Customer Satisfaction's Impact on Revenue for Airlines

This is the first in an ongoing series articles on customer satisfaction, and its impact consumers and businesses. I find the question about how much to invest in customer satisfaction and experience intriguing because at its surface it seems simple (customer satisfaction is good, right?), but it is very difficult to build a model describing how much you should be worried about different levels of satisfaction, and what you should be doing about it.

To start with I looked at the airline industry, because it has a reputation for being poor, and the firms in the industry have highly variable profitability. Furthermore, I consistently read stories about airlines like Spirit or RyanAir which have consistently poor customer satisfaction scores, but are profitable due to low ticket prices keeping planes full and then charging for any incremental service provided such as checking a bag, choosing your seat, etc.

My first goal is to look at customer satisfaction scores and sales metrics for airlines to determine if two things can be tied to one another for airlines specifically. Secondly, I am hoping that this analysis will provide some insight into a broader understanding of customer satisfaction more generally.

I started by looking at the average customer satisfaction for all of the airlines in the American Customer Satisfaction Index (ACSI; more information on it can be found here). I was surprised by how volatile the metric was, but also encouraged because I had a wide set of data.

From here I looked at the customer satisfaction  against revenue for each year / airline combination, and was excited when the relationship was statistically significant (p-value = .0012). Unfortunately, the coefficient of the regression is negative, and I believe the effect I am detecting is that customer satisfaction is different across firms of differing sizes as you can see in the chart below:

As you can see the relationship between customer satisfaction and revenue is negative, but when you layer on which airline corresponds to which data point it appears that the smaller airlines are actually the ones providing better service.

This poses a couple of interesting questions, some of them opposed to, if not contradictory to each other. First, do small firms do a better job at providing an experience that leads to higher satisfaction. Second, does it makes sense for firms to sacrifice customer satisfaction for other growth factors. Finally, looking at the chart above with the airlines associated with each data point it appears that revenue may have a positive relationship with satisfaction for a given firm, but that when you look at the industry as a whole the relationship flips. There are not enough data points for each airline to get really comfortable with any sort of read the analysis would provide, but I decided to give them a look in case it spurred any thoughts.

Of the three airlines I looked at, American, Delta, and Southwest, 2 did not have a strong correlation between customer satisfaction and revenue while Southwest did have a strong positive relationship (p-value = .0203) between satisfaction and revenue.

Airline Coefficient on Customer Satisfaction P-Value
American Airlines -0.1556 0.9997
Delta -312.7857 0.7239
Southwest 909.3220 .0203

If the only thing impacting revenue was customer satisfaction then we could conclude that each full point change in the customer satisfaction score would lead to change in revenue of about $900 million. It is more likely that customer satisfaction is only a part of the story, but given the potential impact of understanding the relationship between customer experience and business outcomes it is likely worth the effort.

The next steps/analyses are:

  1. Does firm size impact or correlate with overall satisfaction?

  2. What are the main drivers of customer satisfaction?

  3. Are there industries where the relationship between customer experience and business outcomes is clearer?