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 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 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 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 TABLE OF CONTENTS ACKNOWLEDGEMENT I COMMITMENT II TABLE OF CONTENTS III LIST OF TABLES V LIST OF FIGURES V ABSTRACT Chapter INTRODUCTION 1.1 Vietnam’s low cost airlines background 1.2 Vietnam’s low cost airlines product and service 1.3 Research Motivation 10 1.4 Research Objectives 11 1.5 Research Scopes 11 1.6 Structure of Research 11 Chapter 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 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 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 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 60 APPENDIX 62 APPENDIX 67 APPENDIX 70 LIST OF TABLES Table 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 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 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 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, eticketing, 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 66 Mục đích chuyến đi:  Công tác  Thăm gia đình  Du lịch XIN CHÂN THÀNH CÁM ƠN SỰ HỢP TÁC 67 APPENDIX CRONBACH ALPHA ANALYSIS Table 4.2: Cronbach’s Alpha Measures of Variables in the Study Appendix 2.1: Cronbach Alpha analysis of Tangibles Factor Reliability Statistics Cronbach's Alpha N of Items 718 Tangible01 Item-Total Statistics Scale Cronbach's Scale Mean Variance if Corrected Alpha if if Item Item Item-Total Item Deleted Deleted Correlation Deleted 11.19 2.305 553 610 Tangible02 11.57 2.139 572 585 Tangible03 11.30 2.386 489 687 Appendix 2.2: Cronbach Alpha analysis of Responsiveness Factor Reliability Statistics Cronbach's Alpha N of Items 783 Item-Total Statistics 68 Scale Cronbach's Scale Mean Variance if Corrected Alpha if if Item Item Item-Total Item Deleted Deleted Correlation Deleted 11.35 2.443 642 689 Responsiveness1 Responsiveness2 11.55 3.188 590 746 Responsiveness3 11.29 2.609 650 674 Appendix 2.3: Cronbach Alpha analysis of Reliability Factor Reliability Statistics Cronbach's Alpha N of Items 764 Reliability1 Item-Total Statistics Scale Cronbach's Scale Mean Variance if Corrected Alpha if if Item Item Item-Total Item Deleted Deleted Correlation Deleted 15.95 5.313 686 637 Reliability2 15.97 5.785 619 678 Reliability3 Reliability4 16.08 5.967 589 695 16.12 7.220 375 798 Appendix 2.4: Cronbach Alpha analysis of Assurance Factor Reliability Statistics Cronbach's Alpha N of Items 789 69 Assurance1 Item-Total Statistics Scale Scale Mean Variance if Corrected Cronbach's if Item Item Item-Total Alpha if Item Deleted Deleted Correlation Deleted 17.45 4.800 625 725 Assurance2 17.65 4.094 587 758 Assurance3 17.61 4.522 672 699 Assurance4 17.15 5.535 554 765 pendix 2.5: Cronbach Alpha analysis of Empathy Factor Reliability Statistics Cronbach's Alpha N of Items 893 Empathy1 Item-Total Statistics Scale Cronbach's Scale Mean Variance if Corrected Alpha if if Item Item Item-Total Item Deleted Deleted Correlation Deleted 10.91 3.723 795 844 Empathy2 10.97 3.731 760 876 Empathy3 10.83 3.822 818 826 70 Appendix 2.6: Cronbach Alpha analysis of Satisfaction Factor Reliability Statistics Cronbach's Alpha N of Items 821 Satisfaction1 Item-Total Statistics Scale Cronbach's Scale Mean Variance if Corrected Alpha if if Item Item Item-Total Item Deleted Deleted Correlation Deleted 12.06 2.204 759 670 Satisfaction2 11.93 2.458 630 797 Satisfaction3 11.99 2.201 645 789 Appendix 2.6: Cronbach Alpha analysis of Satisfaction Factor (Before deleted RES04, EMP04) Variables Scale Mean Scale Corrected Cronbach's if Item Variance if Item-Total Alpha if Item Deleted Item Deleted Correlation Deleted Tangibles: Alpha = 718 TAN01 11.19 2.305 553 610 TAN02 11.57 2.139 572 585 TAN03 11.30 2.386 489 687 Responsiveness: Alpha =.703 RES01 16.93 4.532 585 574 RES02 17.14 5.370 563 607 71 RES03 16.87 4.715 599 569 RES04 17.09 5.575 270 783 Reliability: Alpha =.764 REL01 15.95 5.313 686 637 REL02 15.97 5.785 619 678 REL03 16.08 5.967 589 695 REL03 16.12 7.220 375 798 Assurance: Alpha =.789 ASR01 17.45 4.800 625 725 ASR02 17.65 4.094 587 758 ASR03 17.61 4.522 672 699 ASR04 17.15 5.535 554 765 Empathy: Alpha = 815 EMP01 16.16 6.082 750 710 EMP02 16.23 6.136 708 731 EMP03 16.08 6.141 786 695 EMP03 16.13 8.029 339 893 FAR01 10.21 5.189 564 593 FAR02 10.66 4.790 506 665 FAR03 10.58 5.051 537 621 Air Fare: Alpha =.715 Satisfaction: Alpha =.821 SAT01 12.06 2.204 759 670 SAT02 11.93 2.458 630 797 SAT03 11.99 2.201 645 789 72 APPENDIX EXPLORATORY FACTOR ANALYSIS (EFA) Appendix 3.1: EFA for exploring the service quality dimensions KMO and Bartlett's Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy Bartlett's Test of Approx Chi-Square Sphericity Df Sig .653 173.951 000 Appendix 3.2: The EFA implementation of dependent variable (Customer Satisfaction) KMO and Bartlett's Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy Bartlett's Test of Approx Chi-Square Sphericity Df Sig .744 677.965 000 Total Variance Explained Extraction Sums of Squared Component Initial Eigenvalues Loadings % of Cumulative % of Cumulative Total Variance % Total Variance % 2.189 72.974 72.974 2.189 72.974 72.974 561 18.705 91.679 250 8.321 100.000 Extraction Method: Principal Component Analysis 73 Component Matrixa Component Satisfaction1 912 Satisfaction3 866 Satisfaction2 780 Extraction Method: Principal Component Analysis a components extracted 789 782 709 694 Component Assurance3 Assurance1 Assurance2 Assurance4 Empathy3 873 Empathy1 857 Empathy2 837 Reliability1 805 Reliability2 774 Reliability3 747 Reliability4 665 Responsiveness1 813 Responsiveness3 798 Responsiveness2 782 Fare3 Fare1 Fare2 Tangible02 Tangible03 Tangible01 Rotated Component Matrixa Extraction Method: Principal Component Analysis Rotation Method: Varimax with Kaiser Normalization a Rotation converged in iterations 808 777 740 775 754 458 74 APPENDIX MULTIPLE LINEAR REGRESSION ANALYSIS (MLR) Appendix 4.1: The effect of the independent variables (service quality dimensions) on the dependent variable (overall perceived service quality) Correlations M_TAN TAN Pearson M_RES ** 360 M_REL M_ASR ** 296 ** 419 M_EMP ** 264 M_FAR M_SAT ** 360** 000 000 -.223 Correlation 000 Sig (2-tailed) N RES Pearson 150150 150150 ** 360 000 000 000 150150 150150 150150 150150 150150 185** 355** 367** -.136** 397** 000 000 000 000 000 Correlation Sig (2-tailed) N REL Pearson 000 150150 150150 ** 296 150150 150150 150150 150150 150150 ** 185 236** 257** -.018** 363** 000 000 000 000 Correlation Sig (2-tailed) N ASR Pearson 000 000 150150 150150 ** 419 150150 150150 150150 150150 150150 ** 236** 000 000 355 464** 020** 534** 000 000 000 Correlation Sig (2-tailed) N EMP Pearson 000 150150 150150 ** 264 150150 150150 150150 150150 150150 ** 257** 464** 000 000 000 367 080** 709** 000 000 Correlation Sig (2-tailed) N FAR Pearson 000 150150 150150 ** -.223 150150 150150 150150 150150 150150 ** -.018** 020** 080** 000 000 000 000 -.136 046** Correlation Sig (2-tailed) N SAT Pearson 000 150150 150150 ** 360 000 150150 150150 150150 150150 150150 ** 363** 534** 709** 046** 000 000 000 000 000 397 Correlation Sig (2-tailed) N 000 150150 150150 150150 150150 150150 150150 150150 ** Correlation is significant at the 0.01 level (2-tailed) 75 Variables Entered/Removedb Mode Variables Variables l Entered Removed Method M_FAR, Enter M_REL, M_RES, M_ASR, M_EMP, M_TANa a All requested variables entered b Dependent Variable: M_SAT Model R Model Summaryb Adjusted R R Square Square 769a 592 592 Std Error of the Estimate 49090 a Predictors: (Constant), M_FAR, M_REL, M_RES, M_ASR, M_EMP, M_TAN b Dependent Variable: Overall Perceived Service Quality ANOVAb Model Regression Residual Total Sum of Squares 52498.680 36182.506 88681.185 df 150143 150149 Mean Square F 8749.780 36308.105 241 Sig .000a a Predictors: (Constant), M_FAR, M_REL, M_RES, M_ASR, M_EMP, M_TAN b Dependent Variable: M_SAT 76 Coefficientsa Model (Constant) M_TAN M_RES M_REL M_ASR M_EMP M_FAR Unstandardiz ed Coefficients Std B Error 522 016 080 002 083 002 141 002 212 002 432 002 023 001 Standardized Coefficients a Dependent Variable: M_SAT Beta 073 085 145 193 529 031 t 32.085 37.182 45.012 82.151 95.860 270.263 17.778 Collinearity Statistics Toleranc Sig e VIF 000 000 702 1.425 000 764 1.310 000 874 1.144 000 670 1.493 000 709 1.409 000 909 1.100 77 78 79 80 Appendix 4.2: The effect of the independent variable(service quality dimensions and air fare) on the dependent variable (customer satisfaction) Variables Entered/Removedb Model Variables Variables Entered Removed Method Overall Enter Perceived Service Qualitya a All requested variables entered b Dependent Variable: SATISFACTION Model R 773a Model Summaryb Adjusted R R Square Square 597 595 Std Error of the Estimate 57262 a Predictors: (Constant), Overall Perceived Service Quality b Dependent Variable: SATISFACTION ANOVAb Model Sum of Mean Squares df Square Regression 105.788 105.788 Residual 71.482 218 328 Total 177.270 219 a Predictors: (Constant), Overall Perceived Service Quality b Dependent Variable: SATISFACTION F 322.626 Sig .000a Coefficientsa Model Unstandardized Coefficients B (Constant) OPSQ Standardized Coefficients Std Error 2.389 208 640 036 a Dependent Variable: SATISFACTION Beta Correlations t 773 Sig 11.508 000 17.962 000 Partial 773 Part 773 ...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. .. 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 satisfaction in Vietnam s LCC 1.5... 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