the more the customers pay, the better the quality and product they will require” Additionally, price is associated with the cost budget by the customers to purchase the products or to pay for the service Normally, shareholders often resist expenditure on costs while customers often are reluctant to pay higher prices for higher quality of services (Presbury et Al, 2005)

There are many forms of prices with many functions Rent, fares, fees, rates, tolls wages and commission; all may in some way be the price for people to pay for goods or services (Kotler & Keller, 2009)

From previous researches in the LCC industry, the emphasis is on the importance on the relationship of price and satisfaction The study of (Ariffin, Salleh, Aziz & Asbudin, 2010) showed that there was a relationship between price and customer satisfaction And the author will use air fare dimension for measure their relationship in the LCC industry in Vietnam

In this study, price form is air fare which could be defined generally

as the element effects to purchase deciding of LCC passengers LCC model met the significant purpose to transport from a point to point by plane with low cost; any further extra services requested will be charged Since launching from 2005 till now, LCC in Vietnam are well supported by Vietnamese passengers LCC created more changes for Vietnamese passengers to experience a fast transportation means Securing air fare is also impacted to satisfaction The author would like to add air fare as a new dimension to measure passenger satisfaction in the LCC industry in Vietnam

So it could be the 5th hypothesis of the study:

 Hypothesis 5:Air fare has a positive effect to passenger satisfaction

2.2 Customer Satisfaction:

Churchill and Surprenant (1982) defined customer satisfaction as an outcome

of purchase and use resulting from the buyer’s comparison of the rewards and costs

of the purchase in relation to the anticipated consequences It has also been viewed

as an emotional state that occurs in response to the evaluation of a service ( Westbrook, 1981) Satisfaction is determined by a cognitive process (rewards) of comparing what customers receive against what they give up to acquire the service ( cost) Consistent with this point of view, customer satisfaction is defined as an emotional response It is a result from a cognitive process of evaluating the service received against the cost of obtaining that service (Woodruff et al 1991; Rust and Oliver (1994) Oliver, (1980) also supported that customer satisfaction is the feeling

or attitude of a customer toward a product or service after it had been used

Customer satisfaction is a major issue of marketing activity as it has the link with various stages of consumer buying behavior So if customers are satisfied with

a particular service offering after using it, then they are likely to repeat purchase and try line extensions (East, 1997) Customer satisfaction is recognized as a key factor to impact to customers’ future purchase intentions (Taylor and Baker, 1994) Satisfied customers also share their experiences with their friends, relatives and then engage in positive word of mouth advertising (Richens, 1983; File and Prince, 1992) On the contrary, dissatisfied customers will engage in negative word of mouth advertising

(Kotler and Johnson, 1999) suppose that customers have different satisfaction levels on a same situation The reason is customers have different requirements, objectives, and past experiences do influence their satisfaction levels

So it is necessary to set up a segment for the market because there are no services or products that can offer the same degree of satisfaction to all customers (WTO, 1985)

 Measuring customer satisfaction:

Customer satisfaction was defined as the metal effects of comparing the customer expectations before using the service and the perceived of actual performance after using the service (Gronroos 1982; Parasuraman et al 1985; Berry

et al 1990; Oliver 1996) This definition was also supported by Hansemark and Albinsson (2004) which stated that satisfaction is related with customers’ attitudes

or an emotional reaction towards a service provider regarding to the fulfillment of their needs and goals On the other hand, it was also associated with customers feeling of acceptance, happiness, relief, excitement and delight (Hoyer & MacInnis, 2001)

From the past research, it shows that customer satisfaction has a positive relationship towards an organization’s profitability (Koy & MacInnis, 2001)

Furthermore, according to the study about the impact of customer satisfaction, repeat purchase, loyalty and intention, Zairi (2000) said that once passenger is satisfied, they will shared their feeling and experienced with five or six people However if they were not satisfied, customers are more likely to tell another ten people of their unfortunate experience So it’s very necessary to measure passenger satisfaction in Vietnam’s LCC to understand the situation and develop for firm’s profitable In order to be successful in LCC model and to outweigh other competitors, LCCs must provide service to customers with satisfaction The customer satisfaction measurement as follow:

Customer satisfaction measurement serves two roles, providing information and enabling communication with customers Perhaps the primary reason for taking the time to measure customer satisfaction is to collect information, either regarding what customers say that needs to be done differently or to assess how well an organization is currently meeting its customer needs (Varva, 1997) A secondary, but no less important function of customer satisfaction measurement in airlines industry is that by surveying customers, an organization is demonstrating its interest

in communicating with its customers-finding out their needs, pleasures, displeasures and overall well-being However, it is impossible to measure the satisfaction of every single customer, those whose opinions are solicited and others, who observe this process, are given a sense of importance and recognition

There are some studies and publications have almost unanimously concluded that measuring customer satisfaction can be lead to the several benefits for the companies applying it; details as follow:

Customer satisfaction measurement result can be used to discover important strengths and weaknesses in product/ service offerings and more effectively focus

improvement efforts towards these issues (Lin & Jones, 1997; Emerson & Grimm, Sharma et al 1999; Yang, 2003a; Lam et al., 2004)

Depending on the industry context, Customer satisfaction measurement results may be used to estimate the degree of customer loyalty which is vital for long – term revenue (Gronholdt et Al, 2000; Lam et al., 2004)

Customer satisfaction measurement enables the supplying organization to compare the performance of its different business units in different time and locations ( Jones & Sasser, 1995)

Customer satisfaction measurement is useful for assessing the effectiveness

of efforts to redesign elements of the service delivery system ( Chase & Bowen, 1991; June & Fryna, 1988)

Customer satisfaction measurement can be used by the supplier as a symbolic activity for demonstrating customer-oriented behavior (Kujala & Ahola, 2004)

Cronin and Taylor (1992); Ekinci (2004) found that perceived service quality must be antecedent of customer satisfaction An alternative conceptualized imagines perceived service quality as both an antecedent and a consequence of satisfaction Lacobucci, Ostrom and Grayson (1995) examined the issue both empirically and by comparing structural models and determined that perceived service quality represents an antecedent of customer satisfaction while customer satisfaction also offers an antecedent of perceived service quality Caruana, Ewing and Rameseshan (2000); Baker and Crompton (2000) suggested that in general perceived service quality directly and significantly influences satisfaction

2.3 Theoretical Framework and Hypotheses:

2.3.1 Theoretical Framework:

Theoretical framework is mainly based on the literature review According to previous analysis, the constructs are integrated in a theoretical framework The framework guides development of the research’s hypotheses, which examine the

relationships among variables of the research The following is theoretical framework:

Table 2.1 Theoretical Framework

2.3.2 Research Hypotheses:

All hypotheses are summarized and listed as follows:

Table 2.2: The Summary of Research Hypotheses

CHAPTER 3 RESEARCH METHODOLOGY

In this chapter, the major aspects of methodology for quantitative approach

of the study are addressed Accordingly, this chapter will be displayed with some parts as research methodology, sampling design, data collection procedures and data analysis procedures

3.1 Research Methodology:

This study used a quantitative approach to design and investigate the relationship among research constructs and uses survey as the method of investigation The objective of this study was to first examine the relevance of service quality dimensions (SERVQUAL), air fare and passenger satisfaction in the LCC industry under the context of study

Questionnaires were made and delivered to the respondents to collect data The respondents were passengers who waiting for departure in domestic terminal of Tan Son Nhat airport, Ho Chi Minh City, Vietnam Before conducting the main survey, the pre-test of the questionnaires were done quickly by processing a qualitative interview to know whether items in the questionnaires are reliable and valid or not Once the pre-test’s result was satisfied, the main survey could proceed After gathering the data, these data would be analyzed by using Descriptive Analysis, Exploratory Factor Analysis (EFA) and Multiple Linear Regression (MLR) Through these methods, the issue soft research would be empirically answered

3.2 Sampling Design:

About the sample size, in this study, MLR was one of the methods to be

Đình Thọ (2012), the sample size in MLR depends on significant level, the power

of the test and the numbers of independent variables and so on There is an empirical formula for choosing sample size in MLR as follows:

n ≥ 50 + 8 p

In which,

 n is the minimum sample size

 p is the total of independent variables

However, EFA was also used in this research; the sample size would be determined by (1) the minimum sample size and (2) the number of variables

better if having 10 observations for each variable

In this study, there were totally six independent variables Therefore, the observations need to be at 6*10 = 60 The researcher used the ideal sample size at

150 passengers had used low cost airline services in Vietnam from Jun 2012 to Oct

2012 With the limitation time, the researcher just selected the respondents by convenient sampling method

3.3 Data Collection procedures:

Data of this study was gathered using the questionnaire surveys which were distributed to passenger at Tan Son Nhat airport, low cost area

The questionnaires were adapted based on the measure of Parasuraman et al (1988, 1991) and from Westbrook and Oliver (1991)

The questionnaires included two sections: Point Scale and Demographic Characteristics There are 25 questions to be divided into 7 groups related to 6 dimensions of service quality and the general viewpoints of customers about overall

perceived service quality and satisfaction Scale items were measured on the point Likert scale from strongly disagree (1) to strongly agree (7)

Seven-Table 3.1: The Sources of Measurement Scale

from Service quality

1 Tangibles

(TAN)

Zeithaml and Berry

(1988, 1991)

Airline staff is willing to help passengers and provide a prompt service

(1988, 1991)

LCC conduct well low fare beat guarantee programs

REL02

4 Assurance

(ASR)

Airline’s staff is very professional performance and in handling with unusual situations

ASR01 Parasuraman,

Zeithaml and Berry

Airline’s staff is knowledgeable and skillful provision services

ASR04

5 Empathy (EMP) Airline staff is friendly to passengers EMP01 Parasuraman,

Zeithaml and Berry

(1988, 1991)

Cabin crew take good care with passenger during flight

EMP02

Understanding the specific needs of passengers

EMP04

6 Air Fare ( FAR) The price of air ticket was reasonable FAR01 Ariffin, et al

(2006) The price of extra services were

Standard of service and cost of flight consistent with what passenger expects

SAT02

Overall, I am satisfied with the service and cost of Vietnam LCC flight

SAT03

3.4 Data Analyze Procedure:

The data was analyzed based on statistical analyzing methods will be used to answer the hypotheses of this study Statistic Package for Social Science (SPSS) software was applied on this study to analyze and present the result of this research

First of all, SPSS software was used to import data Raw data would be imported into spreadsheet of SPSS window The data was also coded according to the purpose of study After that, there were some statistical tools to be applied in this study, namely Reliability analysis, Descriptive statistic, Exploratory Factor Analysis (EFA) to find the factor’s correlation and Multiple Linear Regression to analyze the construct of the model

3.4.1 Reliability analysis:

The reliability testing was used to measure the items of the variables in the questionnaires and the internal stability and consistency of a question can be determined by the coefficient value of Cranach’s alpha (Nunnally & Bernstein, 1994) According to Hair et.al (2007), the Rules of Thumb about Cronbach Alpha Coefficient as follows:

Table 3.2: Rules of Thumb about Cronbach Alpha Coefficient Size

Alpha Coefficient Range (α) Strength of Association

Source: Hair et.al (2007), “Research Methods for Business”

Based on this rule, if the result of a variable has a coefficient value higher than 0.7, the questions are reliable and can be used as a measuring tool to measure the concept intended to be measured

3.4.2 Descriptive statistics:

Descriptive statistic was actually used to report the characteristics of the data

such as mean, frequency, standard deviations, percentage and range (Sekara, 2000)

In this study, the descriptive statistic was used to consolidate the data to determine the balance of samples about gender, country, age … by checking the frequency and the percentage of each variable This method is useful once comparison between the groups of respondents’ demographic each other

3.4.3 Factor Analysis (FA):

Factor Analysis (FA) is a primary method to identify the underlying structure

in data (i.e, determine the correlation among a large number of variables) Factor Analysis refers to the cluster of interdependence technique whereas it summaries the information from a large number of variables into factors, depending on their relationships (Hair et al, 2007)

The purpose of factor analysis is to simplify the understanding of the data which can be achieved from either an exploratory or confirmatory perspective (Hair

et al., 2007) In this study, exploratory factor analysis (EFA) was used to identify factors based on data, to maximize the amount of variance explained and to examine its internal reliability From that, the dimensions of service quality (tangibles, responsiveness, reliability, assurance, empathy, air fare) in low cost airlines model would be discovered under this context

3.4.4 Multiple Linear Regression Analysis:

Multiple Linear Regression analysis had been done to examine the simultaneous effects of several independent variables on a dependent variable that

is interval scaled (Cavana et al, 2001) In this study, multiple linear regression analysis was used to know whether all of the independent variables (tangibles, responsiveness, reliability, assurance, empathy and fare) would significantly add to the variance explained in the dependent variables (customer satisfaction) Thus, there were six hypotheses (H1 to H6) in this study to be analyzed by using the regression analysis in order to determine of any possible relationship between

independent and dependent variables under the context of the study

In summary, this chapter discussed about research methodology employed in this study which covered to research framework, sample design, data collection procedures and also discussed about the statistical tools which had been used to analyze the data in this study

CHAPTER 4 ANALYSIS RESULT

This chapter will display results of the achievement of the study like sample, explore the research objectives, statistical analysis, tests of hypotheses, explore the research objectives and withdraw other findings from this study The descriptive analysis will be displayed first to show respondents demographics, followed by the exploratory factor analysis (EFA) for measuring model, finally Multiple Linear Regression (MLR) analysis will be performed for hypotheses testing and

discussions

4.1 Respondents Demographics:

Apply Descriptive Analysis in SPSS software to present generally data of the study The passengers who had flown with low cost airlines in domestic routes in Vietnam were interviewed at the departure terminal of Tan Son Nhat airport Their demographic characteristics were showed in Table 4.1

First of all, 180 questionnaires were sent to the respondents However, there were only 150 questionnaires returned which were valid enough to be analyzed The respondent demographics can be shown as follows:

Table 4.1: Demographic Characteristics of the Study

Characteristic

Passenger (n=150) Frequency (%)

4.2 Reliability and Validity of SERQUAL Scales:

To test the reliability of the items, the Cronbach’s Alpha statistic was used in this study According to the Cronbach’s Alpha statistic, an alpha of 0.7 is a minimum, although lower coefficient may be acceptable depending on the research

objectives (Hair et al, 2007) According to Nunnally & Bernstein (1994), the measurement has validity and reliability when its alpha is over 0.6

Showed in the Table 4.2 below, the Cronbach’s Alpha values were high,

=.821 All detail alpha values were around 0.7 to 0.82, it means that the strength of association were good as recommended by Hair et al., (2007)

Furthermore, these alpha values provided evidence that the scales had adequate reliability in measuring the constructs under study or the items of variables were highly correlated each other In summary, it could be conducted that the measurement used in service quality of LCC in Vietnam was reliable in this context