Latent air travel preferences: Understanding the role of frequent flyer programs on itinerary choice

Many studies have used air itinerary choice data to identify preferences and tradeoffs of various flight service attributes, such as travel time, number of connections, and fare. Little has been done, however, to estimate the effect Frequent Flyer Programs (FFPs) have on itinerary choice. The goal of this paper is to quantify the impact of FFP membership on itinerary choice and identify discrete patterns of unobserved preference heterogeneity. For this purpose, we apply two modeling techniques using a set of stated preference data collected on 830 individuals. A Multinomial Logit Model (MNL) is first estimated and Willingness-To-Pay (WTP) values are calculated for the choice of flying an airline with which the individual has FFP membership compared with another airline where the individual has no FFP membership. These WTP estimates vary across different trip purposes and levels of FFP status. Our results indicate that FFP membership plays a strong role in airline choice, particularly for individuals with elite membership. We then capture random heterogeneity through the use of latent class models, using sociodemographic variables as class-membership covariates. The latent class model results indicate three groups of individuals with very different sets of preferences, particularly for FFP membership. The discrete segmentation indicates one class with very low WTP, one class with average WTP, and one class with extremely large WTP values. These results provide evidence that latent class models capture preference heterogeneity much better than the MNL model for air itinerary choice, particularly when considering the effects of FFP membership.