SubscribeCranfield University is pleased to announce the establishment of the Business Travel Research Centre (BTRC).
A New Research Centre at Cranfield University, Dept of Air Transport
Cranfield University is pleased to announce the establishment of the Business Travel Research Centre (BTRC).
It is a source of applied consultancy capabilities and excellent training for the air transport and associated industries.
It is located at Cranfield University's Department of Air Transport, the largest air transport management faculty in Europe with a global reputation for excellence in applied research. BTRC draws together research and learning about the business travel sector.
Members of BTRC have been heavily involved in research into the business travel market, with published works including studies of the purchase factors of business travellers, the influence of corporate travel departments on airline choice, and business traveller adoption of low cost carriers. Their training and consultancy clients include airlines, airports, Travel Management Companies, business travel associations and airplane manufacturers.
The objective of the centre is to develop in-depth understanding of the complexities of the business travel sector, and its importance within the air transport industry. By so doing it aims to provide insight of the business travel market to airlines, corporate travel managers, procurement specialists, travel management companies, and the academic community.
Read more about the work of the BTRC at: www.BusinessTravelResearch.com
Contact:
Dr Keith Mason
Department of Air Transport
Cranfield University
MK43 0AL, UK
+44 1234 754 233
K.mason@cranfield.ac.uk
Transatlantic business traveller decision drivers
A recent study by Dr Keith Mason and research student Iain Dudley concerned the demand drivers for transatlantic business travellers. North Atlantic traffic accounts for 11.9% of worldwide passenger revenue kilometres (IATA, 2005), it is clear that airlines operating in this market are greatly impacted by changes in the behaviour of the market.
For example, in the year after the 9/11 attacks, as business traveller numbers reduced and travellers downgraded, BA’s traffic in this geographic market dropped by 17% while its profits in the market fell by 69% (BA, 2002).
The impact of business travellers downgrading from business class has a substantial impact on network carriers. While only 15% of the IATA airlines’ capacity is allocated to Business Class, it generates 28% of revenue. More importantly, the operating profit margin from Business Class in 2002 was 29% compared to just 5% from Economy Class.
Table 1: Airline cabin capacity and profitability
As it is Business Class passengers who contribute most to airlines’ profits it is clearly of concern that the proportion of long haul business travellers that travel in Business Class has fallen from a high of 52% in 1991 to just 36% in 2005 (Sentance, 2004) leading to lower yields, and lower profitability.
Given the importance of the North Atlantic market and the changes occurring in the business market this research aimed to provide contemporary insights into the North Atlantic business travel market.
Long haul business travel purchase factors
IATA’s Corporate Travel Air Travel Survey gives an indication of the principal purchase factors for long haul business travellers.
Table 2: Main purchase choice attributes - long haul business travellers
The surveys suggest that fare has increased in importance while the convenience of the schedule has been diminishing in relevant importance.
Methodology
This study attempted to identify the value placed on individual product elements using a stated preference approach. For each variable a number of attribute levels are used to determine the value each respondent derives from each variable.
Respondents were asked to imagine that they were travelling between London and Chicago on a business trip. The long haul product attributes to be assessed were; fare, seat comfort, flight frequency, and ticket flexibility. For each attribute, a number of levels were established. Table 3 lists the attribute levels allocated to each product attribute.
Table 3: Attribute levels
| Attribute | Levels |
| Price | £1,000, £1,500, £2,500 |
| Seat Comfort | Standard Seat (Economy), Extra Leg Room (Economy Plus), Flat Bed (Business Class) |
| Frequency | 1 Daily, 3 Daily, 5 Daily |
| Frequent flier program | No Points Awarded, Points Awarded |
| Ticket flexibility | No Flexibility, Fully Flexible Ticket |
Respondents were asked to rate on a Likert style scale (from 1 to 10), the likelihood of choosing each of 16 different product combinations (or service offerings).
Results:
The 62 useable responses to the survey were collected representing 992 lines of stated preference data, an adequate sample (Green and Srinivasan, 1978, Helm, 1990, Nelson 1998).
Traveller profile:
Figure 1 shows that the age profile of respondents from the US to be slightly older than their European counterparts. 74% of respondents were male, making an average of 14.6 short haul and 7.44 long haul trip a year. The majority of respondents were members of two to four frequent flier programme (FFP).
Figure 1: Split of travellers by age group and region
Transatlantic business travel purchase factors:
The respondents’ scores for the 16 hypothetical airline products were used in a regression analysis to establish values for the five product attributes. The following model was derived, where “Score” refers to the attractiveness of the airline service. The adjusted R2 value was 0.260.
Equation 1: Purchase factors: Transatlantic business travellers
| t-statistics | |||
| Score = | 2.458 + | (-1.172 * Price) | -12.766 |
| + | (1.015 * Seat Comfort) | 11.167 | |
| + | (1.544 * FFP) | 10.289 | |
| + | (0.172 * Frequency) | 3.841 | |
| + | (0.468 * Ticket Flexibility) | 3.119 | |
| + | Error |
The t-statistics suggest price to be the most important variable to transatlantic business travellers, followed by seat comfort.
European based business traveller purchase factors:
A similar analysis on respondents resident in Europe derived the following model (adjusted R2 = 0.241).
Equation 2: Purchase factors: European transatlantic business travellers
| t-statistics | |||
| Score = | 2.458 + | (-1.193 * Price) | -9.639 |
| + | (1.048 * Seat Comfort) | 8.555 | |
| + | (1.120 * FFP) | 5.538 | |
| + | (0.812 * Frequency) | 4.016 | |
| + | (0.160 * Ticket Flexibility) | 2.649 | |
| + | Error |
Similar to the model for the entire sample, price is the most important factor, followed by seat comfort, FFP, frequency and finally ticket flexibility.
North American based business traveller purchase factors:
The model for North American business travellers only includes four of the five product attributes as ticket flexibility is not significant (adjusted R2 = 0.34). It is interesting to note for this model that FFP was the variable gaining the largest t-statistic.
Equation 3: Purchase factors: N. American transatlantic business travellers:
| t-statistics | |||
| Score = | 2.458 + | (-2.170 * Price) | -8.884 |
| + | (1.040 * Seat Comfort) | 7.654 | |
| + | (0.962 * FFP) | 10.341 | |
| + | (0.190 * Frequency) | 3.033 | |
| + | Error |
The adjusted R2 values for all three models are quite low, as is often the case with stated preference experiments. Validation tests, however, indicated that the models were fairly good at predicting traveller choice decisions.
Scenario analysis
With the developed models of purchase preferences, scenarios analysis can be used to assess the likely respondent response to two discretely different service packages offered. Assessment of the models in this way can be used by service providers to analyse the effectiveness of possible new products.
Price
In the first case the price sensitivity of transatlantic business travellers is examined. In the first scenario a basic service is offered. The package is a £1,000 return fare, for a standard airline seat, with one daily return, no FFP points are awarded and the ticket has no flexibility. In the second scenario the offer is the same package except the fare is increase to £1,500.
Table 4: Scenario analysis - Price
The result of the analysis shows that transatlantic business travellers are very price sensitive as both European and North American business travellers show a negative change in predicted attractiveness score.
This reduction in attractiveness score could be viewed as the possible reduction in demand for such a product. Moreover what is interesting is that the attractiveness reduction is larger for the North American than for the European; seemingly showing that North Americans are more price sensitive.
Frequency and ticket flexibility
The effect of changes in ticket flexibility and flight frequency can be assessed using the scenario analyses where the other variables are kept constant. Table 5 shows the impact in service package attractiveness when the number of daily frequencies is dropped from three to one.
Both European and North Americans travellers would find the service offering 7% less attractive.In a similar situation, Table 6 shows that when all product variables are kept equal except for an increase in ticket flexibility it was found that Europeans will find this offering significantly (17%) more attractive.
Table 5: Scenario analysis - Frequency
Table 6: Scenario analysis - Ticket flexibility
Frequent Flier Programmes
Table 7 shows the results of an analysis assessing the effect of FFP’s on the purchasing decision. Scenario one is the basic scenario where the fare is set to the lowest value of £1,000 and the seat is a standard airline seat.
The frequency is set at the basic one daily frequency. Frequent flyer points are not awarded in scenario one but are awarded in scenario two with a price rise to £1,500 however all other attribute levels remain the same.
Table 7: Scenario analysis - FFP for £500
The analysis shows that the European business traveller would mark the attractiveness of scenario two’s service offering 2.33% lower than the offering of scenario one. Conversely the North American business traveller would find the offering of FFP points for £500 increase in ticket price 41.55% more attractive.
This study appears to suggest that North American business travellers are prepared to pay for miles. This was also found in the work carried out by Proussaloglou and Koppelman (1999) where North American business travellers were found to be willing to pay $21 for FFP reward in the short haul market. This scenario analysis at the same also illustrates the more highly price sensitive nature of the Europeans.
Conclusion
The study aimed to add to our understanding of the long haul business traveller market. Fare is the key driver. The results show that North American business travellers purchase decision factors differ significantly from European business travellers. For North American long haul travellers, FFP point accumulation and reward is still a strong driver in the purchase decision, while the addition of ticket flexibility for Europeans travellers adds to a service packages’ attractiveness, it seems less important to North Americans.
References
Green, P. and Srinivasan, V. (1978), 'Conjoint analysis in consumer research: issues and outlook', Journal of Consumer Research, Vol. 9
Helm, A. Predicting bus patronage in competitive conditions: A stated preference approach (MSc thesis), Cranfield Institute of Technology, 1990.
IATA (1998, 2002, 2004), Corporate Air Travel Survey, IATA
IATA (2003), Airline Economic Results and Prospects, Airline Economic Task Force.
IATA (2005), World of Air Transport Statistics, IATA.
Lee, D. and Luengo-Prado, M. (2004), 'Are passengers willing to pay more for additional legroom?', Journal of Air Transport Management, Vol. 10, No. 6
Nelson, P. S. (1998), Monetary valuation of environmental impacts of road transport: a stated preference approach (PhD thesis), Cranfield University
Proussaloglou, K. and Koppelman, F. S. (1999), 'The choice of air carrier, flight and fare class', Journal of Air Transport Management, Vol. 5
Sentance, A. (2004), ‘The airline industry: Problems and prospects’, Presentation at Cranfield University.
