Linkages between customer service, customer satisfaction and performance in the airline industry: Investigation of non-linearities and moderating effects

The paper investigates the linkages between customer service, customer satisfaction, and firm performance in the US airline industry. In particular, the moderating effects of market concentration and firm dominance on the service–satisfaction–performance relationship are examined. Our major finding is that market concentration dampens the relationship between customer satisfaction and airline profitability. Although the same moderating relationship was not found for market power, these results, combined, indicate that airlines can increase profits in concentrated markets without providing for the same, concomitant increases in customer satisfaction as airlines operating in more competitive markets. From a public policy perspective, our results point to the importance of regulators monitoring airline actions, such as mergers and alliances, that serve to increase the concentration of markets, but may result in lower levels of customer satisfaction.

► We model the service–satisfaction–performance linkages in the airline industry. ► We allow for non-linearities in the linkages. ► We examine the potential moderating roles of market structure and firm dominance. ► Customer satisfaction increases with customer service but at a diminishing marginal rate. ► Market concentration and dominance dampens the relationship between satisfaction and profitability for US airlines.