International Journal of Management Research and Emerging Sciences

Vol 14, No 2, June 2024, PP. 25-45

Nexus Between Service Quality and Customer Loyalty: With the Parallel
Mediation of Perceived Value and Customer Satisfaction
Shiza Kazmi
Department of Management Sciences, University of Management and Technology, Lahore, Pakistan.
Sukaina Fatima
Aviation Management, University of Faisalabad, Lahore, Pakistan.
sakufatima18@gmail.com

Corresponding: shizakazmi567@gmail.com
ARTICLE INFO ABSTRACT
Article History: Ensuring high service quality is imperative for businesses to secure long-term
Received: 31 March, 2024 market share and sustained competitiveness. Although previous literature has
Revised: 23 April, 2024 emphasized the importance of service quality (SQ), little attention has been
Accepted: 11 June, 2024 given to comprehending how perceived service quality can be a key factor in
Available Online: 28 June, 2024
increasing customer loyalty (CL). Acknowledging its significance, this
DOI: empirical research aims to explore the influence of perceived SQ on developing
https://doi.org/10.56536/ijmres.v14i2.614 CL within the Aviation industry of Pakistan and to analyze the mediating role
of perceived value (PV) and customer satisfaction (CS) in fostering customer
loyalty. Data was gathered via survey questionnaires administered to airline
Keywords:
passengers in the waiting lounges of Allama Iqbal International Airport and
Customer loyalty, Expectancy
Disconfirmation theory, service subsequently analyzed through Structural Equation Modelling (SEM).
quality, perceived value, customer Research findings have demonstrated that the quality of airlines’ services
satisfaction. greatly influences customer satisfaction and loyalty. This impact is partially
mediated by the perceived customer value elucidating the mechanism through
which SQ helps to affiliate new and existing customers with the airline’s
JEL Classification: services. Furthermore, the SQ helps to foster relationships of customers with
M30, L93, L21, D18. the firm and ultimately develops customer loyalty for an extended period.
Based on the Expectancy Disconfirmation theory, this study contributes to
existing literature by providing a conceptual framework based on the intricate
relationship between SQ and CL and the parallel mediation of customer
satisfaction and perceived value. The study also offers practical strategies for
airline companies to improve SQ in order to enhance customer satisfaction. The
findings would assist managers and practitioners of aviation firms to satisfy the
new customers and retain the existing ones for business growth.
© 2024 The authors, under a Creative Commons Attribution-Non-Commercial 4.0.

INTRODUCTION
In the twenty-first century, service industry (especially airlines) has witnessed a surge in
popularity leading to a situation, where companies face tremendous challenges primarily due to the
proliferation of airlines and intensified competition among them (Shen & Yahya, 2021). After the
pandemic crisis, airlines' survival hinges on their ability to provide exceptional services for prioritizing
customer needs and demands (Faisal, 2024). In a competitive business environment, failure to
recognize customer needs is a barrier to the way of providing exceptional services. In this way, it’s
difficult to hold existing and new customers (Akram et al., 2022).

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The realm of commercial air transportation has undergone remarkable expansion in the last three
decades, while the aviation industry plays a crucial role in the economic development of a country
(Law et al., 2022; Shah et al., 2020). A staggering number of 2 billion individuals have been annually
transported by air industry and it contributes almost US $ 3.3 billion to Pakistan's GDP with an
estimated PKR 172 billion in revenues. This growth trajectory has stimulated airlines to prioritize
focusing on high service quality to stay competitive and challenging in the dynamic landscape (Murali
et al., 2016). Service quality refers to encapsulating the overall impression of the organization
perceived by customers through its efficient services and high-quality flight operations (Shah et al.,
2020). SQ can be assessed in terms of comparing customer expectations or needs and actual service
provided by the firm. A research study by Shah et al. (2020) revealed that airlines provide various
services i.e. telephone, geo-mapping, financial services, videos, music channels, and computer games
to make customers’ travel comfortable and entertaining. The SQ of airline firms still received less
substantial empirical attention and warrants further investigation, as suggested by a few researchers
(Ali et al., 2015).

Service Quality has emerged as a critical consideration, offering not only a competitive edge but also
a means to retain customers along with expanding market share (Faisal, 2024; Shah et al., 2020). The
impact of SQ on CL is undeniable as it encompasses the essential service conduct, expertise, and
competence exhibited by airline personnel when catering to consumer’s needs (Samosir et al., 2024).
Research has demonstrated that an important antecedent of customer behavior is the better quality of
service that ultimately makes passengers satisfied and loyal (Faisal, 2024). Customer loyalty (CL)
refers to the behavioral intention of repurchasing products and services from the same service
providers if they meet the expectations of customers (Shen & Yahya, 2021). Extensive research also
confirms that a critical determinant of customer loyalty is the exceptional superior services offered by
the service industry (Izogo & Ogba, 2015). Extant research confirmed the positive link between SQ
and CL (Agarwal & Gowda, 2021; Lenka et al., 2009; Rahim, 2017; Shen & Yahya, 2021), yet it is
still unclear what factors influence the SQ-CL association (Fatma & Kumar, 2024).

Prior research studies have identified that customer experiences with intangible services help them to
evaluate the perceived quality (PV) and value of services by consumers (Ullah, 2012). PV means the
aggregate worth of having or consuming a product or service by the consumers. It refers to
“consumer’s overall assessment of the utility of a product based on perceptions of what is received
and what is given” (Edward & Sahadev, 2011; Zeithaml, 1988). Previous research studies have
measured customer value in terms of social, emotional, and monetary value. Another study found that
if product quality is greater than the costs for services, then it will result in customer-perceived value
(Edward & Sahadev, 2011). Research studies revealed that customers who gain value for spent money
will become loyal to the firm as compared to customers who do not receive PV (Ashraf et al., 2018).
Many previous studies have examined antecedents of customer loyalty and retention including
customer trust, commitment, price fairness, perceived value, and customer satisfaction (Chen, 2008;
Izogo & Ogba, 2015; Kaura et al., 2015; Samosir et al., 2024; Sitorus & Yustisia, 2018). Nonetheless,
the relationship between constructs has not been examined in the prior literature yet.
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Literature has identified SQ in terms of experience with the service encounter i.e. airline personnel,
infrastructure, and technology service have also strong influence on the overall satisfaction of
customers (Ullah, 2012). CS integrates both feelings of pleasure and discontent with service delivery
which helps them to compare the product/ service with his/her expectations (Shen & Yahya, 2021;
Ullah, 2012). If customer’s actual outcomes exceed their expectations, they tend to be more satisfied
and ultimately loyal to the firm services. Another research supported the claim that businesses try to
enhance customer satisfaction with airline service, as unsatisfied customers have the likelihood of
switching to other competitors which adversely affects customer loyalty (Farooq et al., 2018).
Therefore, developing new customers and retaining existing ones is an imperative competitive strategy
that needs to be adopted to prevent customers from switching (Law et al., 2022)

The current study has the following objectives;

• To examine the impact of perceived SQ on CL in Pakistan’s airline industry

• To analyze the intervening role of PV between perceived SQ and CL
• To analyze the intervening effect of CS between perceived SQ and CL

This study is significant for a few reasons. It is based on “Expectancy disconfirmation theory”, if the
airline service outperforms the customer’s expectation, their post-purchase loyalty will ensure, and in
case of disconfirmation of belief their dissatisfaction will prevail (Shen & Yahya, 2021). Customer
loyalty and retention emerge as crucial components of any sector to sustain its operational integrity
and preserve competitive advantage, airlines must be committed to the delivery of exceptional
customer services. The attainment of CS through the provision of exceptional services is crucial for
firms seeking to thrive in the competitive marketplace (Shah et al., 2020). This research offers
invaluable insights for firms in fulfilling consumer desires, thereby enhancing their services and
setting them apart from rival airlines. Airlines that offer a heightened sense of comfort and safety have
the potential to attract and retain the rising number of customers (Shah et al., 2020). Therefore, it is
imperative to carefully assess passengers' perceptions of the service they receive, as this insight is
essential for understanding customer needs and ultimately enhancing the overall quality of service. In
In the next session, the researcher provides a review of articles, supported theory, and conceptual
framework.

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LITERATURE REVIEW
Service Quality and Customer Loyalty
The concept of service quality has grabbed increasing attention in the field of service marketing
and business development. SQ refers to adherence to the company’s service standards to meet
customer demands (Agarwal & Gowda, 2021; Shen & Yahya, 2021). The multifaceted concept
compares the services expected from the customers and the actual services received by the firm
(Parasuraman et al., 1988). He further presented the widely recognized SERVQUAL model for service
quality which includes the following dimensions i.e. “tangibles”, “reliability”, “responsiveness”,
“assurance”, and “empathy”. It’s been widely acknowledged that high SQ refers to intangible benefits
presented by one party that not only ensure the profitability of firm but also foster customer retention
across various industries (Fatma & Kumar, 2024). Numerous studies found SQ as an elusive construct
and its predicted outcomes for the airline sector, recognizing it as a cornerstone for achieving market
share and competitive advantage (Agarwal & Gowda, 2021; Shah et al., 2020).
Literature also underscored the importance of service quality that tangible services of aircraft,
comfortable seating, cleanliness, internet service, and entertainment help to predict and influence
customer behavior (Farooq et al., 2018). Perceived SQ helps to meet and exceed customer expectations
with the product or service. Researchers have examined the impact of SQ drivers on maintaining CL
across different industries (Namukasa, 2013; Rahim, 2017; Shen & Yahya, 2021). Park et al. (2020)
found that service quality reflects what a customer obtained as an outcome of their interaction with a
service provider and it will further strengthen their relationship with airlines.
Service quality helps businesses to sustain their operational integrity, and commit to the delivery of
exceptional customer services to retain their customers (Akram et al., 2022; Shah et al., 2020).
Agarwal and Gowda (2021) also found that in-flight airline services positively influence passengers’
comfort and generate loyalty. Customer loyalty refers to attitudinal and behavioral response in which
customers repeatedly purchase goods and services from the firm (Shen & Yahya, 2021). It implies a
behavioral intention to be loyal to the specific firm and develop feelings and emotions with the
particular brand (Kheng et al., 2010). Another study supported the argument that airline SQ and its
dimensions significantly impact customer behavior in Malaysian Airlines (Farooq et al., 2018).
Customer loyalty (CL) is defined as a tendency to continue the purchase relationship with the firm for
a specific period (Shen & Yahya, 2021). It is related to attitudinal and behavioral responses, when
consumers develop a psychological attachment to the firm. Over the decades, the relationship between
SQ and CL has been established, leaving the direction of their association unsettled. SQ directly
impacts how customers affiliate with the brand and their willingness to remain loyal and continuously
purchase from the same service provider. In the context of the developing country Pakistan, prior
research studies examined hotel industry, logistics, hospital, and banking sector, that how SQ
influences the loyalty of customers (Ashraf et al., 2018; Hafeez & Muhammad, 2012; Saleem & Raja,
2014), nevertheless, research analyzing service quality and potential customer outcomes in airline
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sector lack in-depth exploration and still in infancy stage (Ali et al., 2015; Shafiq et al., 2023; Wu &
Cheng, 2013). Therefore, based on aforementioned literature, this study hypothesizes that:
H1: Perceived Service Quality has a direct influence on customer loyalty.
Mediating role of Customer Satisfaction:
Kotler and Caslione (2009) defined customer satisfaction as the extent of a person’s feeling of
happiness and contentment that comes from comparing the customers’ expectations and the actual
product’s performance. It helps to gauge if service providers meet and surpass the expectations of
customers and make their demands fulfilled (Fatma & Kumar, 2024; Izogo & Ogba, 2015; Yilmaz &
Sürmeli̇ oğlu, 2024). CS is considered an effective measure for marketers to evaluate the usefulness of
goods and services through favorable word of mouth by customers (Farooq et al., 2018). A research
study reported that high-quality services can win the customer’s confidence and help the company
build a positive brand image among the target audience (Akram et al., 2022). Satisfied customers,
according to Leong et al., (2015), are willing to repurchase services often and give recommendations,
so they can directly improve the profitability and competitiveness of the firm.
“In the previous literature, the most researched antecedent and predictor of CS is the quality of service
offered by the firm (Shah et al., 2020). High service quality affects the feeling of satisfaction among
customers (Ilyas & Ali, 2011; Mittal & Kaur, 2024). Supriyanto et al. (2021) investigated that service
quality strongly influences customer satisfaction in the banking industry (Ilyas & Ali, 2011). Research
study by Ali et al. (2015), examine the link between CS and SQ in the context of Pakistan International
Airlines (PIA). If the service quality does not meet the standard, it can adversely impact the company
and customers will not purchase it (Munusamy et al., 2011). Kuo et al. (2009) found that service
quality has a significant impact on how customers show willingness to repurchase from the firm and
be satisfied with their provided services. Correspondingly, Kheng et al. (2010) and Rahim (2017)
proposed that superior services will lead to improved customer satisfaction and enhanced customer
loyalty. Extant literature supported the claim that SQ directly influences CS (Izogo & Ogba, 2015;
Khoo et al., 2017; Saleem & Raja, 2014; Sitorus & Yustisia, 2018; Supriyanto et al., 2021), however
Ali et al. (2015) highlighted that their relationship is elusive as scant studies focus on service quality
impact on passenger satisfaction in the airline industry.”
When the firm is dedicated to serving customers, providing competent services, interacting with them,
and discussing their problems, in this way they ensure customer loyalty (Fatma & Kumar, 2024;
Supriyanto et al., 2021). It is pertinent to mention that customers will remain loyal when they are
satisfied with the firm and there is less likelihood that they can switch to other competitors or service
providers (Yilmaz & Sürmeli̇ oğlu, 2024). CS will most likely result in high customer loyalty (Hapsari
et al., 2017). Jin et al. (2012) posit that CS is a crucial factor in improving SQ and retaining loyal
customers. It was found in the literature that customer retention of existing customers saves more cost
than developing new customers (Pfeifer, 2005). Numerous studies exist on the positive association
between CS and CS (Kaura et al., 2015; Kuo et al., 2011), nevertheless, the empirical evidence of their
association provides contrary findings regarding the magnitude and direction of the impact of SQ with
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CL and CS and vice versa (Muhamad Yunus et al., 2013; Wattoo & Iqbal, 2022). To fill the research
gap and examine this controversy, this study investigates the following hypothesized relations:
H2: Perceived service quality has a direct influence on customer satisfaction.
H3: Customer Satisfaction has a direct influence on Customer Loyalty.
H4: Customer Satisfaction mediates the relationship between Service Quality and Customer Loyalty.
Mediating role of Perceived value:
Perceived value is defined as the aggregate worth of having or consuming a product or service by the
consumers (Law et al., 2022). PV acts as a valuable tool that “assesses the utility of the product based
on perceptions regarding what is given and what’s received” (Zeithaml, 1988). It is a most significant
variable that is defined differently by different authors and it is often used as a synonym for customer
satisfaction (Ashraf et al., 2018). According to Matzler et al. (2006), PV is defined in monetary terms,
and value is measured based on the price paid for the products and value for money received in terms
of quality. If the perceived value exceeds costs, customer value is attained, and vice versa (Ashraf et
al., 2018; Cankül et al., 2024). A product or service's "customer-perceived value" is determined by
how a consumer compares it to comparable ones (Hu HsinHui et al., 2009). Perceived customer value
refers to the benefits associated with the performance of products and services to achieve
competitiveness (Hapsari et al., 2017).
Previous research studies have examined possible antecedents of PV and measured the customer value
in terms of social, emotional, and monetary value. Extant research has analyzed the antecedents of PV
and found that consumer perceived value is strongly influenced by service quality of a firm (Cankül
et al., 2024; Hu HsinHui et al., 2009). It is generally accepted that customers derive the perception of
a brand based on the time and effort incurred and the worth of products that are received. In simple
words, the level of CS with the product is directly affected by the PV and SQ. A research study has
indicated that customers who perceive customer value from the firm will remain faithful and develop
gratification with the brand (Sirdeshmukh et al., 2002). Ishaq et al. (2014) elucidated that perceived
value directly impacts CS and CL. However, perceived value received scant attention in relationship
with CL in the prior studies (Ashraf et al., 2018). Thus, in this study, we hypothesized that:
H5: Perceived Service quality has a direct influence on Perceived value.
H6: Perceived Value has a direct influence on Customer loyalty.
H7: Perceived Value mediates the relationship between perceived Service quality and Customer
loyalty.
Expectancy Disconfirmation Theory:
This study is based on the theoretical underpinning of Expectancy Disconfirmation theory (EDT)
which is presented by Oliver and DeSarbo (1988) and it implies the field of marketing and consumer
behavior. It stated that the expectations of consumers are derived from confirmation or disconfirmation
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of beliefs (Yingfei et al., 2022). Expectations formulated based on the belief of consumers regarding
products or services that they have received value more than the expectations (Oliver & DeSarbo,
1988). Positive confirmation is developed when they are consuming the product and have a better
experience with the brand. Conversely, negative disconfirmation is when consumers are discontent
with the products or services provided by the firm (Yi et al., 2021). EDT theory inferred that customers
are satisfied and dissatisfied with the SQ, and it ultimately leads to commitment and loyalty toward
the brand (Yingfei et al., 2022). Grounded on EDT, loyalty of customers is based on the services
provided by the firm and how customers are satisfied with the value of products and services
concerning their expectations.
Theoretical Framework:
In the given conceptual framework in Error! Reference source not found., the following
relationships have been proposed by the researcher; SQ acts as an independent variable (IV) customer
satisfaction (M1), perceived value (M2) is used as a mediator between DV and IV and lastly customer
loyalty is the dependent variable (DV).

RESEARCH METHODOLOGY
Design and Sampling Methods:
To investigate the stated hypotheses, a quantitative approach has been adopted in which a
survey was distributed among passengers at waiting lounges of Pakistan’s airlines for collecting data.
The study used a cross-sectional design to gather data from airline passengers at one point. The
population chosen for the research was airline passengers at Allama Iqbal International Airport who
have taken international flights using five Pakistan-based airlines (Airblue, Shaheen, Pakistan

International Airline, Emirates, and Qatar Airways) over four months.

Figure I. Theoretical Framework
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The reason behind that is due to difficulty in collecting data from the airline passengers due to budget
and time constraints. One of the authors utilized her professional contacts in the aviation industry and
also obtained data during her internship to obtain access to passengers at waiting lounges of the airport.
This study utilizes the convenience non-probability method as it is hard to gather information from
airline passengers owing to time and accessibility constraints. Questionnaires were administered
through a face-to-face survey at the airport and analyzed through quantitative measures. The
researcher distributed almost three hundred questionnaires among airline passengers out of which we
got 235 responses, which after deletion of missing responses or improperly filled forms, resulted in a
total of 216 responses. The sufficient sample size was calculated for SEM as per the assumption of the
“10 times rule” that the minimum responses were more than ten times the number of structural paths
involving inner and outer model constructs (Hair Jr et al., 2021). As per the formula, the sample size
came out to be 19*10= 190, and for this research study, researcher collected more than 200 responses.
The respondent participation was involuntary and individual responses were kept confidential.
Research Instruments:
For data collection, measurement scales of the following variables have been used; a Seven-item scale
is used to evaluate the SQ constructs (Hapsari et al., 2017), Four items are used to assess the perceived
value (Brodie et al., 2013) and four items of customer satisfaction are used to assess (Chen, 2008) and
four items for CL were measured by (Hapsari et al., 2017). For the survey, the researcher employed a
5-point Likert scale ranging from 1 (strongly disagree) to 5 (strongly agree).
Analysis techniques:
For data analysis, researcher used IBM SPSS software and the SmartPLS 4 updated version. The tests
for frequency, descriptives, and reliability have been conducted through SPSS software. Further
analysis was made through SmartPLS in which the researcher developed a measurement model to
analyze model fit indices, confirmatory factor analysis, and reliability or validity check as shown in
Table II. Later, a structural model was developed (Hair, 2009) using PLS-SEM to analyze the
relationship among latent constructs and mediation analysis through the bootstrapping method to
confirm hypotheses.

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RESULT AND DISCUSSION

Demographic distribution:

To prepare data for the analysis, the researcher has employed IBM SPSS software for
descriptives, frequency distribution, normality errors, outlier detection, reliability assessment, and
validity tests. There were quite a few missing values identified by SPSS, which were adjusted using
the recommended method of mean replacement (Hair, 2009). Reliability was assessed through the
Cronbach α statistic method, which comes out to be more than 0.7, which reveals a good reliability
score (Hair et al., 1998).
Further, research findings begin with the respondents' demographics, such as age, gender,
qualification, and travel experience as shown in Table I. The demographics analysis reveals that gender
frequency of more male respondents (58.8%) and relatively fewer female respondents (41.2%) as men
usually travel more frequently for business purposes. In terms of Age distribution, the largest
proportion lies inside the range of 21-30 age bracket (49.3%), followed by 30.7% of respondents who
are above 30 years old, 9.9% are above 40, and the remaining 10.1% ranged from 16- 20 years. In
terms of travel purposes, the majority 32.6% travel for Education, 22.8% for business-related trips,
27.3% for leisure, and the remaining 17.3% for family trips, as depicted in Table I. In the second part,
the three latent variables and their relationship have been assessed through SEM analysis techniques.
Table I: Demographics table

Attributes Distribution Frequency %

Gender Male 58.8%

Female 41.2%
Age 16- 20 years 10.1%

21-30 years 49.3%

31-40 years 30.7%
41- above 9.9%
Education Graduation 39.4%
Masters 24.8%
Doctoral 19.6%
Any other diploma 16.2%
Travel purpose Business 22.8%
Education 32.6%
Family 17.3%
Leisure /others 27.3%

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Confirmatory factor Analysis:

CFA through (PLS-SEM) has been performed to examine the association between indicators and latent
variables using Smart PLS software. In the SEM model, SQ has a direct relationship with CL, and PV
and CS have an indirect effect between SQ and CL. The arrows pointed from latent constructs to
indicator variables have demonstrated it as a reflective measurement model pointed from the circles
to the rectangles (Hair Jr et al., 2021).
Researchers have chosen PLS-SEM for analysis attributed for a few reasons as it is most suitable for
complex research models to analyze all causal relationships within a theoretically developed
framework (Henseler et al., 2016). It serves as an excellent fit ensuring variance-based results and
offers a practical approach to analysis. It is considered an easy-to-use interface to evaluate large data
sets, in which all constructs were analyzed for their validity and reliability.
Through CFA, Goodness of Fit (GoF) has been analyzed by model-fit indices; in which R square
(0.543) also indicates the explanatory power of the model, (SRMR) is 0.055 which is less than the
threshold value of 0.08, chi-square (220.418), and the normed-fit index (NFI) is 0.836, which
represents conceptual model represents a good fit (Hu & Bentler, 1998). Three main criteria estimated
to validate the reflective model include internal reliability, convergent validity, and discriminant
validity.
Reliability and Validity measurement:
To examine the reliability of the constructs, there are two different measures; Cronbach alpha has been
calculated using SPSS software, and its threshold value greater than 0.7 is acceptable (Hair, 2009).
Secondly, composite reliability has been estimated using PLS-SEM software. Its value ranges from 0
to 1 and the threshold value is 0.7, above which value is considered acceptable (Cohen, 2013; Hair Jr
et al., 2021). CR values for SQ, CS, PV, and CL are 0.925, 0.932, 0.924, and 0.904 respectively in
Table II.
Convergent validity has been assessed by analyzing the individual item loadings and calculating the
Average Variance extracted (AVE) to examine the association of latent constructs and given
indicators. Fornell and Larcker (1981) criterion proposes that an estimate of AVE should be higher
than 0.5 showing that the latent variable clarifies the 50% variance to indicators reflecting good
convergent validity. The estimated values to assess the accuracy of the results should be AVE > 0.5
while CR > 0.7 (Fornell & Larcker, 1981).
Discriminant validity has been calculated by comparison of the square root of AVE with the estimated
correlation between latent constructs to analyze how variables are distinct from each other (Hair,
2009). Fornell and Larcker (1981) criterion indicates that the AVE square root must be greater than
the inter-construct correlation to reflect good discriminant validity. Discriminant validity helps to
establish the vertical collinearity of the measurement model, however, to measure lateral collinearity,
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variance inflation factors (VIF) have been analyzed further to check for multicollinearity using PLS-
SEM. The estimate for VIF should be equal to or less than the accepted level of 5 which ascertains
little risk of collinearity. Table II shows that the measurement model has satisfied the internal
reliability and convergent validity. Table III depicts discriminant validity measures as shown below.

Table II: Reliability and Validity measures

Variables items Factor Cronbach's Composite Average variance Variance

loadings alpha reliability extracted (AVE) Inflation
(CR) factor
(VIF)

Service quality SQ1 0.857 0.924 0.925 0.689 1.00

SQ2 0.821
SQ3 0.839
SQ3 0.819
SQ4 0.789
SQ5 0.823
SQ6 0.861
SQ7 0.857
Perceived value PV1 0.855 0.926 0.932 0.820 2.963
PV2 0.925
PV3 0.946
PV4 0.894
Customer CS1 0.920 0.921 0.924 0.809 2.963
satisfaction

CS2 0.924
CS3 0.905
CS4 0.847
Customer Loyalty CL1 0.885 0.894 0.904 0.759 2.442
CL2 0.851
CL3 0.899
CL4 0.849

Table III: Discriminant Validity

Constructs CL CS PV SQ
CL 0.871
CS 0.776 0.899
PV 0.727 0.799 0.906
SQ 0.718 0.788 0.814 0.830

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Structural Model
A structural model is established using bootstrapping of random 5000 samples through PLS-SEM for
path correlations and hypothesis testing. In the given analyses, direct and indirect paths have been
analyzed at p < 0.05 level. In the present research, there are three direct paths examined through
significance level, R square, β-values, and t-values as shown in the Table IV. The result indicates that
all the relationship has a t-value greater than the critical ratio (1.96) at the 95% confidence interval (p
0.05) level and the R2 value is higher than 0.10 as suggested in research studies by (Henseler et al.,
2016). Airline SQ is positively associated with CL at (β= 0.266, t= 7.57, p value< 0.05) supporting
hypothesis 1 as shown in Table V. Similarly, hypotheses 2 and 3 postulate that SQ has a significant
influence on CS as indicated at (β= 0.88, t= 11.3, p value< 0.05) and CS positively related to CL at
(β= 0.36, t= 2.113, p value< 0.05) by Figure II and IV. Further, a strong relationship exists between
SQ and PV at (β= 0.814, t= 8.24, p value< 0.05) and PV strongly influences CS (β= 0.218, t= 2.24, p
value< 0.05) as shown in Table IV, supporting hypothesis 5, 6. Therefore, all hypotheses are accepted.
The summarized results indicate that airline companies with superior service quality exhibit high
levels of perceived value by customers and lead to CS presented in Table IV.
Mediation results:
Lastly, the indirect effect was analyzed by applying the bootstrapping function (Preacher & Hayes,
2004) to measure mediation results. Table V represents that the total direct effect of SQ on CL (without
a mediator) is significant at (β=0.266) at p-value (0.002). The indirect effect of CS between airline SQ
and CL is also significant (β=0.325) at a t-value of 2.112. In this study, statistics have shown that the
direct path of airline SQ and CL is significant (β=0.266), and the indirect path of SQ and CL through
customer satisfaction is also significant (β=0.325) indicating partial mediation results. However, the
confidence bias-corrected interval also shows that zero does not exist between the upper and lower
confidence interval which means that CS significantly mediates the relationship between Airline SQ
and CL supporting hypothesis 4 of the research. These results are inconsistent with the previous
research that the indirect relationship between airline services on customer loyalty is partially mediated
by the passenger's satisfaction (Hapsari et al., 2017; Shen & Yahya, 2021).
Secondly, PV also partially mediates the relationship between SQ and CL (β=0.277) at a t-value of
2.184. The findings supported the partial mediation results of hypothesis 7 at a significance value of
0.029. The total direct effect of perceived SQ on CL (without a mediator) is also significant at a p-
value (0.002). These results are in line with the literature, in which PV mediates the relationship
between SQ and CL (Keshavarz & Jamshidi, 2018). The confidence bias-corrected interval indicating
that zero does not lie within upper and lower bound levels signifies the indirect effect is significant as
given in Table V.

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Structural Model

Figure II: Structural Model

Table IV: Hypothesis Testing and Path Coefficients

Hypotheses Standard T statistics β values p-values Hypothesis testing

deviation
PV -> CL 0.139 2.248 0.218 0.021 Accepted
SQ -> CS 0.029 11.3 0.888 0.000 Accepted
SQ -> PV 0.050 8.24 0.814 0.000 Accepted
SQ -> CL 0.055 7.57 0.266 0.002 Accepted
CS -> CL 0.173 2.113 0.366 0.035 Accepted

Table V: Mediation results

Hypothesis Standard T statistics β values p-values Bias-correlated Hypothesis testing

deviation Confidence Interval
LCI UCI
SQ -> PV -> CS 0.114 2.184 0.277 0.029 0.017 0.404 Accepted with partial
mediation
SQ -> CS -> CL 0.156 2.112 0.325 0.035 0.328 0.601 Accepted with partial
mediation

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Discussion:
Service quality is considered a critical success aspect for airlines in order to satisfy and retain their
customers (Farooq et al., 2009). In the face of intense global competition, airline companies need to
expand their SQ and reduce costs, not only to gain a competitive edge but also to foster CL (Agarwal
& Gowda, 2021; Chen, 2008). This study endeavors to explore the potential role of SQ in developing
CL within the aviation industry of Pakistan. For decades, the aviation industry grappled with
challenges from economic and political turmoil, leading to customer apprehensions regarding service
quality, reliable operations, ticket price, and value for customers (Forgas et al., 2012). Despite these
challenges, airline companies have made concerted efforts to enhance high-quality services and
streamline operations to elevate CS and CL (Ahn & Lee, 2011).
Following the conceptual model includes interrelationships among constructs, seven hypotheses were
developed by researchers and further tested by exploring the direct and indirect effect of SQ on CL
through PV and CS. In summary, research findings correspond to controversial arguments of previous
studies and state that SQ determinants act as a potential antecedent of customer loyalty, which suggests
that high-quality services provided by employees will make passengers more satisfied and loyal to the
firm (Begzjav, 2018; Shen & Yahya, 2021).
The research findings supported hypothesis 1 which posits a positive association between airline SQ
and CL (Coeff= 0.266, t= 7.57) at a significance value < 0.05, which implies enhanced customer
loyalty with Pakistan’s Airlines is strongly influenced by the perceived service quality. The results are
aligned with literature that service firms respond to the needs of customers by delivering valuable
services, building strong relationships, and meeting customer requirements (Chen, 2008). Extant
studies endorse the results that SQ has a significant impact on CL in the banking sector, hotel industry,
education sector, and hospitality industry (Khoo et al., 2017; Kim, 2011; Lenka et al., 2009). A recent
study further confirms that high-quality service and efficient airline operations tend to create customer
satisfaction and loyalty (Agarwal & Gowda, 2021). The current study addresses the research gap
identified by Farooq et al. (2017) that the airline industry remains unexplored and requires further
exploration in Pakistan’s context.
The empirical results indicate a direct strong relationship of SQ on CS (t= 11.3, p< 0.05) with a
coefficient of 0.88. Additionally, CS has a direct influence on CL (Coeff= 0.36, t= 2.11, p< 0.05).
These results corroborate other findings that SQ serves as a significant antecedent of CS (Shah et al.,
2020). Another study conducted at hotels validated the association between SQ and CS (Saleem &
Raja, 2014), while Supriyanto et al. (2021) underscored the necessity of SQ- CS in banking industry.
Furthermore, research conducted by Ali et al. (2015) confirmed a similar notion in the Pakistani
context that SQ has a significant effect on CS conducted at Pakistan International Airline (PIA).
Moreover, the positive relationship between CS and CL is consistent with numerous studies,
suggesting that customers are more inclined to become committed to a firm and are willing to
repurchase products and services from the same providers (Hafeez & Muhammad, 2012; Keshavarz
& Jamshidi, 2018; Supriyanto et al., 2021).

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Moreover, current research findings also revealed that CS mediates the relationship between SQ and
CL (β=0.325, t-value 2.112, p=0.035). This aligns with the proposition by Kheng et al. (2010) that SQ
leads to enhanced CS and ultimately fosters high CL, evidenced in terms of repurchasing the services
from the same service providers. Rahim (2017) also lends support to our research findings,
emphasizing that SQ is a critical antecedent of CS and CL. Additionally, the mediating role of CS in
the relationship between SQ and CL is consistent with prior studies (Ngo & Nguyen, 2016). These
findings underscore the pivotal role of CS in driving CL within the context of various industries
(Saleem & Raja, 2014).
Airlines with high SQ minimize customer discontent, leading to greater customer affiliation.
Interestingly, the research also establishes a statistically significant correlation between SQ and PV by
customers (β= 0.814, t= 8.24, p value< 0.05), with perceived value directly influencing customer
loyalty (β= 0.218, t= 2.24, p value< 0.05). These findings contribute to existing literature, suggesting
that higher perceived service quality leads to higher perceived value by customers, ultimately fostering
loyalty. The findings are in accord with the research study of Hapsari et al. (2017), it is reasonable to
assume that the PV of the customer will be higher when SQ is perceived to be higher. This will result
in creating a good image that how consumers compare the value and estimated cost of utilizing a
particular service (Ullah, 2012). When consumers obtain high-quality service from a company, their
perception of the value they derive from the provider of the service increases, which makes them loyal
to the airline (Tarn, 1999). Customers tend to pay higher prices when passengers use the value-added
service at a reasonable price (Kuo et al., 2009). When the value that customers expect from the product
and service is higher, it will ultimately lead to CL (Hu HsinHui et al., 2009).
Additionally, PV partially mediates the direct relation between SQ and CL (Coeff=0.277, t=2.184, p=
0.029), indicating that when airlines meet customer expectations in terms of SQ, customers are more
likely to become loyal and repurchase services (Kuo et al., 2009). PV plays a crucial role in attracting
and satisfying customers, thereby impacting retention, this is in line with the empirical evidence by
(Lenka et al., 2009). Similarly, Hu HsinHui et al. (2009) found that the significant effect of PV on SQ
and CL in the hotel industry. Another research corroborates the research findings and confirms the
intervening role of PV between SQ and CL (Ashraf et al., 2018). These findings contribute to the
understanding of the relationship dynamics between constructs in the aviation industry, underscoring
the importance of addressing these factors to enhance CL and organizational success.

CONCLUSION AND IMPLICATION

Customer satisfaction and retention are the driving forces behind increasing market share,
profitability, good word-of-mouth, and customer loyalty, and it is something that researchers and
practitioners seek to understand and enhance. The results of this study could help airline managers
learn more about the quality of the service they offer and, as a result, how to make customers happier.
Since customers' expectations for service quality are met or exceeded, it's possible that consumers'
views of service quality could be improved if airlines set more realistic expectations for what they
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promise. Because of this, airlines should only provide services that are within their area of competence.
This might be a method for the airline's management to distinguish itself apart from its rivals in terms
of the level of service it gives. Airlines must have established policies and initiatives that help
passengers and appropriately meet their expectations.

Practical and Theoretical Implications:

The study aims to provide insights for researchers, practitioners, and policymakers by offering
valuable research findings. Based on the expectancy disconfirmation theory, this study contributes to
the existing literature by providing a conceptual framework based on the intricate relationship between
given constructs SQ and CL and the parallel mediation of CS and PV. The findings contribute to airline
companies that they can provide high-quality service, fulfill customer demands, and facilitate them by
efficient operations. This study assists airline companies in placing greater emphasis on service quality
as a differentiation strategy for their survival and competitiveness in the global market. The study will
be beneficial as it suggests policymakers and practitioners concentrate on enhancing core operations
of service delivery, improving organizational culture, tangible assets, and in-flight services to attract
and retain customers. As mentioned in the findings, airlines can offer customized services to
customers, thereby fostering a sense of warmth and reliability, as it's difficult to retain existing
customers in the airline industry. Considering the rapid growth in air traffic, companies should hire
and develop their workforce to deliver personalized and superior services while placing greater
emphasis on passenger’ satisfaction. This entails renovating the interior and exterior appearance of
aircraft, providing comprehensive training to staff, improving cargo and catering services, and
maintaining aircraft to ensure the perceived value, loyalty, and retention of customers.
Limitations and Future implications:
The study has employed the following variables SQ, PV, CS, and CL, however, future research can
explore other constructs i.e. customer purchase behavior, empathy, repurchase intentions, etc. In the
current study, researchers have used a measurement scale of service quality developed by (Hapsari et
al., 2017), but future studies can use the frequently cited SERVQUAL scale for service quality that
we haven’t used in our framework. Secondly, researchers have empirically analyzed the conceptual
model in the aviation industry of Pakistan through a survey technique. In future studies, it has been
suggested that passenger interviews or qualitative analysis can be done to analyze the consumer's
perspective regarding airline services. Due to limited time and accessibility constraints, researchers
have used convenience sampling and collected cross-sectional data from passengers, however, future
research can conduct longitudinal studies and purposive or any other form of sampling. Lastly, the
sample size used for this study was comparatively small with respect to the target population due to
resource constraints, forthcoming research can conduct study on a large sample population and also
perform comparative and multi-cultural studies.

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