Linking business strategy to service failures and financial performance: Empirical evidence from the U.S. domestic airline industry

Abstract

Developing an understanding of the relationship between service quality and profitability is of central importance to operations management scholars. In this study we seek to reconcile inconsistencies between extant theory and empirical findings regarding the relationship between service quality and profitability in the airline industry. More specifically, we draw on theories from strategic management, operations strategy, and economics to explain why the relationship between measures of service quality and profitability will be moderated by an airline's competitive strategy. We test our hypotheses by fitting mixed‐effects models to longitudinal data obtained from several governmental databases in the context of the U.S. domestic airline industry. We find that airline strategy moderates the relationship between some service failures and profitability. Specifically, we find that mishandled baggage and customer complaints more negatively affect the profitability of focused than non‐focused airlines. We also find the relationship between arrival delays on profitability is universally negative for focused airlines, but displays an inverted U‐shaped relationship for non‐focused airlines. Our findings provide significant contributions to the existing body of knowledge in service quality and operations strategy. We further outline the implications of these findings for practice and future research.

A New Look at the Longitudinal Relationship Between Motor Carrier Financial Performance and Safety

“…This is the same reason multiple scholars studying the airline industry (Lapré and Scudder ; Lapré and Tsikriktsis ; Tsikriktsis ; Lapré ; Mellat‐Parast et al. ) limited their analyses to the domestic operations of large U.S. airlines. The pressure that publically traded firms face to achieve financial targets is immense (Mishina et al.…”

“…Focusing on publicly traded motor carriers enabled us to collect detailed data on carrier financial performance in a standardized, audited format for 2009-12. This is the same reason multiple scholars studying the airline industry (Lapr e and Scudder 2004;Lapr e and Tsikriktsis 2006;Tsikriktsis 2007;Lapr e 2011;Mellat-Parast et al 2015) limited their analyses to the domestic operations of large U.S. airlines. The pressure that publically traded firms face to achieve financial targets is immense (Mishina et al 2010), and thus is ideal to test strain theory's predictions.…”

Examining Governance in Hospital Operations: The Effects of Trust and Physician Employment in Achieving Efficiency and Patient Satisfaction

“…Chen, Daugherty, and Landry (2009a) conceptualize the strategic priorities of the firm as cost and customer orientation and suggest that this strategy drives the development of streamlined and coordinated processes that result in improved efficiency and effectiveness. SSP has also been used to explain service failures, a topic closely related to customer satisfaction (Mellat-Parast, Golmohammadi, McFadden, & Miller, 2015).…”

“…The SSP framework is based on the notion that the correct match between the strategy and the structure should result in improved performance (Miles & Snow, 1978;Mellat-Parast et al, 2015). Similarly, in the OM literature, integrative cross-functional processes and communication have been shown to improve firm performance (Linderman, Schroeder, & Sanders 2010).…”

Introducing the Strategy Lifecycle: Using Ontology and Semiotics to Interlink Strategy Design to Strategy Execution

“…The challenge of taking your strategy design through to execution has been well documented [2,3,4,7,12]. In fact, there has been an overwhelming rate of failure reported within the last two decades [2,3].…”