The relationship between on-time performance and airline market share: a new approach Yoshinori Suzuki * Department of Logistics, Operations and MIS, College of Business, Iowa State University, 300 Carver Hall, Ames, IA 50011, USA Received 4 March 1999; received in revised form 20 August 1999; accepted 24 September 1999 Abstract We propose a new method of modeling the relationship between on-time performance and market share in the airline industry. The idea behind the method is that the passengersÕ decision to remain (use same airline) or switch (use other airlines) at time t depends on whether they have experienced ¯ight delays at time t  1 or not. More speci®cally, we posit that the passengers who experienced ¯ight delays are more likely to switch airlines for the subsequent ¯ight than those passengers who did not experience delays. To capture such eect, we develop an aggregate-level Markovian type model that estimates the transition probability matrices separately for the passengers who experienced ¯ight delays at time t  1 and for those who did not experience delays. The model was calibrated with the US DOT data. The study results imply that, once experiencing ¯ight delays, passengers are more likely to switch airlines. The results also imply that on-time performance aects a carrierÕs market share primarily through the passengersÕ experience, and not though the ``advertisement'' of performance. Ó 2000 Elsevier Science Ltd. All rights reserved. Keywords: Airline demand; On-time performance; Markov model; Non-linear regression 1. Introduction Consider the following scenario. You and your colleague made a business trip from point A to point B. You used ABC airline, while your colleague chose airline XYZ. The ABC ¯ight did not arrive on time because of some minor engine problems that were found just before the departure. Consequently, you arrived at point B 1 h behind the scheduled arrival time, and missed a very important business negotiation. Your colleague, on the other hand, arrived on time and was able to attend the important business negotiation that you had to miss. In this scenario, are you more Transportation Research Part E 36 (2000) 139±154 www.elsevier.com/locate/tre * Tel.: +515-294-5577; fax: +515-294-2534. 1366-5545/00/$ - see front matter Ó 2000 Elsevier Science Ltd. All rights reserved. PII:S1366-5545(99)00026-5