MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY ------------------- 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 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY ------------------- 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 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com I 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 22nd 2012 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com II 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 22nd 2012 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 1 TABLE OF CONTENTS ACKNOWLEDGEMENT.
II TABLE OF CONTENTS. III LIST OF TABLES. V LIST OF FIGURES.1 Vietnam’s low cost airlines background.2 Vietnam’s low cost airlines product and service .6 Structure of Research. 11 Chapter 2 LITERATURE REVIEW, THEORETICAL FRAMEWORK AND HYPOTHESES .1 The SERVQUAL Instrument .2 Applying SERVQUAL in the Low cost airlines in Vietnam .3 Theoretical Framework and Hypotheses.
27 Chapter 3 RESEARCH METHODOLOGY .3 Data Collection Procedures .4 Data Analyze Procedure. 31 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.4Multiple Linear Regression Analysis. 33 Chapter 4 ANALYSIS RESULT .2 Reliability and Validity of SERQUAL Scales .3 Dimensions of Service Quality in Low Cost Airlines in Vietnam .5 Hypothesis Testing and Discussions. 51 Chapter 5 CONCLUSIONS AND RECOMMENDATIONS.
Summary of Findings. Contributions of the Study. Limitations and Future Research. 70 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 3 LIST OF TABLES Table 1.
Product features of low-cost carrier and full service carrier in Vietnam.2: The Summary of Research Hypotheses .1: The Sources of Measurement Scale .2: Rules of Thumb about Cranach’s Alpha Coefficient Size.1: Demographic Characteristics of the Study .2: Cranach’s Alpha Measures of Variables in the Study .3 KMO and Bartlett's Test of Five Independent Variables .4: Rotated Component Matrix of Independent Variables .5 KMO and Bartlett's Test and Component Matrix .6 Correlation of Variables .7 ANOVAs for Construct .8 Model Summary of the Construct .9a Coefficients of the Construct .9b Coefficients of the Construct .10 Overall Perceived Service Quality. 48 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 4 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.
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. LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 5 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.” LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 6 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 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 7 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. LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 8 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.