Airline Productivity and Efficiency: Concept, Measurement, and Applications

Abstract

This chapter provides a survey of alternative methodologies for measuring and comparing productivity and efficiency of airlines, and reviews representative empirical studies. The survey shows the apparent shift from index procedures and traditional OLS estimation of production and cost functions to stochastic frontier methods and Data Envelopment Analysis (DEA) methods over the past three decades. Most of the airline productivity and efficiency studies over the last decade adopt some variant of DEA methods. Researchers in the 1980s and 1990s were mostly interested in the effects of deregulation and liberalization on airline productivity and efficiency as well as the effects of ownership and governance structure. Since the 2000s, however, studies tend to focus on how business models and management strategies affect the performance of airlines. Environmental efficiency now becomes an important area of airline productivity and efficiency studies, focusing on CO 2 emission as a negative or undesirable output. Despite the fact that quality of service is an important aspect of airline business, limited attempts have been made to incorporate quality of service in productivity and efficiency analysis.The literature on airline productivity and efficiency is vast and encompasses different methodologies, ranging from simple ratio analysis to complex mathematical programming and econometric modeling. These studies investigate the effects of regulation and deregulation on airline performance in domestic or international markets, examine how ownership and governance have affected airline productivity and efficiency, and investigate the impacts of airline management strategies and-/or business models on productivity and efficiency.Surprisingly, there have been few, if any, comprehensive surveys and reviews of these studies. Pollack (1979) is perhaps the earliest survey of airline productivity measures. The paper, however, focuses on the description of various measures of so-called "resource activities," such as number of employees, number of stations, and number of flight departures, and its discussions on productivity measures are limited to a listing of a few "common productivity measures" including available seat miles per employee, number of aircraft miles per unit of fuel, etc. Rich (2004) reviews the literature on productivity growth in transportation industries including air transport, focusing on the impacts of changing technology and labor relations. Although not a survey paper, Mallikarjun (2015) provides a good summary of literature on airline productivity and efficiency.This chapter provides a survey of alternative methodologies 1 for measuring and comparing productivity and efficiency of airlines, and reviews representative empirical studies. The next section discusses the conceptual definition of productivity and productive efficiency. The section "Airline Inputs and Outputs" reviews various inputs and outputs that have been identified and used to measure airline productivity. The section "Non-Parametric and Index...

An Evaluation of the Operational Performance and Profitability of the U.S. Airlines

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“…Regarding airline performance assessment, Yu ( 2016 ) stated that there has been a shift in empirical modeling from index procedures and OLS estimations in the earlier years to DEA approaches in recent years. The popularity of DEA-related models stemmed from the fact that DEA modeling does not require detailed information such as unit costs that are required by traditional methods but are usually not publicly available due to data proprietorship.…”

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