Customer Perceived Value of Frequent Flyer Programmes: An Empirical Study of Airline Passengers in China

Introduction

China, the world’s largest developing economy, has witnessed the fastest growth in the past three decades. Until 2010, its annual GDP growth had averaged about 10% since 1978. China has quickly become a major influence in the global economy (World Bank, 2015). The demand for air travel has also been increasing and China’s air passenger market has become the growth engine for the recovery of global airline business from the recent financial crisis. In 2014, the International Air Transport Association (IATA) predicted an average annual growth rate of 5.5% between 2014 and 2034 of flights to, from and within China (IATA, 2014). China’s aviation market had previously been centred on the “Big Three”: Air China, China Eastern and China Southern, which jointly account for almost 65% of total value sales in 2014 (Euromonitor, 2015). In recent years there have been air deregulation efforts from the regulatory body. The new entrants consisting of privately funded airlines and low-cost carriers, and the rapidly developed high-speed rail services in recent years have intensified the competition within the airline passenger market in China. The low-cost carriers have attracted many price-sensitive passengers from full-service airlines. The leading carrier in this category, Spring Airlines achieved the biggest value sales gain by 17% in 2014 over the previous year. Moreover, China’s high speed rail network is now the world’s largest and it is still expanding at a fast pace. The traffic volume has risen from 128 million trips in 2008 to 672 million trips in 2013 (World Bank, 2015). To compete with high-speed rail services and low-cost carriers, many full-service airlines have to reduce price as low as 90% off the regular fare level for short haul flights (Euromonitor, 2015). Fostering and maintaining customer loyalty is thus vital for the Chinese airlines’ survival and growth. All the major carriers in China have adopted Frequent Flyer Plans (FFPs) as part of their marketing strategies. However, running a FFP is very expensive. It is therefore critically important for airline managers to understand whether these loyalty programmes are effective in generating and maintaining customer loyalty.

This chapter thus aims to examine how passengers perceive the values provided by a FFP, and whether these values have impacts on passenger loyalty. Customer perceived value is usually considered to consist of functional, economic, emotional, and social aspects (e.g. Babin & Babin, 2001; Sweeney & Soutar, 2001). In the context airline’s FFP, Meyer-Waarden (2013) suggests that FFP rewards can be categorised into utilitarian rewards, hedonistic-entertainment rewards, and social-relational rewards. A basic function of a FFP is for passengers to collect points and redeem free flight tickets or upgrades which have cash value. Accordingly we combine the functional aspect of FFP value with the economic one in studying customer perceived value of FFP. Specifically, the objectives of this chapter are to examine whether there are impacts from economic, emotional, and social values of FFP on passengers’ loyalty toward the airline (airline loyalty); and whether these impacts are mediated through their loyalty towards FFP (programme loyalty). To this end, we conducted a questionnaire survey with a sample of passengers at the domestic flight departure lounges at Xiamen Airport, Southeast China to test a conceptual model based on the extant literature. This study will be of practical use for marketing managers to utilise FFP more cost-effectively. Knowledge regarding the ways that different FFP values influence customer loyalty can help firms adjust the design of FFP features and their communications with both FFP members and general air travellers. Furthermore, the study results can be used by managers to better coordinate and integrate FFPs across the airlines within their global alliance network. This chapter also provides insights for marketing scholars into the direction of further research on loyalty programmes in general.