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IJQRM

12,2 A multivariate analysis of


airline flight delays
Vasanthakumar N. Bhat
54 Pace University, New York, USA
Received December 1993
Introduction
Low price alone is not sufficient to compete in a deregulated airline market.
Consumers do make decisions about airlines based on their experience and
perception about an airlines customer service. Unlike a tangible product, a
dissatisfied customer can neither ask for refund nor exchange a flight, once
performed. Therefore, the only option a dissatisfied customer has is not to fly
with that airline in future. Therefore, airlines constantly collect and monitor
data on customer satisfaction. For example, British Airways has installed video
point booths at Heathrow Airport to encourage passengers to express their
opinions about a flight on which they have just arrived. The cost of acquiring
new customers is rising. Retaining existing customers has become critical to
maintain current market share in an almost saturated market. Many airlines
have introduced frequent flyer programmes to increase brand loyalty among
passengers and reduce their defection to competitors. Long-term customers are
profitable customers. They recommend new passengers to an airline at virtually
no cost. Improving customer satisfaction, therefore, is an effective way to retain
a passenger who otherwise would have gone to a competitor.
Since deregulation in 1979 in the USA, the airline industry has been in a
continuous flux. More than 200 large and small airlines have failed. In the last
two years alone, six out of 11 major airlines were liquidated. Currently, several
airlines are financially weak. Since deregulation, airlines have changed
dramatically in terms of financial structure, number of employees, plane mix
and so on. Debate is also being waged about customer service. Policy makers
feel that weak financial conditions are forcing airlines to cut corners on
passenger service. However, a variety of factors influence customer service. The
purpose of this article is to analyse the effects of financial and operating
variables on airline delays. Several factors represent customer service. On-time
performance, schedule reliability, quality of food, fare, frequency of flights, time
of flight, baggage delivery and cabin service are some factors that represent
customer service. However, unlike other factors, airlines do not have complete
control over factors that cause delays. Bunching of flights, air traffic control
procedures, weather, and inability of air traffic control systems to keep pace
with the increased demand, are some factors beyond an airlines control that
cause delays. However, these factors affect every airline. Therefore, if an airline
International Journal of Quality
& Reliability Management, can excel over others, then it is definitely providing superior service to its
Vol. 12 No. 2, 1995, pp. 54-59,
MCB University Press,
customers. Such an identification can help regulators to come up with policy
0265-671X options to improve customer satisfaction.
Beginning in September 1987, the data on flights that met the on-time A multivariate
performance criterion have been collected by the United States Department of analysis of
Transportation (DOT) for airlines with more than 1 per cent of total domestic flight delays
scheduled service passenger revenues. DOTs Office of Consumer Affairs issues
a monthly report entitled the Air Travel Consumer Report, indicating each
airlines performance. A flight which departs or arrives at the gate within 15
minutes of its scheduled time is considered to be on time. 55
It is well known that superior service quality does affect customer demand,
market share and return on investments[1,2]. However, not much research has
been done about how financial and operating characteristics of an organization
influence service quality. Rose[3] analyses implications of financial parameters
on airline safety. The purpose of this article is to identify operating and
financial characteristics of an airline which influence airline delays. We use
logistic regression to determine operating and financial characteristics of an
airline that affects the likelihood of a flight being delayed.

An introduction to logit models


A flight is either on time or late. We assume that financial factors of an airline
such as debt to capital ratio, current ratio and so on are likely to influence the
probability of airline delays. Our objective is to investigate the relationship
between the probability of flight delay and the financial factors. If we denote the
probability of flight delay by and independent variables by x1, x2, , xn and if
we assume that dependence occurs through the linear combination:
g() = 0 + ixi; i = 1, , n
where i represents the impact of changes in x on the function g of probability
. In a logistic regression model, we assume that:
log (/(1 ) ) = 0 + ixi; i = 1, , n.
The values of can be estimated using maximum likelihood method. The value
of probability can be estimated from:
= exp (0 +ixi)/[1 + exp(0 + ixi)].
The ordinary least square multiple regression analysis cannot be used to fit
data involving binary responses because value is bounded by 0 and 1. In
addition, the ordinary least square method could give rise to heteroskedastic
errors (see[4]). Cox and Snell[5] and Agresti[6] provide excellent discussion on
logistic regression models.

Operating variables
We use 11 financial and operating characteristics of an airline as independent
variables (see Table I). The market share indicates dominant power of an airline
in attracting customers. The growth in the operating revenue provides a
measure of increase in the number of passengers on a year-to-year basis. The
revenue per passenger mile indicates the amount a passenger is willing to pay
IJQRM Variable Symbol
12,2
Proportion of flights delayed per airline DELAY
Market share MSHARE
Revenue per passenger mile in cents RPM
56 Operating revenue growth OPRGR
Debt to capital ratio DTA
Current ratio CR
Load factor LF
Profitability code OPC
Log of operating revenue LOGOPR
Employees per departure EMPDEP
Table I. Operating revenue per employee OPREMP
List of variables

to travel in that airline. The debt-to-capital ratio is computed by dividing long-


term debt (excluding current portion) by total invested capital. It is a leverage
measure that indicates the extent to which an airline uses debt to finance its
assets. High debt ratios could mean financial problems in that debt holders have
a claim on an airlines cash-flow, which can lead to liquidity problems. To satisfy
debt obligations, an airline might be forced to cut back on expenses on
passenger services. The current ratio represents the ratio of current assets to
current liabilities. It is a measure of an airlines liquidity. Airlines with higher
ratios have greater cash resources to satisfy their financial obligations. The
hub-and-spoke networks have affected airline fares, safety and service quality
significantly. In a hub-and-spoke network, the flights from many spoke cities
bring in passengers into a central hub city. With a view to providing timely
connections to final destinations, flights from different spoke cities arrive at the
hub almost at the same time. Therefore, a delayed flight tends to delay all
connecting flights. Therefore, the size of an airline has a dramatic effect on
flight delays. The size of an airline is represented by the logarithm of its
operating revenue. The revenue per employee provides a rough estimate of
airline productivity. The load factor represents utilization of passenger seats.
The revenue per employee provides an indirect measure of productivity. The
profitability code is 1 if an airline is profitable and 0 otherwise. This dummy
variable is used to distinguish profitable airlines from unprofitable ones. When
an airline is not profitable, its employees are likely to be under stress. We also
use dummy variables DUM89, DUM90 and DUM91 to account for conditions
that vary through time but not across airlines. DUM89 is 1 for year 1989 and 0
otherwise and so on. We collected data for airlines from 1988 to 1991 from the
various issues of Air Transport World and Standard and Poor Industry
Surveys, Aerospace & Air Transport Section.
Findings A multivariate
One important assumption in a logistic regression analysis is that the analysis of
independent variables are not related to each other. We therefore remove flight delays
MSHARE, RPM, LF, OPC and EMPDEP from our regression model. In Table II,
we present logistic regression results generated using DELAY as a dependent
variable and OPRGR, DTA, CR, OPREMP, LOGOPR, DUM89, DUM90 and
DUM91 as independent variables. This regression is done using 39 57
observations for the years from 1988 to 1991. In Table II, we present coefficients
of each variable, probability levels and standardized estimates of the
coefficients. The SCORE statistic provides a test for the joint significance of the
eight independent variables in the model. According to the SCORE statistic, the
combined effect of the eight independent variables is significant with a
probability of 0.0082. According to the 2 Log L statistic the combined effects of
eight independent variables is significant with a probability of 0.0088. Based on
the regression outputs, the estimated probability of an airline being late is:
logit() = 2.5160 0.2154 OPRGR + 0.1305 DTA 0.0441 CR
+ 1.302 OPREMP + 0.1092 LOGOPR 0.1882 DUM91
+ 0.0814 DUM89 + 0.0564 DUM90.
where logit () = log [/(1 )].
According to the probability levels given in Table II, only the logarithms of
operating revenue (LOGOPR) and operating revenue per employee (OPREMP)
have a probability of less than 0.1 that the null hypothesis that each of these
variables in the model is zero. Since the variables are not expressed in the same
units, the standardized estimates rather than raw coefficients should be
analysed. Based on the standardized estimates, OPREMP and LOGOPR have

Probability Standardized
Variable Coefficient level estimate

INTERCEPT 2.5160 0.0001


OPRGR 0.2154 0.3828* 0.0222
DTA 0.1305 0.1150* 0.0373
CR 0.0441 0.7860* 0.0072
OPREMP 1.3020 0.0635 0.0419
LOGOPR 0.1092 0.0210 0.0566
DUM91 0.1882 0.1435* 0.0419
DUM89 0.0814 0.4595* 0.0202
DUM90 0.0564 0.6334* 0.0126
* Level of significance > 0.1
2 Log LIKELIHOOD p = 0.0088 Table II.
SCORE p = 0.0082 Logistic regression
results
IJQRM the maximum impact on the delay probability. The LOGOPR is a proxy for the
12,2 size of an airline. These airlines typically have larger planes, fly to congested
airports and have several hubs. OPREMP measures operating revenue per
employee and our analysis indicates that airlines with high operating revenue
per employee are likely to be delayed more often. In Figures 1 and 2, we provide

58
Proportion of flights delayed
0.35

0.30

0.25

0.20

0.15

Figure 1. 0.10
Proportion of flights 0 0.05 0.10 0.15 0.20 0.25 0.30 0.40 0.45
0.35
delayed vs. operating
revenue per employee Operating revenue per employee

Proportion of flights delayed


0.35

0.30

0.25

0.20

0.15

Figure 2. 0.10
Proportion of flights
6.0 6.5 7.0 7.5 8.0 8.5 9.0 9.5 10
delayed vs. log
(operating revenue) Log (operating revenue)
graphs showing the relationship between the probability of delays and A multivariate
operating revenue per employee and logarithm of operating revenue analysis of
respectively. flight delays
Conclusions
Customer service represents an important parameter in choosing an airline.
The on-time performance of an airline is of significant concern to an airline 59
traveller. In this article, we examine the relationship between airline flight
delays and financial conditions of airlines. Our analysis indicates that the
likelihood of a flight being delayed increases with the leverage, airline size and
operating revenue per employee and decreases with the revenue growth and
current ratio. However, only operating revenue per employee and airline size
represented by the logarithm of the operating revenue have statistically
significant effects (with level of significance being less than 0.1) on the
likelihood of flights of an airline being delayed. The methodology presented in
this article should be of significant interest to quality control professionals to
ferret out factors that cause problems.
References
1. Ippolito, R.A., Estimating airline demand with quality of service variables, Journal of
Transport Economics and Policy, Vol. 15, January 1981, pp. 7-14.
2. Hildebrandt, L. and Buzzell, R.D., Product quality, market share and profitability: a causal
modelling approach, Working Paper, 91-045, Harvard Business School, Cambridge, MA,
1991.
3. Rose, N.L., Profitability and product quality: economic determinants of airline safety
performance, Journal of Political Economy, Vol. 98, 1990, pp. 944-64.
4. Goldberger, A.S., Econometric Theory, John Wiley & Sons, New York, 1964.
5. Cox, D.R. and Snell, E.J., Analysis of Binary Data, 2nd ed., Chapman & Hall, London, 1989.
6. Agresti, A., Analysis of Ordinal Categorical Data, John Wiley & Sons, New York, NY, 1984.