An Investigation into Air Travellers? Willingness to Pay Ancillary Service Attributes Within a Branded Fare Context



An Investigation into Air Travellers? Willingness to Pay Ancillary Service Attributes Within a Branded Fare Context

Authors

S Caussade, LAN airlines, CL; S Hess, ITS, University of Leeds, UK

Description

This paper discusses an investigation into the relative merits of fare bundle approaches and pay as you go systems in air travel

Abstract

The ?traditional? approach taken in the air travel industry has been that passengers who buy more expensive fares get a better ?product?, be it a business class seat, greater rebooking flexibility or more frequent flier benefits. However, these benefits have always come in bundles, such that moving up one fare class potentially leads to an improvement along more than one quality of service dimension. This may be of relatively little interest to travellers only looking for in a single improvement, such as for example a few inches of extra legroom. As a result, these travellers may not be interested in the more expensive fares as they end up paying for attributes that they are not interested in.

The low cost carriers (LCC) were the first to understand these inadequacies of the existing fare model and started the introduction of pay as you go systems where quality of service attributes are no longer bundled together, but where passengers are able to pay individual surcharges for checked baggage, priority boarding, food etc. This approach introduces a large level of product heterogeneity, with different travellers buying different ?top-up? products. Traditional airlines, also known as legacy carriers, have been slow to pick up on this, although a few have introduced policies whereas passengers pay extra for in flight entertainment or alcoholic beverages. However, there has only been a limited implementation of this at the actual flight booking stage, and fare bundling is still very much in operation.

In this paper, we discuss the findings of a recent study undertaken for the Chilean airline LAN. The study makes use of a web-based stated choice (SC) experiment presenting travellers with various options that differ by price as well as by quality of service indicators. These attributes are no longer bundled together according to strict fare family structures, allowing us to test individual willingness-to-pay (WTP) for each of the attributes instead of a single WTP for the whole bundle.

While this paper is firmly about policy and results, it should be said that our analysis makes use of a state-of-the-art SC design, as well as relying on advanced discrete choice modelling techniques, leading to very robust results. In the actual analysis, we not only investigate the WTP measures for different attributes, but also look at interactions between different top-up attributes. Using the results from this analysis, we then compute WTP indicators for different fare bundles and compare them to those currently in use by LAN. With the information on interactions between attributes arising from our analysis, we are also able to provide some guidance on the appropriateness of the composition of existing bundles (i.e. not just their price) and discuss the advantages or disadvantages of a pay as you go system in this context.

Initial results from our pilot survey have been very encouraging, showing strong effects for all included attributes as well as interactions between quality of service indicators. The data collection for the main survey is currently ongoing. We believe that this is the first study of its type in the field of air travel behaviour research. Other than the policy implications from the analysis, the research also has a number of interesting methodological components, to do with the analysis of WTP for large bundles of attributes in a SC context.

Publisher

Association for European Transport