Airline quality, load factors and performance

This paper examines the relationship between airline quality and domestic US airline performance. How to measure quality and performance in the airline industry has been problematic in prior research, resulting in conflicting conclusions. Quality is commonly measured by a customer satisfaction construct created by the researcher for the study or alternatively by a published quality construct such as the Airline Quality Rating (AQR). The constructs are usually linear combinations of published airline statistics. Performance in the airline industry can be measured by traditional input/output ratios such as the ratio of operating income to operating cost, financial measures such as ROI, or non-financial measures such as passenger load factors. In this paper we argue a form of passenger load factors is the appropriate performance measure when addressing the impact of airline quality on performance. The data and statistical methodology selected have also been a source of confounding results in prior research. In this research a monthly sample of data for 15 domestic US airlines taken over 10 years is collected from multiple sources.Cross sectional time series panel models are developed that reveal a complex and statistically significant relationship between quality and load factors. As part of this analysis we make the argument that the results are consistent whether one uses a published quality measure such as the AQR or creates a new construct to measure quality.