Pii: S1366-5545(99)00026-5

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 ÿ 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 ÿ 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.