Enhancing airline on-time performance: A transaction cost theory perspective

This study investigates the determinants of on-time departure performance in airline operations, with a particular focus on the governance mechanisms of ground handling services. Drawing on transaction cost theory, the research explores whether the internalization of ground handling services leads to superior OTP outcomes compared to outsourced arrangements. OTP is a critical performance metric that reflects an airline's operational efficiency, sustainability practices, and customer satisfaction. While much of the existing literature highlights external factors such as airspace restrictions and slot constraints, this study redirects attention to internal operational dynamics—specifically schedule planning strategies and ground handling governance structures. A mixed-methods approach was employed, integrating quantitative analysis of on-time performance data from 2021 to 2024 obtained via Cirium with qualitative insights derived from semi-structured interviews with senior airline managers. Quantitative analyses included independent samples t-tests, regression models, and mediation analysis using SPSS and Mplus, while qualitative findings were supported through document analysis and thematic coding. Airlines that manage ground handling in-house are associated with better OTP outcomes compared to those that outsource these services. Contrary to conventional expectations, several low-cost carriers operate their own ground handling subsidiaries, indicating that governance choice is not strictly tied to the airline's business model. This study contributes to the literature by offering a nuanced understanding of how governance mechanisms influence punctuality and proposes that internalization of ground handling services serves as a strategic response to minimize transaction costs and enhance operational reliability.