RESEARCH METHODOLOGY

CONFERDATION OF TOURISM AND HOSPITALITY

POSTGARDUATE DIPLOMA ASSIGNMENT

30th September 2011

Adnan Ul Haq

Air Passenger Duty’s impact on British Airways’ customer satisfaction

Executive summary

Airline Industry has emerged with the passage of time as one of the high profile contributors to the economic scale. The broad range of services includes carrying passengers to different destination and providing cargo services facility across the globe. In modern times due to excessive competition in the aviation industry most of the executives with the help of market analysts are conducting researches for finding the ways to improve the quality of services so that customer’s satisfaction leads to improve the profitability ratio for the firm. One of the main issues regarding the aviation industry is the rising air passenger duty.

This report gives a detail explanation of the air passenger duty, and how the airline services use it to the best of its advantage and at the same time maintaining the consumer satisfaction up to the mark with special reference to British Airways.

The report revolves around various reasons that has resulted in the increase of APD and identifies that whether this increase in the APD will affect the BA’s overall customer satisfaction.

This report explores the effectiveness of different tools and models in the process of determining the APD and serve as a concrete base to take measure steps in order to avail the customer’s satisfaction.

List of Contents
Executive Summary……………………………………………………………………………………………………. Chapter One………………………………………………………………………………..……………………………… 2 3

Introduction…………………………………………………………………………….…………………………………… 3 Chapter Two……………………………………………………………………………………………………………….. Literature Review……………………………………………………………………………………………………….. Chapter Three……………………………………………………………………………………………………………. REASEARCH PLAN AND METHODS……………………………………………………………………………. Purpose and Scope of the Research………………………………………………………………………… Research Method……………………………………………………………………………………………………….. Focus Groups……………………………………………………………………………………………………………… 4 4 7 7 7 7 7 8 8 9 9 10 10 14 14 14 15 15 16 17

Research Approach …………………………………….…………………………………………………. Research Strategy…………………………………………………………………………………………… Qualitative and Quantitative Research………………………………………………………….. Data Collection Technique and Procedures…………………………………................
Chapter Four………………………………………………………………………………………………………………. Research Findings and Analysis……………………………………………………………………………….. Chapter Five………………………………………………………………………………………………………………. Key Findings and discussions………………………………………………………………………………….. Focus Group Discussions………………………………………………………………………………………….. Key Findings………………………………………………………………………………………………………………. Recommendations………………………………………………………………………………………………………. Conclusions…………………………………………………………………………………………………………………. Bibliography and References …………………………………………………………………………………….

INTRODUCTION According to HRM revenue and Customs, Air passenger duty is a duty regarded as duty of excise levied at the United Kingdom airport on the carriage. It is charged from passengers on chargeable aircrafts. The amount due is dependent on two things, one is final destination is considered while charging APD and secondly, the class by which the passenger is travelling. From its beginning back in November 1994, the criteria of charging the chargeable passengers have changed greatly. In last two years twice the rates has been revised. To create a better understanding about what have been the recent changes in APD is vital for this research as it will lead to explain the impact of APD on both BA as well on its customers. Prior to October 31, 2009 the standard APD rates were £20 for all European destinations whereas £80 for all other destinations. Reduced air passenger duty rates that applied to lowest class of travel were for £10 for all European destinations and £40 for all other destination. This means four rates were operating from February to October but from November the charges were levied on miles per travellers travelled. This means an introduction of Band system for both standard and reduced rates. Band A charged £22 till October 31, 2010 for the distance of 2000 miles and after November 1, 2010 that charges for band A is £24. Band B cover from 2001 to 4000 miles and standard rates before November 2010 was £90 and after November 2010 it is £120. Band C previously was £100 but after new reforms it has increased by £ 50 which means reaching £150 for the distance area between 4001 to 6000 miles. Distance over 6000 miles was previously £110 but revised rate is £170 active after November 2010 (hmrc.gov.uk). Reduced rate prior to November 2010 for Band A were £11 for same distance of 2000 miles but after November 2010 revised rate for air passenger duty (APD) is £12. Band b has a same distance criteria ranging from 2001 to 4000 miles were £45 till October 2010 but increased by £15 from November 2010 reaching to £60. From 4001 to 6000 miles lay in band c, and its charges were £50 but revised rate is £ 75.distance over 6000 miles means band d rates were formerly £55 but after November it has been £85 (hmrc.gov.uk).

Purpose and Scope of the Research: The air travels plays vital role in consumer’s life it helps to provide easy access to visit family, friends who are living abroad, and tourist destination. Introducing no- frills by British Airways helped consumers to fly with them more comfortable and affordable with an opportunity increase in number of consumers. The objectives of this research are as following:   To increase the understanding about the quality services provided by British Airways in the aviation industry. To explore the impact of the air passenger duty (APD) on the customer’s overall level of satisfaction therefore UK’s flag carrier airline is chosen to execute a research study. The main objective will be the frequent flyers and employees so that their views are included in this report.  To create a better understanding about how the laws regarding air passenger duty (APD) are affecting the progress of airline industry along with the satisfaction of customers.

Literature Review: Aviation industry plays a very vital role in the economy of the United Kingdom. This sector is regarded highly for the important task of connecting the consumers of the United Kingdom and the business operation of the Great Britain with the international markets (cdn.hmtreasury.gov.uk). Aviation industry enables billions of consumers to and from the UK to travel the distance in a quick manner. According to the article published by (Charles Starmer-Smith in his blog at –The Telegraph April, 2009) ‘the government’s budget decision proceeded has been associated with the increase in the air passenger duty up to 112% and the travellers will have to pay more by the end of November 2010’. (According to BBC, 2010), the airline passengers flying out of the United kingdom faces more obstacle in shape of the air passenger duty as there has been a rise of 55% more. The long-haul flights for the families will be more severe as it will make the holiday budget crashed. It is also been observed that after global economic recession hit the world, the airline industry is struggling still. It has not been able to recover to a greater extent. (According to Keith Brown, the minister of transport for Scotland, 2011), the need for the devolvement of the responsibilities regarding the Air Passenger Duty by the Calman Commission is required. It is being observed that the APD is in a state of devolution currently. Despite the fact that concern authorities are reviewing the tax structure and the imposition of air passenger duty there is a need for the fast devolvement on urgent basis. The devolvement can lead to the point of competitive edge where aviation industry is striving. (According to Gordon, 2009), Air passenger duty (APD) is an amount which is charged as a tax on the distance covered by a passenger. Rise in the air passenger duty is declining the travel and tourism activity. The World Travel and Tourism Council has already declared the air passenger duty as short sighted tax that is indicating that the government is underestimating the sole economic importance of the travel and tourism (dailymail.co.uk, 2010).

The devolvement of APD will increase the economy to a wider range and benefit the passengers which will lead to the competitive edge in the aviation industry (Brown, 2011). On the other hand, (Smith, 2009) criticise the increase in the air passenger duty (APD) as the travel operators and the airlines industry will have a financial downfall doe to the government’s policy to increase the air passenger duty (APD). The reforms of the air passenger duty (APD) are viewed with the aim to improve the efficiency and fairness of tax (treasury.gov.uk). Due to the increase in the air passenger duty it has been observed that not only the consumers have suffered but also the law enforcing authorities. The debated has led to the degree of uncertainty for both consumers and the government (Justine Greening, 2011). But if there is a devolution in the air passenger duty (APD) would enable the air transport chain to incentivise the airlines by providing direct international routes for the passengers which will ultimately increase the air industry business more effectively and allow more space to expand in the future (Brown, 2011). Virgin says that the recent reforms and government’s announcement has raise the air passenger duty (APD) to approximately £ 2 billion in the one year quota (2010) but this figure could easily reach to £ 3 billion a year if the government’s proposal is being considered adequately (Wadsworth, 2011). It has been observed that a family of four flying in the economy class to Florida would pay £ 240 in duty this year. A trip to Australia would cost £ 340 in duty. Virgin already know that more than half of longhaul flyers say that they would consider cutting down its number of long haul flights if there is a further rise in (APD) air passenger duty (Julie Southern- Virgin’s chief Commercial Officer). Air passenger duty will affect the consumer satisfaction also because it has been observed that customer’s satisfaction is subject to attribute of service quality, product quality, price, situation, and personality (Zeithaml and Bitner, 1996). The higher is the customer’s satisfaction (Bolton and

Drew, 1991) will lead to a major fact of the reduction in costs of the company (Crosby, 1979). It is also true that if air passenger duty reforms are revised in a way that it reduces negative affect by even a simple positive wprd of mouth and long term customer retention (Reichheld & Sasser, 1990). Air passenger duty is interlink with the quality of services provided by the airline industry. Most of the studies that are conducted in order to measure the services with the airline industry focus on understanding the features from the customer’s perspective (Brown and Bitner, 2006).

REASEARCH PLAN AND METHODS: Research Methods: The research methodology was completed by using different ways such as with focus groups and door to door survey in United Kingdom this was carried out for the broad range towards consumers.

RESERACH APPROACH: According to Burney, 2008 there are two different ways were research can be conducted which is deductive and inductive. When the approach is carried out from top to bottom it means the researcher has first included the theory to give his ideas and views than later on deduce the data which is not necessary, it is called as deductive approach. But inductive research is one in which a research is started from one single point and later researcher add more findings and data to reach to a conclusion without considering any one specific theory. First data is been collected than it is used for proposing observation of the researcher. For this research we have used inductive approach is elected because no hypothesis has been assumed at the beginning, critical observation will be made leading to findings and recommendations will be given once the data is properly analysed. RESERACH DESIGN: According to Balkier 2000, research can be descriptive as well exploratory by the use of mix model design. It means master plan is needed to identify and for collection of data analyses. Descriptive can be due to responses which you get through observations and meeting consumers, explanatory can be due to feature of work determined with the interrelationships between various variables. Therefore this research is exploratory as well descriptive in nature as in primary research, focus group is one of the most effective and suitable technique for this study

investigation. Monkey survey is also the part of designed research as it will help in generating the secondary data. Focus Groups: The focus group is been selected depending upon the different ages, background and travel behaviours or else the person must have travelled at least once with British Airways in an year. Figure one provides an overview of each group: Fig.1 Location Age Participants London 30 and above of Travel Background Frequent travellers more Manchester 18 to 25 than Reason with Airways Mainly Business and with Travellers 6 Leisure’s Mainly leisure flying British

times per year Moderate Travellers an average of 2 to 3 times a year Edinburgh 45 above Occasional travellers with an average once or twice a year Ireland 30 above Moderate travellers an average 3 to 4 times in a year Liverpool 25 to 45 above Frequent travellers Mainly more and leisure Business Mainly with related Business Mainly Leisure with and some Tourist

than 5 to 6 times people in Belfast 18 and above an average or leisure per year Frequent flyers 4 Business or more times in some a year travellers

RESEARCH STRATERGY: This research study involves with questionnaires and other methods used like surveys to gather the information from consumers. The data whatever you get through this method can be shown on MS Excel with the appropriate information.

QUALITATIVE & QUANTITATIVE RESEARCH According to Bryman and Bell 2003, pp: 68 say quantitative approach as ‘the numerical data revealing a relationship between theory and investigation as deductive along with the roots for social reality’. But in data collection researchers mainly focus on qualitative or quantitative method in some cases both are used. To know the experience of consumers who are travelling from United Kingdom’s by one of the leading airlines, the survey monkey can be used for feedback. DATA COLLECTION TECHNIQUES AND PROCEDURES: There are two different types of data which can be used for feedback and as secondary source.  Primary Data: There are different types of questions asked in the questionnaire according to the consumer’s perception about the Air Passengers Duty. It is the fresh data which is collected by the

consumers. Finally the step what needs to be taken with the help of data received or responses to the survey made.  Secondary Data: In secondary research literature, newspaper, magazines, web-sites and reports or other information which are available can be used. The data from literature review can be useful to enhance the knowledge about the topic. Local and international articles can also be referred as a secondary source.

Research Findings and Analysis: Finding Analyses: Questionnaire Survey:

The questionnaire survey was carried out with door to door in England depending upon how frequently the consumers have travelled with British Airways. Participants were selected with their ages, Background and travel behaviours. Further details are been carried out in detailed below: Figure two provides an overview of each group: Location London Ages consumers 30 and above of Travel Background Business travellers The and was response good as Feed Back

Leisure travellers consumers know their rights and happy with the services provided by BA. Manchester 18 to 25 Leisure travellers The service provided response but no was good about information about

the facilities and other Liverpool 45 above Frequent travellers additional services. Good service and few not really with care satisfied customer policies. Belfast 30 above Frequent Flyers Good air journey having impact environment with high class of standard services provided Edinburgh 25 to 45 above Occasionally travellers Reasonable with good service courteous and customer policies. What are Passengers knowledge and their rights and passengers duty when travelling by Airlines? What are Passengers views on cost of travel and the service provided to them by Airlines? How do consumers travel to and their views on environmental impact of air travel with Airlines? staff good care effective good on

Air Passengers Duty Awareness of their rights: According to the survey 7 out of 10 passengers are unaware about the air passenger’s duty. As 8 out of 10 says that they are denied to board in due to over booking. It must be considered that air passenger duty are been protected by European Law. Approximately 50% of all the passengers are not sure and who have faced the disruption while their travelling and have not received any services from airline crew or staff. Only 26% passengers are informed about the air passenger’s duty. As shown in figure.1 Fig.1 Level of Awareness

50 45 40 35 30 25 20 15 10 5 0 Fully Aware Partially Aware Not at all Sure Series1

PAYING FOR TRAVEL: One fifth of the passengers buy their tickets through travel agents and very small percent passengers make telephone booking. Mostly payment made by the passengers is through debit or credit card as there are many chances were airlines charge hidden cost. But the passengers who book their tickets by Travel Agent can make cash payment. As visa electron is rarely chosen by the passengers to make the payment it is approximately one out of every 25 passengers. As shown in figure two.

Fig.2 Preferred Methods of Payments

50 45 40 35 30 25 20 15 10 5 0 Credit Card Debit Card Cash Visa Electron Series1

ADDITIONAL CHARGES: The additional charges are been be charges by the airlines for the various services by keeping their air flight tickets on very low prices. As 91% of passengers are aware and also feel that taxes and charges must be included in air flight tickets. As three quarter passengers believe that payment fees should be included in advertised fees and do prefer the hold luggage should be incorporated. Only 28% of passengers who think that insurance fees must be included in advertised air fare. Airlines should take insurance as the opt-in than opt-out services. As shown in figure.3 Fig.3 Services to be included in Advertised Fare.

50 45 40 35 30 25 20 15 10 5 0 Credit Card Debit Card Cash Visa Electron Series1

THE ENVIRONMENTAL IMPACT OF AIR TRAVEL: There are many passengers who takes short journey but think there contribution towards the environmental impact is negotiable. There are certain amount of passengers who think there contribution towards climate change is negative and few believe it has no impact on climatic change. Many passengers are undecided on this issue. Approximately half believes they should pay towards the environmental impact of travel, however half don’t believe in this idea. There is reluctance for direct charging on the consumers to pay for such impact. The United Kingdom government levies Air Passenger Duty on each and every flight within the UK. Some passengers think that APD should be used to show concerned towards Environmental initiatives rather than general government spending. According to business travellers there is some more which be utilise in electronic communication, but some passengers feel that teleconferencing and video conferencing can lead towards more efficient use of resources in financial and environmental.

Key Findings and Discussions: Focus Groups Results: The focus survey discussions helped in finding the questionnaire with raising passenger’s voice by the following concerns:     There are certain airlines which are internationally not clear about their fares prices. Certain additional or hidden charges are imposed by airlines are explosive and unjustifiable. It is fixed in passengers mind that low fare airlines will have lot of hidden charges, it can resemblance to the final ticket price. Passengers think that additional charges should be added in actual fares than not realistic low fare prices. KEY FINDINGS:  There are most of the passengers who focuses on prices than quality     of services, especially while making booking for international or domestic tickets. Less than quarter passengers in all have complaint about the services and hidden prices to the airlines or at the airport. The majority of air passengers pay ticket fare by using the method which incurs the payment fees. Approximately 85% passengers think that the prices of air flight are not clear from the beginning of the online procedure. The majority of passengers think taxes and other additional charges, payment fees, check-in fees and baggage charges should be included in the air flight tickets.  Although passengers believe in air travel and also it contributes towards global climate change, but the majority who don’t fly by air flight thinks that they should not pay any fees extra towards environmental impact of flying.

There are passengers who think after making the online booking after hitting the submit button you don’t know what’s coming in your way. How much will be the hidden cost or additional extras charges they have to pay.

RECOMMENDATIONS:  Air passenger duty should be imposed in a way that customer’s satisfaction is not being affected in a negative manner; it means airlines should introduce the benefits of safe travel more through advertising it.  Air passenger duty (APD) should be more flexible for the frequent travellers by introducing a package design for the frequent flyers.  The long-haul flights for the family of four members should be given a discount on the long distance by reduction of 2 % from the combine tickets on every 5000 miles distance covered.  Airlines must ensure that air fare prices must be clear without any hidden cost; it should include all unavoidable charges.   There should be an optional service of check-in must be in opt-in manner not in opt-out bases. All the airlines must provide their customer with complaint handling  procedures and they should respond there passengers within short period of time and in a right manner. Encourage passengers to feel free to complain about the airlines and airport for their poor services or disruption in travel plans or any additional charges are been taken in air fare.  Air passenger duty should be revised after every 3 years tenure by the reforms of revenue and custom for the increase in tax rate.

Conclusion: I would like conclude by saying that all the airlines should have clear and consistent approach across the air line tourism industry. There can be good completion only if airlines keep their prices low but without any hidden cost. The growth of airlines and airports can also be judges with excellent customer care and good standards for the passengers. There should be true cost and must inform the consumers with regards to purchase of tickets or any additional fare charges are been incurred. As the Consumer Council thinks that there should be always transparency in air fare tickets. In many situations it become impossible for passengers to think or else compare with other airlines services due to low fare tickets but additional luggage or check-in charges. Air travel always plays vital role for consumers in United Kingdom. However according to Consumer Council thinks As that with Aviation industry air plays negative the sum impact amount on of environment. increased travels

contribution is given by aviation and airports towards the economy. It is essential to keep all air fare prices with inclusive of taxes and other additional charges this can help to increase in business it will also show loyalty towards the passengers. There can be less passenger’s complaints and increase in customer satisfaction. The passengers should be given all rights to know about the airlines services and facilities. So it’s always better to keep our self in customer shoe and think from their point of view what do they expect from us.

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