Application of structural equation modelling for estimating airline performance

Structural equation modelling (SEM) is an estimation method that can handle a large number of exogenous and endogenous factors as well as unobserved (latent) variables that are specified as linear combinations of observed (measurement) factors. This paper presents a SEM procedure with latent variables for estimating the financial and non-financial performance in airline companies. The model includes independent, mediator and dependent latent variables. The sample for this research comprises 214 airline companies. The results indicate that the model is capable of estimating performance with respect to the economic situation and it has also been determined that two types of constructs affect performance. One type is the economic situation acting as an initial construct and the other is the internal operation acting as the mediator in the research model.

[1]  Mark Hansen,et al.  The Consequences of Strategic Alliances Between International Airlines: The Case of Swissair and SAS , 1993 .

[2]  K. Bollen.  Latent variables in psychology and the social sciences. , 2002, Annual review of psychology.

[3]  Alberto A. Gaggero,et al.  Airline competition in the British Isles , 2010 .

[4]  M Y Hu,et al.  PROFITABILITY, FIRM SIZE, EFFICIENCY AND FLEXIBILITY IN THE U.S. DOMESTIC AIRLINE INDUSTRY , 1988 .

[5]  J. Liou,et al.  An outsourcing provider decision model for the airline industry , 2013 .

[6]  James Rajasekar,et al.  Strategic alliances as a competitive strategy: How domestic airlines use alliances for improving performance , 2009 .

[7]  Álvaro Costa,et al.  Airlines performance in the new market context: A comparative productivity and efficiency analysis. , 2008 .

[8]  Asun Galera,et al.  Effect of low-cost airlines on tourism in Spain. A dynamic panel data model , 2011 .

[9]  C. E. Wang,et al.  The performance of Asian airlines in the recent financial turmoil based on VaR and modified Sharpe ratio , 2008 .

[10]  Stephen G. West,et al.  Structural equation models with non-normal variables: Problems and remedies , 1995 .

[11]  Barbara M. Byrne,et al.  Structural equation modeling with EQS : basic concepts, applications, and programming , 2000 .

[12]  R. Doganis.  Flying Off Course: The Economics of International Airlines , 1985 .

[13]  Robert J. Vallerand,et al.  Goal Motives, Well-Being, and Physical Health: Happiness and Self-Realization as Psychological Resources Under Challenge , 2006 .

[14]  Diego Klabjan,et al.  Robust Airline Scheduling Under Block-Time Uncertainty , 2011, Transp. Sci..

[15]  Robert Ho,et al.  Handbook of Univariate and Multivariate Data Analysis and Interpretation with SPSS , 2006 .

[16]  Margaret F. Shipley,et al.  A fuzzy logic model for competitive assessment of airline service quality , 2009 .

[17]  Greg M. Lepak,et al.  Airline deregulation and the impact on stock prices of major surviving carriers , 1997 .

[18]  Karl G. Jöreskog,et al.  Lisrel 8: User's Reference Guide , 1997 .

[19]  Triant Flouris,et al.  American airlines’ takeover of TWA: an ex-post analysis of financial market information , 2004 .

[20]  Notis Pagiavlas,et al.  US Commercial airline performance after September 11, 2001: decomposing the effect of the terrorist attack from macroeconomic influences , 2004 .

[21]  Hashem Salarzadeh Jenatabadi,et al.  Introduction Latent Variables for Estimating Airline Assessment , 2013 .

[22]  Triant Flouris,et al.  Confidence in Airline Performance in Difficult Market Conditions: An Analysis of JetBlue's Financial Market Results , 2005 .

[23]  Yu-Jie Wang,et al.  Applying FMCDM to evaluate financial performance of domestic airlines in Taiwan , 2008, Expert Syst. Appl..

[24]  Josip Mikulić,et al.  What drives passenger loyalty to traditional and low-cost airlines? A formative partial least squares approach , 2011 .

[25]  Noor Azina Ismail,et al.  A new perspective on modeling of airline performance , 2012 .

[26]  Andreas Antoniou,et al.  THE FACTORS DETERMINING THE PROFITABILITY OF INTERNATIONAL AIRLINES: SOME ECONOMETRIC RESULTS. , 1992 .

[27]  Ching-Fu Chen,et al.  Estimating the systematic risk of airlines: A methodological comparison , 2006 .

[28]  Rong-Chang Jou,et al.  Turnover intention of air traffic controllers in Taiwan: A note , 2012 .

[29]  Detmar W. Straub,et al.  Structural Equation Modeling and Regression: Guidelines for Research Practice , 2000, Commun. Assoc. Inf. Syst..

[30]  Alexander Josiassen,et al.  The operational performance of UK airlines: 2002‐2007 , 2011 .

[31]  Austin Smyth,et al.  The use of load factors to segment airline operators , 2005 .

[32]  Gilles Van Hamme,et al.  The impact of the current economic crisis on the geography of air traffic volumes: an empirical analysis , 2011 .

[33]  Gwo-Hshiung Tzeng,et al.  A Non-Additive Model for Evaluating Airline Service Quality , 2007 .

[34]  Noor Azina Ismail,et al.  Determination of Load Factors in the Airline Industry. , 2007 .

[35]  Joseph A. Clougherty.  US domestic airline mergers : The neglected international determinants , 2002 .

[36]  A. Assaf,et al.  Are U.S. airlines really in crisis , 2009 .

[37]  Murali Sambasivan,et al.  Antecedents and outcomes of flight attendants’ job satisfaction , 2011 .

[38]  R. Kauffman,et al.  Appropriating Value from Computerized Reservation System Ownership in the Airline Industry , 2001 .

[39]  Megersa Abate,et al.  Economic effects of air transport market liberalization in Africa , 2016 .

[40]  David Timothy Duval,et al.  Effect of air services availability on international visitors to New Zealand , 2011 .

[41]  Marjorie A. Lyles,et al.  Managing Tacit and Explicit Knowledge Transfer in Ijvs: The Role of Relational Embeddedness and the Impact on Performance , 2004 .

[42]  Tae Hoon Oum,et al.  Key aspects of global strategic alliances and the impacts on the future of Canadian airline industry , 2001 .

[43]  Yu-Chiun Chiou,et al.  Factors Influencing the Intentions of Passengers Regarding Full Service and Low Cost Carriers: A Note , 2010 .

[44]  Rubén Huertas-García,et al.  Online drivers and offline influences related to loyalty to airline websites , 2012 .

[45]  Albert H. Segars,et al.  Assessing the unidimensionality of measurement : a paradigm and illustration within the context of information systems research , 1997 .

[46]  Anthony T.H. Chin,et al.  Developments in air transport: implications on investment decisions, profitability and survival of Asian airlines , 2001 .

[47]  C. Fornell,et al.  Evaluating structural equation models with unobservable variables and measurement error. , 1981 .

[48]  Keng-Chieh Yang,et al.  Assessing how service quality, airline image and customer value affect the intentions of passengers regarding low cost carriers , 2012 .

[49]  Elizabeth Kristjansson,et al.  A longitudinal study on the role of spirituality in response to the diagnosis and treatment of breast cancer , 2009, Journal of Behavioral Medicine.

[50]  Yueh-Ling Hsu,et al.  Structuring risk factors related to airline cabin safety , 2012 .

[51]  Stephen A. Rhoades,et al.  A note on the market share-profitability relationship , 1992 .

[52]  Antonio Davila,et al.  The Relevance of Non-financial Performance Measures for CEO Compensation: Evidence from the Airline Industry , 2004 .

[53]  Barbara M. Byrne,et al.  Structural equation modeling with AMOS , 2010 .

[54]  Ching-Fu Chen,et al.  The antecedents and consequences of job stress of flight attendants – Evidence from Taiwan , 2011 .

[55]  C. Piga,et al.  Do Prices Grow More in Euroland? Evidence from the Airline Industry , 2006 .

[56]  J. Elashoff,et al.  Multiple Regression in Behavioral Research. , 1975 .

[57]  E. Pedhazur.  Multiple Regression in Behavioral Research: Explanation and Prediction , 1982 .

[58]  Vitaly S. Guzhva.  Applying intervention analysis to financial performance data: The case of US airlines and September 11th , 2008 .

[59]  Rex B. Kline,et al.  Principles and Practice of Structural Equation Modeling , 1998 .

[60]  Ben Derudder,et al.  Calculating load factors for the transatlantic airline market using supply and demand data: a note on the identification of gaps in the available airline statistics , 2009 .

[61]  Jung-Hua Hung,et al.  An examination of factors influencing airline beta values , 2005 .

[62]  C. Feng,et al.  Performance evaluation for airlines including the consideration of financial ratios , 2000 .

[63]  James C. Anderson,et al.  STRUCTURAL EQUATION MODELING IN PRACTICE: A REVIEW AND RECOMMENDED TWO-STEP APPROACH , 1988 .

[64]  Aleksandr V. Avakov.  Quality of life, balance of power and nuclear weapons : a statistical yearbook for statesmen and citizens, 2011 , 2011 .

[65]  Anming Zhang,et al.  Domestic Rivalry and Export Performance: Theory and Evidence from International Airline Markets , 2008 .

[66]  Yu-Chun Chang.  Cabin safety behavioral intentions of passengers with reduced mobility , 2012 .

[67]  Timothy Teo,et al.  Examining the influence of subjective norm and facilitating conditions on the intention to use technology among pre-service teachers: a structural equation modeling of an extended technology acceptance model , 2010 .

[68]  Adekunle J. Aderamo,et al.  Demand for Air Transport in Nigeria , 2010 .

[69]  Wynne W. Chin.  Issues and Opinion on Structural Equation Modeling by , 2009 .

[70]  J. Hair.  Multivariate data analysis , 1972 .

[71]  Robert M. McFatter,et al.  The Use of Structural Equation Models in Interpreting Regression Equations Including Suppressor and Enhancer Variables , 1979 .

[72]  D. Gilbert,et al.  PASSENGER EXPECTATIONS AND AIRLINE SERVICES: A HONG KONG BASED STUDY , 2003 .

[73]  Dominic Detzen,et al.  The impact of low cost airline entry on competition, network expansion, and stock valuations , 2012 .

[74]  Águeda Esteban,et al.  Market orientation and business performance: An empirical investigation in the airline industry , 2007 .

[75]  T J Kline,et al.  Path Model Analyzed With Ordinary Least Squares Multiple Regression Versus LISREL , 2001, The Journal of psychology.

[76]  Jay Squalli.  Restorative advertising in the airline sector , 2009 .