Modeling Demographic and Unobserved Heterogeneity in Air Passengers’ Sensitivity to Service Attributes in Itinerary Choice

Abstract

Modeling passengers’ flight choice behavior is valuable to understanding the increasingly competitive airline market and predicting air travel demand. Standard and mixed-multinomial logit models of itinerary choice for business travel are estimated on the basis of a stated preference survey conducted in 2001. The results suggest that observed demographic- and trip-related differences are incorrectly manifested as unobserved heterogeneity in a random-coefficient mixed logit model that ignores the demographic- and trip-related characteristics of travelers. Among demographics, gender and income level have the most noticeable effects on sensitivity to service attributes in itinerary choice behavior, but membership in a frequent flyer program, employment status, travel frequency, and group travel also emerge as important determinants. However, residual heterogeneity is significant because of unobserved factors, even after accommodating sensitivity variations due to demographic- and trip-related factors. Consequently, substitution rates for each service attribute show substantial variations in the willingness to pay among observationally identical business passengers.