Accounting for Systematic Influences on Preference Heterogeneity in Air Travel: Application to a Low-Travel-Propensity Market

Modeling passengers' itinerary choice behavior helps in understanding the increasingly competitive airline market and in predicting air travel demand. Recently, investigation of the variation in passengers' preferences with regard to factors influencing their choice through estimation of the mixed multinomial logit model has received attention. An extended form of the model identifies sources of heterogeneity and consequently makes the choice models less restrictive in considering both systematic and random preference variation across individuals. This research investigates the existence of significant interactions between passengers' preference heterogeneity around the mean of random parameters in estimated utility functions and observed sociodemographic or trip-related attributes in the case of air travel. Unlike previous research in the literature that has focused on choice behavior modeling in mature markets with relatively high per capita rates of air travel activity, this study centers on a survey of travelers in Tehran, Iran, a low-propensity air travel market. Several distributions for random parameters are considered to test the impacts of restricting distributions to allow only normality. The potential to improve model fit with alternative distributions was confirmed. The findings suggest that differences in the marginal utilities can be explained mostly by differences in travel experience. More experienced passengers are less sensitive to fare and more sensitive to flight level-of-service attributes. Furthermore, the estimated distributions of willingness-to-pay (WTP) measures confirm the value of accounting for interactions between preference heterogeneity and observed variables and in this case yield higher mean WTP values than does analysis that omits these interaction effects.