The relationship between on-time performance and airline market share: a new approach

We propose a new method of modeling the relationship between on-time perfor mance and market share in the airline industry. The idea behind the method is that the passengers' decision to remain (use same airline) or switch (us e other airlines) at time t depends on whether they have experienced flight delays at time t - 1 or not. More specifically, we posit that the passenge rs who experienced flight delays are more likely to switch airlines for the subsequent flight than those passengers who did not experience delays, To capture such effect, we develop an aggregate-level Markovian type model tha t estimates the transition probability matrices separately for the passenge rs who experienced flight delays at time t - 1 and for those who did not ex perience delays. The model was calibrated with the US DOT data. The study r esults imply that, once experiencing flight delays, passengers are more lik ely to switch airlines. The results also imply that on-time performance aff ects a carrier's market share primarily through the passengers' experience, and not though the "advertisement" of performance. (C) 2000 Elsevier Scien ce Ltd. All rights reserved.