CHAPTER 2 2.0 Literature Review Nowadays, the trends for demand of the air transport are increasing. Airline industry has been transformed compare to before especially demand of using the air transport. It also becomes as the sector which experience the fastest growing sector compare to the other sector. This increasing of demand can be show out customer has gets their beneficiaries from using this kind of air transport. However, fastest growing of the airlines industry also brings the challenges because of the rising trend toward air transport demand. Purpose for this paper is to examine that how the price, service quality and advertising and promotion influence people to choose flight as the transportation. 2.1 Price According to the Business Dictionary (https://www.businessdictionary.com/), price is a value that exchange or transfer for the possession. The buyer is pleased to pay and seller is pleased to accept and the competition is allowed to exist. All of this is the basic thing in the business dealing activities. However from the American Economic Review has detailed 117 meaning of price no matter in monetary or non monetary meaning or even in the objective and subjective meaning. R.Commons (1929), state that price can be separated in the value or debt and price is related to the scarcity of commodity, money and waiting. Further, price is a critical thing to an organization which enables to affects or affects by the function of an organization. There have some understanding which done by Monroe (2003), state that price sensitivity can divided into two dimension which is price awareness and price consciousness. The buyer who has the ability to remember the price is called as the price awareness conversely buyer who sensitive to price differential is price consciousness. Thus these price sensitive degrees are affecting to their purchasing behaviors. In economics perspective, this price sensitivity is measured by using the price elasticity to the demand. Price is an important issue for public transport such as bus, train, taxi to earn their profit for the continuous operation. Generally, if the elasticity is negative value we can see that price increases the number of consumer that patrons toward the public transport will be decrease and vice versa. So that the elasticity concept is emerge to express the proportional change in number of patrons to the proportional changes in the prices. The price elasticity for the public transport in rural area is higher than urban area (Paulley et al., 2006). From the Transport and Road Research Report Laboratory (2004), shows that there was negative value and more elastic demand for the bus price in the short run distance if compare to the long run distance. Moreover, from Roza et al. (2013), a case study in Peninsular Malaysia shows users pay attention to the price increase of the intercity bus and train. Users also give the response which shift from bus to train because of reduction of price in the intercity train. This has strongly showed that the price changes influence the user toward choice of mode of transport in this case study. Identically for the flight demand, the price has playing a very important role. In the airline market we can see that there have multiple prices in the market. All airlines in the market must be taking over several considerations about the market demand reaction and the competitor’s price before set a price decision on the seats. However, the intention for the trip is decide the willingness of the consumer to pay for the price offer. The evidence can be get from the price discrimination of the fly ticket in the weekend with the low fair in weekend truly give the effect to the weekend purchase statistic on the demand of the flight ticket (L.Puller et al.,2012).Thus if we want to evaluate the demand competitiveness the price dynamics must take into account. According to International Air Transport Association (IATA) Air Travel demand (2008), travelers will choose the destination according to the price of flight ticket offered thus they are more sensitive to the changes of the price of the price in air travel. Besides, the International Passenger Survey (2004), was conducted by UK Office of the National Statistics predict that UK people who travel to the Europe country by flight transport the price variant as 27% in the total travel cost in the year 2004. Many passenger who use the air transport also make the option between the difference of the price which according to the class level. In the study of Gillen et al. (2002), found that the price demand elastic is range differently according to the relevant market. For the long journey the price elasticity variables according to the purpose of international business is more elastic than the domestic business and also the international leisure also elastic than domestic leisure. However for the short journey price elasticity variable for the purpose of the business is more elastic than leisure purpose. The econometric of IATA’s Passenger Intelligence Service (PaxIS) database (2005), has shown that there has significant difference statistic with geographic air transport market. In the Intra Europe there are more elastic to the price demand of the transport because there facing strong competition from the other mode of transport with a very low price. Conversely from the Intra Asia aspect, there is moderately more inelastic because the low price of transport in Asia is emerged just recently. New breed of the flight in the US airline industry with low cost has brought result toward the low price of the flight ticket which the low fair cost are distributed broadly. This low cost enable the price strategy in the US airline industry enter different market segment which whether in the low, medium or even in the high end strategy (Najda, 2003). The obvious demand increase in the flight shows that in the US aviation industry is growing positively (US Federal Aviation, 2011). Real World Wide Web has been used in describe the air transport network. Thus, the connectivity of the airline in the global is very importance to stimulate the economic. The economic price of the flight has played an importance role to increase the demand of the air passenger. This can be show in Oxford Economics (2011), the economical importance places has the higher routes of frequency. The fall of cost in the air transport services has increase routes of flight in Malaysia which connect to cities of all around the world which consist of 111 routes in year 2011.Moreover, in British Airway (BA) April- December (2010), shows that the total revenue of the airline had possess 89% which means consists of 23 million air passengers generated about £5.7 million profit in year 2010. Thus, we can see that appropriate pricing of the fly ticket is a very important to enhance the market to become more powerful, fairness and sustainability. The air transport in Asia has become a more common mode for the people as the transportation for the travel mode. The reason why it was happen because accelerated by the affordable price of flight ticket which dedicated by the low-cost flight. Airline competition occur cause the air flight ticket to be low will give the advantages to the passengers who pleased to pay and accept the minimal service and comfort ability(Zhang et al., 2008). In Malaysia, Air Asia has held their slogan which Everyone Can Fly in the reality. Air Asia can make it in the reality because they keeping their cost and fair low. An airline is a service industry if the service provided are no difference or only has a little difference to the service that offered in the market consumer will choose for the cheapest one (Lovelock, 2007). Price strategy always use by the airlines industry and customer will get the seats that what are they pay off. Malaysia Airline which launches the Everyday Low Fair program which want to meet the customer’s current demand. Zeithaml et al. (2009), state that the one information can get is price used by people as a pointer of quality. Addition, low cost airline are the price strategy which price differentiation used by airline industry market to attract the different segment of customers (De Pew et al., 2003). In conclusion, I wanted to find that is that the price given by the airlines will affect the people to choose flight as their transportation. 2.3 Quality of Service According to business dictionary (https://www.businessdictionary.com/), quality is a level used to measure a something which is excellence, absence of defect and it is a something that exceeds the degree of expectation by the consumer. There shows that different people have different perception toward meaning of the quality and it is a subjective term for everyone. Furthermore, Kasper et al. (1999), has defined that the service quality is a degree that fulfill the customer expectation. According to the Jasmina (2007), who has study in service quality in hotel industry stated that quality of service provided by a company is very important which must make sure always fulfill customer satisfaction to allow the company compete in the market and ensure the profitability. However, in the transportation aspect, service quality can straightly affect demand of the public to use it. This can be shown by Muhammad (2010), has study on relationship of bus service and its demand of passenger. From his study he shows that the condition of the bus has bring impact to the demand of the public to use and because of poor service quality cause the public lack the interest to use this transport. This shown by the Mazulla (2006), shows attribute of the service quality from a transport can influence the customer satisfaction is analyzed which the attributes consists of frequency, comfort ability, cleanliness, information given seats and security. Moreover in the Indian Railway there have several attribute used to evaluate the customer service quality instrument such as reliability, empathy, tangibles, responsiveness and assurance (Vanniarajan et al., 2008). From the Lai (2010), research has show that the positive relationship between the quality service of the transport toward the intention of the consumer behavior. According to the Chen et al. (2005), the authors have determined the airline industry service quality in a process form. They divide the process in the two parts which is ground and in flight service. It shows that the customer has different expectation for each different process. Service quality instrument also been use by the other researcher to measure the service provided in the airline industry. Abdul Rahim et al. (2005), has show that the higher quality service ensure the profit and will help satisfied the customer in the higher level and they will be more loyal. From Ali et al. (2012), states that their finding which the hierarchical model of service quality most suitable used to collect information and made decision if compare to the other type of service quality model such as multilevel model and Nordic model. The hierarchical model consists of primary dimension which is interaction, environment and outcome dimension. They have their own sub dimension which the interaction are included attitude, behavior and expertise. For environment it includes condition design and social factors. The outcome dimension includes the waiting time, tangible and valence. Lastly from their conclusion they also believe that service quality is the best measurement for analyzing the customer information which included the need, wants and perception about the service. In addition, from the Brady et al. (2001), have states that the result of the high quality service will improve the organization’s profit, market share, customer loyalty and the probability for customer to buy it will also increase. According to the Sumaedi et al. (2012), the research has found that there has a positive relationship between the service quality and the customer behavior intention. From the researcher finding it also can be support by the Wen et al. (2005), which the service quality of a public transport has influence people whether to use the public transport. In the research the service quality attribute included such as safety when riding, the cleanliness, and degree of crowd when transit, the drivers knows what passenger’s need and the formidable of the transit system engine. Thus, the behavioral intention of the customer can be affected by the service quality of the transportation are being supported. However, from the researcher al-Rousan et al. (2010), has do the research on the customer loyalty towards the service quality provide in the hotel industry. The finding from the research has show out that the directly influence of the service quality toward the customer loyalty which as same as the transportation industry the important role of the service quality toward the customer who request the service. Service is an intangible and requires tangible facilities with a present of the customer will give an obvious influence toward the quality service that provided to the customer (Britner, 1992). Tangible feature have include outward appearance of physical facilities, communication material, personnel, equipment (Zeithmal et al., 1990). It also include the surrounding design was play an important role towards environment’s ambience (Wakefield et al., 1996). This also can be seen that the in the interior of the flight importance towards the customer perception towards service quality provided. There has mentioned such as seating comfort ability, safety guide, immediate handling customer request, inquiry and complaints (Lindstrom, 2009). According to the Nor et al. (2013), finding show that the service quality has influences the customer loyalty in the airline services. The customer loyalty will be important criteria which the customer will repurchase service or recommend it to the other people (Bloemer et al., 1999). Repurchase intention of customer from the same company will help to ensure that the customer are favorite to the certain company so they will continuous purchase and recommend it to the other peoples (Pearson, 1996). The repeat purchase of the customer from a same brand will help the company to maintain the demand from the customer which without the emotional coherence to that brand (Hawkins et al., 1998). The finding from the researcher Eileen et al. (2011), has found that the key service attribute that provide d by the Malaysia Low Cost Airline which delivery the promise service to customer has allow them to repeat purchase the service. For example the airline promise to delivery on time in departure and arrival, the cleanliness in the flight and with the comfortable seats has give them satisfied with the service provide. On the other hands, the experience of purchase the flight ticket, check in counter, communication in the ground crew has influence the customer perception towards the service quality provided by the airline. According to the Westcott (2005), shows that it is important to attract the new customer as well retain the old customer and ensure the repeat purchase. In conclusion, according to the pass researcher above has mentioned there is very importance to provide good service quality towards the intention of customer by repeat purchase or attract new customer. So that for me I wanted to find out the quality service that given by the airline will influence the customer choose the flight as the transportation.