Abstract: The aim of this study is to examine the impact of service quality on customer retention in the airline industry in context of Bhutan. Data was collected using fully structured questionnaires. The random sampling technique was used to collect the data and it covered 382 respondents on international flights of Drukair Royal Bhutan Airlines (Drukair) at Paro International Airport. The Statistical Package for Social Sciences (SPSS 17) was used to analyze the data. To test the hypothesis regression analysis was performed. The results indicated that the service quality have positive and significant relationship with customer retention. It is suggested that Drukair and airline industry practitioners can consider improving service quality to retain their customers.