THE SWITCHING BEHAVIOR OF AIRLINE PASSENGERS: THE CASE OF AIRASIA AND MALAYSIA AIRLINES

Abstract

This study examines how sensitive passengers are to fare differences between AirAsia (AA) and Malaysia Airlines (MAS) using an interval regression model. Consider a consumer who is currently a passenger on airline X as opposed to airline Y. As airline Y reduces its price, it will become more attractive to the consumer, and at some price, she will switch to airline Y. I denote the price at which she switches as the reservation price, and using questions that I developed, and data that I collected, I estimate the determinants of the reservation price for AA passengers considering a move to MAS and vice-versa. In particular, I let the reservation price depend on socio-economic characteristics and airline attributes. I find that my sample design works quite well for the AA passengers, and that I can precisely estimate their reservation price equation. However, my survey design for the MAS passengers does not elicit sufficient information to precisely estimate their reservation price equation.